Financial Crime World

FATF Recommendations: Combating Money Laundering and Financing of Terrorism & Proliferation

======================================================

A recent report by the Financial Action Task Force (FATF) highlights the importance of implementing preventive measures to combat money laundering and the financing of terrorism and proliferation. The report emphasizes the need for countries to identify non-profit organizations (NPOs) that are at risk of terrorist financing and take proportionate and risk-based measures to protect them.

Non-Profit Organizations

The FATF recommends that countries identify NPOs that are at risk of terrorist financing and take measures to prevent their misuse. This includes:

  • Conducting due diligence on these organizations
  • Monitoring their activities
  • Reporting any suspicious transactions

Due Diligence

Key Points

  • Conduct thorough background checks on NPOs
  • Verify the organization’s purpose, structure, and governance
  • Identify potential risks associated with the organization’s activities

Record-Keeping

Financial institutions are required to maintain records of all transactions for at least five years, including information obtained through customer due diligence measures. These records must be sufficient to:

  • Reconstruct individual transactions
  • Provide evidence for prosecution of criminal activity

Record Keeping Requirements

Key Points

  • Maintain records of all transactions, including information obtained through customer due diligence
  • Retain records for at least five years
  • Ensure records are easily accessible and verifiable

Politically Exposed Persons

Financial institutions are required to take additional measures when dealing with foreign politically exposed persons (PEPs). This includes:

  • Having appropriate risk management systems in place
  • Obtaining senior management approval for establishing business relationships
  • Conducting enhanced ongoing monitoring

PEP Risk Management

Key Points

  • Identify and assess the risks associated with doing business with PEPs
  • Implement robust due diligence procedures to verify the identity of PEPs
  • Monitor transactions involving PEPs on an ongoing basis

Correspondent Banking

Financial institutions are required to take additional measures when engaging in cross-border correspondent banking and other similar relationships. This includes:

  • Gathering sufficient information about the respondent institution
  • Assessing its anti-money laundering (AML) and combating the financing of terrorism (CFT) controls
  • Obtaining approval from senior management before establishing new relationships

Correspondent Banking Requirements

Key Points

  • Gather information on the respondent institution, including its AML/CFT controls
  • Assess the risks associated with doing business with the respondent institution
  • Obtain approval from senior management before establishing new relationships

Implementation

The FATF recommends that countries implement these measures through legislation, regulation, or guidelines. It also emphasizes the importance of cooperation between countries to combat money laundering and the financing of terrorism and proliferation.

Key Recommendations

  • Identify NPOs at risk of terrorist financing and take proportionate and risk-based measures to protect them
  • Conduct due diligence on NPOs, monitor their activities, and report any suspicious transactions
  • Maintain records of all transactions for at least five years
  • Take additional measures when dealing with foreign PEPs
  • Implement AML/CFT controls in cross-border correspondent banking and other similar relationships
  • Cooperate between countries to combat money laundering and the financing of terrorism and proliferation

By implementing these recommendations, countries can help prevent the misuse of non-profit organizations and other entities for terrorist financing, and protect global financial systems.