Financial Crime World

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Combating Money Laundering and Financing Terrorism: FATF Recommendations

The Financial Action Task Force (FATF) has issued recommendations to combat money laundering and the financing of terrorism & proliferation. These guidelines aim to prevent illicit activities by requiring financial institutions to implement effective customer due diligence, record-keeping, and risk-management practices.

Customer Due Diligence (CDD)

Financial institutions must apply CDD measures to all new customers using a risk-based approach.

Key Requirements

  • Verify customer and beneficial owner identity before or during the establishment of a business relationship.
  • If unable to comply with CDD requirements, do not open an account, commence business relations, or perform transactions.
  • Conduct due diligence on existing relationships based on materiality and risk.

Record-Keeping

Financial institutions must maintain records for at least 5 years to enable swift compliance with information requests from competent authorities.

Key Requirements

  • Keep records obtained through CDD measures for at least 5 years after the business relationship ends or the occasional transaction is completed.
  • Make records available to domestic competent authorities upon request.

Additional Measures for Specific Customers and Activities

Politically Exposed Persons (PEPs)

Financial institutions must determine whether a customer or beneficial owner is a PEP using risk-management systems. If so, they must:

  • Obtain senior management approval for establishing or continuing business relationships with PEPs.
  • Establish the source of wealth and funds, and conduct enhanced ongoing monitoring.

Correspondent Banking

Financial institutions must gather information about respondent institutions to understand their nature and reputation. They must also assess AML/CFT controls and obtain approval from senior management before commencing correspondent banking relationships.

These recommendations aim to prevent money laundering and the financing of terrorism & proliferation by requiring financial institutions to implement effective customer due diligence, record-keeping, and risk-management practices.