Combating Money Laundering and Terrorist Financing: Recommendations from the Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an intergovernmental organization that aims to combat money laundering and terrorist financing. In this article, we will discuss the key recommendations outlined by the FATF to prevent these financial crimes.

Customer Due Diligence (CDD)

Effective customer due diligence is crucial in preventing money laundering and terrorist financing. The following measures should be implemented:

• Verify Customer Identity: Financial institutions should verify the identity of customers and beneficial owners.
• Risk-Based Assessments: Conduct risk-based assessments to identify potential high-risk customers.
• Record Keeping: Maintain records of customer information obtained through CDD measures.

These requirements apply to all new customers, with financial institutions also applying them to existing customers on a materiality and risk basis.

Record-Keeping

Financial institutions should maintain records for at least five years, including:

• Transaction Details: Records of individual transactions.
• Customer Information: Customer information obtained through CDD measures.
• Account Files: Account files containing relevant customer information.
• Business Correspondence: Business correspondence with customers.

These records must be sufficient to enable reconstruction of individual transactions.

Politically Exposed Persons (PEPs)

Financial institutions should have risk-management systems in place to determine whether customers or beneficial owners are PEPs. For foreign PEPs:

• Senior Management Approval: Obtain senior management approval for establishing business relationships.
• Source of Wealth and Funds: Take reasonable measures to establish the source of wealth and funds.
• Enhanced Ongoing Monitoring: Conduct enhanced ongoing monitoring.

Correspondent Banking

Financial institutions should gather sufficient information about respondent institutions, assess their AML/CFT controls, obtain senior management approval before establishing new correspondent relationships, clearly understand respective responsibilities, and be satisfied that respondent banks have conducted CDD on customers.

By implementing these recommendations, financial institutions can effectively prevent money laundering and terrorist financing.