Global Fight Against Money Laundering and Terrorist Financing Falters

The Financial Action Task Force (FATF) has released its latest assessment on the effectiveness of countries in combating money laundering and terrorist financing. The results show that only a quarter of countries have demonstrated “negligible” effectiveness, while 75% require significant improvements to meet international standards.

Common Reasons for Lack of Progress

The FATF’s Immediate Outcomes highlight several common reasons for the lack of progress:

• Insufficient risk assessments: Many countries do not conduct comprehensive risk assessments or fail to involve all relevant stakeholders, including private sector actors.
• Inadequate application of a risk-based approach: Countries may not apply a risk-based approach, leaving them unprepared to deal with high-risk situations or implement simplified procedures for low-risk ones.
• Limited availability and quality of data: Many countries rely on just one or two data sources, which can lead to inaccurate assessments.

Challenges in Assessing ML/TF Risks

The assessment of money laundering (ML) and terrorist financing (TF) risks itself poses challenges:

• Underestimation of risks: Countries often underestimate their risks due to difficulties in accessing data on terrorist financing.
• Complex process: Defining and identifying these risks involves considering three factors: threats, vulnerabilities, and consequences.

Methodologies for Conducting Risk Assessments

Countries use various methodologies when conducting risk assessments:

• Different guidelines and tools: The World Bank, FATF, and International Monetary Fund have each suggested different guidelines and tools for evaluating the effectiveness of anti-money laundering and combating the financing of terrorism (AML/CFT) systems.
• No single universal approach: There is no single universal approach to conducting risk assessments.

Tools and Technical Assistance

To help countries improve their AML/CFT systems, several organizations offer:

• The Basel Institute on Governance’s tool: This tool includes eight modules covering topics such as financial product risk and sectoral vulnerabilities.
• Technical assistance: The institute provides technical assistance to countries seeking to improve their AML/CFT systems.

Conclusion

Despite efforts to combat money laundering and terrorist financing, the fight remains an ongoing challenge. More needs to be done to ensure that countries are equipped to effectively combat these threats.