FATF Recommendations: A Shield Against Money Laundering and Terrorist Financing
The Financial Action Task Force (FATF) has issued a series of recommendations aimed at preventing money laundering and terrorist financing. At the heart of these recommendations are three key measures: Simplified Customer Due Diligence, Comprehensive Customer Due Diligence, and Ongoing Monitoring.
Simplified Customer Due Diligence
Low-risk customers, including working natural persons with small account balances and those who conclude transactions that do not pose high money laundering risks, are subject to simplified customer due diligence measures. These measures require financial institutions to obtain basic identification and verification documents from their clients, such as:
- A customer identity card
- Passport
Comprehensive Customer Due Diligence
High-risk customers, including:
- Politically exposed persons
- Individuals who engage in cross-border correspondent banking
- Those involved in cross-border account payments
are subject to comprehensive customer due diligence measures. These measures involve:
- Detailed background checks on financial customers
- Collection of confidential information about their activities
Ongoing Monitoring
Financial institutions must also engage in ongoing monitoring of their customers’ transactions to ensure that they are consistent with the customers’ risk profile and source of funds. This measure is crucial in detecting and preventing money laundering and terrorist financing activities.
Risk-Sensitive/Risk-Based Approach
The FATF’s recommendations adopt a risk-sensitive/risk-based approach, which means that financial institutions must assess the level of risk posed by each customer and apply customer due diligence measures accordingly. This approach allows financial institutions to tailor their measures to the specific risks associated with each customer.
Conclusion
In conclusion, the FATF’s recommendations provide a comprehensive framework for preventing money laundering and terrorist financing. By implementing these measures, financial institutions can effectively detect and prevent illicit activities, while also protecting themselves from reputational damage and non-compliance.