What is FATF?
The FATF (Financial Action Task Force) is a global organisation formed in 1989 to combat money laundering and terrorist financing. It sets international standards to prevent these illegal activities and checks whether countries are taking effective action.
Since its inception, FATF has been an influential voice in the global fight against money laundering and terrorist financing. It has developed a framework for combatting money laundering and terrorist financing which is recognised as the global standard against these illicit activities. Headquartered in Paris, the FATF was originally started to combat money laundering but has now expanded to also target the financing of weapons of mass destruction, corruption, and terrorist financing.
What does the FATF do?
In order to assess the effectiveness of a country’s AML/CFT system, the FATF uses a rigorous and comprehensive evaluation process known as the mutual evaluation process. This process involves a thorough examination of a country’s legal, regulatory and operational measures for combating money laundering and terrorism financing. The mutual evaluation report provides a detailed analysis of the country’s AML/CFT system, including its strengths and weaknesses, and makes recommendations for improvement.
In addition to its standard-setting work, the FATF also carries out assessments of countries’ anti-money laundering and counter-terrorist financing regimes and provides recommendations for improvement where necessary. The organization also works closely with other international bodies, including the United Nations and the World Bank, to coordinate efforts to combat money laundering and terrorism financing globally.
What are the FATF recommendations?
The FATF Recommendations provide a comprehensive framework for action to be taken by countries and financial institutions to detect and prevent money laundering and terrorism financing and punish those involved in illegal activities. The 40 FATF recommendations can be classified into seven main categories, including:
- AML/CFT Policies and coordination
- Money laundering and confiscation
- Terrorist financing and financing of proliferation
- Preventive measures
- Transparency and beneficial ownership of legal persons and arrangements
- Powers and responsibilities of competent authorities and other institutional measures
- International cooperation
The FATF Recommendations also outline specific measures that countries and financial institutions should take to prevent money laundering and terrorism financings, such as customer due diligence, suspicious transaction reporting, and record-keeping. Additionally, the recommendations address the need for countries to have effective and proportionate enforcement mechanisms in place, such as confiscation and asset freezing, to enable them to take action against those engaged in these illicit activities.
What is the FATF blacklist?
The FATF blacklist is a list of countries that the Financial Action Task Force (FATF) has identified as having deficiencies in their anti-money laundering and countering the financing of terrorism (AML/CFT) regimes. These countries are seen as a higher risk for illicit finance activities, such as money laundering and terrorism financing, and as a result, financial institutions and businesses are advised to take enhanced due diligence measures when dealing with these countries.
Being placed on the FATF blacklist can have significant consequences for a country, as it may result in increased scrutiny from the international financial community, decreased investment and economic opportunities, and harm to the country’s reputation. The FATF regularly reviews the countries on its blacklist and works with them to help them address the deficiencies in their AML/CFT regimes.
The FATF’s blacklist is widely recognized as a global standard for AML/CFT, and countries that are listed are expected to take concrete steps to address the deficiencies identified by the FATF.
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