The fifth Plenary of the FATF under the German Presidency of Dr. Marcus Pleyer took place on 19-21 October.
Delegates representing the 206 members of the Global Network and observer organisations, such as the IMF, the United Nations and the World Bank met for three days of meetings. After five completely virtual Plenary events due to the COVID-19 pandemic, this Plenary meeting took place in a hybrid format, allowing the limited number of delegates who could travel to meet face-to-face, while the remaining delegations connected virtually. Around the world, many countries are re-opening and focusing on rebuilding economies that have strained under the pressure of this unprecedented health crisis. There is still a long road ahead until every country has fully emerged from the COVID-19 imposed restrictions. Nevertheless, they must continue to fully and effectively implement the risk-based FATF Standards and ensure that criminals and terrorist do not find new and emerging loopholes to exploit
Delegates finalised work in a number of important areas, including an updated guidance for a risk-based approach to virtual assets and virtual asset service providers as well as a final report on survey results on implementation of the FATF Standards on cross-border payments. The FATF finalised a report for government officials that focuses on the digital transformation of AML/CFT for operational agencies.
The Plenary discussed the evolving situation in Afghanistan and issued a statement on the matter. The Plenary also discussed and issued a statement on the risks associated with the financing of ISIL, Al-Qaeda and Affiliates.
Finally, the FATF agreed to release for consultation, the proposed revisions to its Recommendation 24 on beneficial ownership of legal persons to ensure greater transparency about the beneficial ownership of legal persons, and take action to mitigate the risks. The recently released Pandora Papers have highlighted, once again, that not enough is being done to prevent criminals from hiding illicit wealth and activities behind complex corporate structures and in offshore banks. The proposed changes aim to strengthen measures that will prevent criminals from hiding illicit activity and proceeds, including by requiring countries to establish a beneficial ownership registry or use an alternative system that also enables efficient access to beneficial ownership information.
1. Strategic Initiatives
2. Country-specific processes
1. Strategic Initiatives
Revised Guidance for a Risk-Based Approach to Virtual Assets and VASPs
The virtual asset (VA) sector is fast-moving and technologically dynamic, which means continued monitoring and engagement between the public and private sectors is necessary. The June 2020 12-Month Review of the Revised FATF Standards on VAs and Virtual Asset Service Providers (VASPs), identified areas requiring greater FATF guidance in order to clarify the application of the revised FATF Standards. As a result, the FATF agreed to revise and update its 2019 Guidance. Following public consultation in March-April this year, the FATF finalised the 2021 Guidance for a Risk-Based Approach to Virtual Assets and VASPs, which explains how the FATF Recommendations apply to these assets and services. In particular, the guidance clarifies the definitions of virtual asset and VASP and builds on the FATF report to the G20 to explain how the FATF Standards apply to stablecoins. It also addresses the risks for peer-to-peer transactions, and illustrates tools to identify and mitigate these risks. The guidance covers the licensing and registration of VASPs, the so-called “travel rule” and includes principles of information-sharing and cooperation amongst VASP supervisors. This updated Guidance is intended to assist countries and the private sector in implementing the current FATF Standards. FATF expects that countries and the private sector will implement FATF standards on VA/VASPs as soon as possible, especially in light of this updated Guidance. The FATF will be vigilant and closely monitor the virtual assets and VASP sector for any material changes that necessitate further revision or clarification of the FATF Standards. This includes in relation to areas such as stablecoins, peer-to-peer, non-fungible tokens and decentralised finance. (To be published on 28 October.)
Final Report on Survey Results on Implementation of the FATF Standards on Cross-border Payments
Faster, cheaper, more transparent, and more inclusive cross-border payment services, that are safe and secure can facilitate economic growth, international trade, global development and financial inclusion. Enhancing cross-border payments is a key priority of the G20. In October 2020 G20 Finance Ministers and Central Bank Governors endorsed the Roadmap for Enhancing Cross-border Payments, which comprises 19 Building Blocks. FATF took the lead on the building block that focused on identifying areas where divergent AML/CFT rules or their implementation cause friction for cross-border payments and initiated an industry survey in consultation with the Basel Committee on Banking Supervision (BCBS). The FATF Plenary adopted the final report on the survey results, which highlights, among others, that lack of risk-based approach and inconsistent implementation of the AML/CFT requirements increases cost, reduces speed, limits access and reduces transparency. Inconsistent national approaches also create obstacles in identifying and verifying customer and beneficial owners, effective screening for targeted financial sanctions, sharing of customer and transaction information where needed, and establishing and maintaining correspondent banking relationships. The FATF will continue its engagement with all stakeholders on this issue. (To be published on 22 October.)
Strengthening the FATF Standards on Beneficial Ownership – Public Consultation
Recent revelations in the Pandora Papers once again underscore the importance of ensuring transparency about the true beneficial ownership of companies to stop criminals from hiding their illicit activities and proceeds behind complex corporate structures. These revelations echo the results of the FATF’s mutual evaluations and other major investigations: countries need to do more to ensure that information on beneficial ownership is available and up to date. In June 2021, the FATF issued a white paper for public consultation on potential amendments in key policy areas to strengthen the requirements of Recommendation 24 on the transparency of beneficial ownership of legal persons. The input received informed proposed changes to the language of Recommendations 24, its interpretive note and the glossary, which the FATF Plenary approved for public consultation.
The FATF Plenary welcomes views on these proposed amendments, which are published on the FATF website, in particular on the multi-pronged approach to collection of beneficial ownership information, measures to prevent the abuse of bearer shares and nominee arrangements, the risk-based approach and access to accurate, adequate and up-to-date information on beneficial ownership by competent authorities.
Mitigating the Unintended Consequences of the FATF Standards
In February this year, the FATF launched a project to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards. At this Plenary, the FATF concluded phase 1 of this project, which sought to understand the nature of possible unintended consequences of the FATF Standards. The Plenary agreed to publish results of phase 1, which examines de-risking, financial exclusion, undue targeting of non-profit organisations, and the curtailment of human rights (with a focus on due process and procedural rights). During the next phase of this project, the FATF will identify and consider potential options to mitigate these unintended consequences. (To be published on 22 October 2021.)
Progress in the work on Environmental Crime
The FATF’s reports on money laundering (ML) from the illegal wildlife trade (2020) and broader environmental crimes (2021), highlight that, unlike for other predicate crimes in the FATF Standards, there are significant differences across countries in how they define environmental crimes. This, alongside broader capacity challenges, can impact the extent to which countries pursue financial investigations for these crimes in line with their risks. The FATF Standards already require that countries criminalise ML for a range of environmental crimes. The Plenary agreed to add several indicative examples of environmental crimes to the FATF Glossary to clarify for countries the types of offences that could fall within this category, depending on their risk and context. This, alongside the reports setting out the methods and trends used by those involved in environmental crime, will help authorities follow the money and stop the criminal networks behind illegal waste trafficking, logging, and other crimes.
Digital Transformation of AML/CFT for Operational Agencies
Under its German Presidency, the FATF has prioritised exploring how digital transformation can make AML/CFT more effective and efficient. The FATF Plenary discussed a confidential joint FATF-Egmont Group report that looks at how financial intelligence units can leverage technology to strengthen their operations. The report focuses on how to find the right tools and when to use them, how to optimise these tools for AML/CFT purposes and how to overcome practical and operational challenges. The plenary approved a summary for publication, which highlights key findings of the report. (To be published on 27 October 2021.)
2. Country-specific processes
Jurisdictions under Increased Monitoring
Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to extra checks. In line with the flexible procedures adopted in February 2021 to allow FATF to continue its monitoring programme in light of the COVID-19 pandemic, the FATF has updated its statements for countries under review.
- New jurisdictions subject to increased monitoring: Jordan, Mali and Turkey
- High-Risk Jurisdictions subject to a Call for Action (unchanged from February 2020)
Jurisdiction No Longer Under Increased Monitoring – Botswana and Mauritius
The FATF congratulated Botswana and Mauritius for the significant progress they have made in addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in their respective action plans. Both countries will no longer be subject to the FATF’s increased monitoring process. This comes after both countries received an on-site visit, despite the COVID-19 crisis. Botswana and Mauritius will work with ESAAMLG of which both countries are a member, to continue to strengthen their AML/CFT regime.
Strengthening the Global Network
FATF members discussed their continued support to help FSRBs progress their current mutual evaluation rounds with timely and high quality reports. At this Plenary, Members agreed to intensify support for higher priority FSRBs, including through FATF Secretariat mentoring and direct participation in some selected FSRB mutual evaluations, with a view to alleviate resources challenges and strengthen FSRBs’ capacities to conduct mutual evaluations.
Jurisdictions under Increased Monitoring – 21 October 2021
High-Risk Jurisdictions subject to a Call for Action – 21 October 2021
This news item was originally published by the The Financial Action Task Force (FATF). For more information, please see the Source Link.