May 6, 2019
On April 12, 2019, the government ministers and representatives of the Financial Action Task Force (“FATF”) agreed upon and issued a new mandate
for the organization, the first revision since 2012. The new mandate represents a functional impact on the mission of the organization, as FATF ministers will soon commence meeting every two years, a FATF Presidency term will last for two years rather than one year, and the term of the FATF’s mandate is open-ended rather than requiring periodic extensions for an intergovernmental body initially designed as temporary.
Background on the FATF
For those who work to fight financial crime, whether from the private or public sector, the FATF is a familiar institution. The FATF is an intergovernmental body
that was established in the late 1980s and presently consists of 38 member countries. The FATF’s mutual evaluations provide vital summaries of the status of anti-money laundering (“AML”)/countering the financing of terrorism (“CFT”) measures in countries around the world, including but not limited to the FATF’s feedback on national risk assessments conducted by countries. In the mutual evaluation report
for the Cayman Islands published on April 1, 2019, for instance, the FATF indicated that the 2015 national risk assessment performed by the Cayman Islands was lacking in part because insufficient analysis was conducted with respect to the risks presented in certain non-bank parts of the financial sector (e.g., lawyers).
The FATF’s list of jurisdictions with strategic AML/CFT deficiencies are incorporated into broader risk rating scores that companies—regulated and unregulated—use to evaluate and rate their customers (see, e.g., the Basel Anti-Money Laundering Index
). In doing so, companies decide whether to accept customers from certain countries who pose higher AML/CFT risks and whether to then impose stricter monitoring and controls around those customers. Last but certainly not least, the FATF’s mutual evaluations and other reports often trigger or highlight existing or future changes to laws and regulations in the countries in which those companies operate.
Prior to the issuance of the new mandate on April 12, the FATF had already become increasingly visible on the global political stage. In early 2018, for example, the FATF placed Pakistan on a money-laundering gray list after the United States initiated a motion and garnered enough member state support. Although Pakistan later made certain commitments to work with the FATF to strengthen its AML/CFT regime, the FATF stated
on February 22 of this year that Pakistan, along with countries like Cambodia, Syria, and Yemen, continues to exhibit strategic deficiencies. Being placed on a FATF gray list has consequences—some operating companies and banks might elect to pull out of the country, foreign investment may be dissuaded due to the higher risk, and so on. Most recently, India announced it will seek Pakistan’s placement on the FATF’s blacklist at the upcoming FATF meeting mid-May.
The Importance of Private Sector Engagement
Given the changes to the FATF mandate, it will be increasingly important for the organization to intelligently and meaningfully lead with respect to setting global legal standards for mitigating AML/CFT risks, particularly for new and emerging technologies. In fact, the April 12 FATF mandate reiterates the FATF’s task of engaging and consulting with the private sector.
By way of example, the regulation of virtual assets within the United States and elsewhere around the globe is complicated, confusing, and continually evolving. Taking this task of engagement together with the FATF’s older FinTech & RegTech Initiative
, the October 2018 changes
to the FATF Recommendations and Glossary to address the application to virtual assets, and the draft interpretive note
published in February 2019 that will ultimately be adopted in June 2019, private sector engagement should continue to be of paramount importance to the FATF.
And, as evidenced by the recent letter
sent by Chainalysis (a commercial blockchain intelligence software company engaged in mapping blockchain transactions) to FATF on April 8, participants in the private sector have expressed concern about complying with recommendations that FATF will ultimately set for countries to enact in their respective legal and regulatory regimes. For example, Chainalysis indicated that it is not possible for originating virtual asset service providers (“VASPs”) to submit “originator information and required beneficiary information . . . to beneficiary VASPs and counterparts.” Outside of day-to-day compliance, private sector comments on the February interpretive note also propose new ideas that the FATF should consider. For example, Global Digital Finance proposed an idea for improving information sharing between the private sector VASPs and a network of national FIUs.
Takeaways for the Private Sector
The changes to the FATF’s mandate are intended to further cement its role in setting global standards around combating money laundering and terrorist financing. This point was recently emphasized by a U.S. Department of Treasury official during the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference in April. Requiring a more active commitment from FATF ministers and allocating a longer term for FATF leadership will hopefully go a long way towards FATF’s execution of priorities and better capitalization on institutional knowledge. If the FATF does not also work to ensure that private sector engagement is front and center, however, especially with respect to new and emerging technologies, it risks losing its role as a global leader.
Given the foregoing, the private sector should make strategic decisions around the following:
- Continue to monitor the FATF’s publications, reports and other guidance closely and independently, rather than relying solely on the incorporation of the FATF’s reporting within a published country risk rating index like the Basel AML Index.
- Ensure the associated countries in which your customers reside or do business are easily identifiable, in case guidance from the FATF merits the offboarding of certain customers.
- Fully understand your company’s global footprint, which is often a challenge for companies with employees who travel overseas and those that offer online or virtual services and products.
- Make strategic decisions on engagement with the FATF, such as the previous opportunity for the private sector to provide written comments on the FATF interpretative note focused on virtual assets.
- Avoid taking a solely “wait-and-see” approach with respect to the impact of the FATF on countries’ laws and regulations.
ABOUT THE AUTHOR:
is a managing director in the Washington, D.C. office at Guidepost Solutions. She works on multiple financial institution matters involving anti-money laundering, Know-Your-Customer regimes, sanctions/embargoes, correspondent banking, and regulatory requirements for fintech companies. Ms. Mason’s experience further includes working closely with large government contractors in evaluating their internal investigative functions, conducting assessments of anti-money laundering and anticorruption compliance programs, designing compliance monitoring programs across ethics and compliance programs, and drafting compliance policies and procedures on topics ranging from third party due diligence to records retention. Paige can be reached at firstname.lastname@example.org