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#Anti Money Laundering

Life after the referendum: terrorist financing high on FATF agenda

International Compliance Association

Here in the UK, there’s not much on our news agenda apart from the EU referendum outcome and the resulting fall-out, so significant developments elsewhere in the world since 23 June have perhaps been slipping under our radar.

Something that hasn’t attracted a great deal of coverage was the latest plenary meeting of the Financial Action Task Force (FATF), which took place in Korea between 22–24 June. This tackled a fairly lengthy list of high-profile issues, so it’s worth a recap of some of the outcomes.

Terrorist financing

Top of the FATF agenda was terrorist financing, with a range of actions here, including a revision of FATF Recommendation 8, with the aim of giving non-profit organisations (NPOs) greater protection against terrorist financing abuse.  FATF said this recognised the evolving ‘threat environment’ in which NPOs may operate, reflected in FATF’s 2014 Risk of Terrorist Abuse in Non-Profit Organisations and the 2015 Best Practices Paper on Combating the Abuse of Non-Profit Organisations (Recommendation 8).

In January this year, the Global NPO Coalition on FATF – which represents 123 organisations in almost 50 countries, including some high-profile names like Global Witness and Islamic Relief – had called on FATF to revise Recommendation 8 to bring it into line with the risk-based approach, arguing that it failed to recognise that ‘the vast majority of the millions of NPOs pursue legitimate charitable activities’.

FATF said: ‘The revised standard aims to ensure that the implementation of Recommendation 8 is in line with the risk-based approach and does not disrupt or discourage legitimate non-profit activities.’

Also on the terrorist financing front, FATF is making a new handbook available to agencies in FATF and FATF-style regional body jurisdictions, to help strengthen the way targeted financial sanctions are implemented, following research suggested that ‘insufficient use’ is being made of these.

Meanwhile, FATF has suspended countermeasures against Iran for 12 months, while it monitors how Iran is implementing its action plan to address deficiencies in anti money laundering/counter financing of terrorism, while stressing the importance of financial institutions continuing to apply enhanced due diligence in dealing relating to Iran.

Information sharing

FATF highlighted the importance of co-ordination and co-operation – domestically and internationally – to support work to detect and prevent terrorists abusing financial systems. This maintains a focus on something that has been regularly highlighted by international bodies lately, including in the European Union’s February 2016 Action Plan to Strengthen the Fight against Terrorist Financing and the Organisation for Economic Co-operation and Development, in relation to tax and anti money laundering authorities.

The FATF plenary also recognised the importance of sharing data in this process by publishing Consolidated FATF Standards on Information Sharing.

These bring together the information sharing requirements spread across 25 different FATF Recommendations, with the aim of making them clearer and more accessible. Themes covered include information sharing within the private sector and between the private and public sectors, and also address our old friend, beneficial ownership.

Beneficial ownership

Given all the worldwide headlines generated by the Panama Papers, and their revelations around secretive offshore shell companies, beneficial ownership was bound to be high on the FATF agenda.

The FATF plenary highlighted findings from mutual evaluations in relation to compliance with the tougher beneficial ownership standards introduced in 2012, which identified a range of deficiencies.

These included a lack of, or difficulty in accessing, basic company registration information; ‘gatekeepers’, such as lawyers and company formation agents not always identifying and verifying beneficial owners; company registries not verifying information received; and companies failing to keep shareholder/member registers p to date and accurate, with a lack of sanctions against them where this was the case.

FATF stressed: ‘This highlights the need to focus on effective implementation of the existing requirements.’

De-risking

Tucked away at the end of the FATF plenary outcomes was a two-line comment relating to the decline in correspondent banking through de-risking.

Last November, the World Bank issued research highlighting the issue and the impact of large banks reducing services to correspondent banks. It warned: ‘Some banks appear to be cutting off business relationships with entire classes of customers based on the country or type of financial service – rather than implementing a risk-based approach.’

FATF confirmed that it would be developing guidance on ‘the correct implementation of the risk-based approach’ to support international efforts to tackle the decline.

New and evolving threats

As the UK’s EU referendum outcome has so clearly demonstrated, even what appear to be the most complex and established arrangements are not set in stone. The FATF plenary’s actions highlight how anti money laundering and counter terrorist financing measures require ongoing attention and adjustment in response to new and evolving threats: no such thing as the status quo here.

At ICA, our qualifications programme comprehensively addresses anti money laundering, compliance and financial crime prevention. We regularly add new courses and all our qualification materials and workshops develop on an ongoing basis to reflect current and emerging issues and trends. To find out more, why not sign up for one of our free information sessions?

 

 

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