Where Do Countries Stand in the FATF AML Effectiveness Report?

4 mins

The Financial Action Task Force (FATF) said in a report that more than a third of its member countries are now technically compliant with its recommendations.

Among the member countries, 76% have satisfactorily implemented its 40 recommendations, the global anti-money laundering (AML) watchdog said in its latest Report on the State of Effectiveness and Compliance.

This marks a dramatic improvement in technical compliance which stood at just 36% in 2012. The FATF attributed the progress to the positive impact of its mutual evaluation and follow-up processes.

Mutual evaluations are peer reviews, in which experts from countries review another country’s compliance to the FATF standards.

The FATF report gives a comprehensive overview of the state of global efforts to tackle money laundering, terrorist and proliferation financing. It’s compiled based on data from the mutual evaluation reports since 2013.

Here are the key findings in the report:

 

A ‘Firm Legislative Basis’

The FATF noted that countries have made significant progress in improving technical compliance by establishing and enacting a broad range of laws and regulations. More than 80% of the member countries have achieved “substantial or high effectiveness” in risk understanding and response.

The progress has created “a firm legislative basis” for governments to follow the money that fuels crime and terrorism, it added.

 

Challenges Exist

Despite the progress, many countries still face substantial challenges in taking effective action in line with the risks they face, according to the FATF. They have not yet had time to implement policies and coordinate with public and non-public bodies to respond effectively risks, it noted.

The main challenges highlighted are:

  • Difficulties in investigating and prosecuting high-profile crossborder cases
  • Preventing anonymous shell companies and trusts being used for illicit purposes
  • Nascent stage of developing comprehensive, risk-based AML frameworks in many countries
  • Poor understanding and mitigation of AML risks by small financial institutions and the nonfinancial sector, such as real estate agents, lawyers and accountants
  • Lack of effective supervisory systems in about 90% of countries
  • Lack of adequate laws and regulatory structures
  • Lack of effective implementation of laws for transparency in beneficial ownership to prevent abuse of shell companies

Countries Must Increase Their Efforts.

Many countries continue to take a “tick box” approach to adopting laws and regulations, and don’t focus on results, the watchdog reported.

It added that greater effort is needed from countries to ensure that effective implementation of its standards is taking place. They need to make fundamental or major improvements to their money laundering and terrorist financing systems.

In view of the challenges, the FATF has given the following suggestions for improvement:

  • Private sector entities such as banks, money or value transfer services, lenders, virtual asset service providers and others need to apply a true risk-based approach to conduct customer due diligence, keep records, and file suspicious transaction reports.
  • Countries must continue to share up-to-date national and other risk assessments as widely as possible with relevant stakeholders.
  • Countries must prioritise the effective implementation of supervisory frameworks, particularly in the non-financial sector.
  • Countries need to demonstrate improvements in recording, reporting and verifying information regarding legal persons and arrangements.
  • Countries need to significantly improve the functioning of criminal justice frameworks by increasing specialised expertise. They should, prioritise largescale money laundering operations and target terrorist financing networks in-line with risks.

 

The FATF’s Strategy Going Forward

The report on the state of effectiveness and compliance helped to feed FATF’s strategic review. It noted that the review looks to make the 5th round of FATF assessments more timely, risk-based and effective.

According to the watchdog, the next round of assessments will have:

  • A shorter mutual evaluation cycle, so that countries get assessed more frequently
  • Greater emphasis on the major risks and context to ensure that countries focus on the areas where the risks are highest
  • A results-orientated follow-up assessment process, which will focus on specific actions to tackle financial crimes

 

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