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What is the Financial Action Task Force?
Established in 1989, the Financial Action Task Force (FATF) is an inter-governmental body that combats money laundering and terrorist financing. The FATF currently has 39 members: 37 countries, including the Kingdom of the Netherlands, and two regional organisations (the European Commission and the Gulf Cooperation Council). In addition, more than 180 countries worldwide are affiliated to the FATF through a network of FATF-style regional bodies (FSRBs).
Objectives of the FATF:
- To set international standards and promote the effective national implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing (AML/CFT) and other related threats to the integrity of the international financial system.
- To conduct periodic evaluations to assess compliance of countries with the AML/CFT standards and to determine to what extent this results in effective regimes to combat money laundering and terrorist financing in these countries.
- To draft guidance and typologies reports, which support countries and institutions in implementing the AML/CFT standards and which help identify new risks relating to money laundering and terrorist financing.
- To identify countries with serious deficiencies in their AML/CFT regimes. Three times a year, the FATF draws up a warning list of countries whose implementation of the FATF standard has been unsatisfactory. It expects its members to take adequate measures to mitigate the risks associated with those countries.
FATF AML/CFT standards
The FATF’s AML/CFT standards are internationally leading. The 40 FATF Recommendations, which together constitute the standards, cover criminal actions against money laundering and terrorist financing, the gatekeeper role of financial institutions and so-called designated non-financial businesses and professions (DNFBPs), such as trust service providers, and the strengthening of international cooperation.
The Recommendations regarding the role of financial institutions and DNFBPs focus on establishing and verifying the identity of customers and their ultimate beneficial owners (UBOs), reporting suspicious transactions, and developing internal procedures and measures to prevent involvement in money laundering and terrorist financing practices. They also regard several measures such as freezing the assets of terrorists and attaching information to wire transfers.
An important central theme within the FATF’s Recommendations is the risk-based approach. The FATF underlines that an effective anti-money laundering and terrorist financing combating system starts with a proper analysis of the main money laundering and terrorist financing risks. This applies both at national and institutional level. Therefore, according to the FATF, the measures taken by countries and institutions to combat money laundering and terrorist financing must be highly risk-based.
The FATF Recommendations were adopted for the first time in 1990 and were thoroughly revised in 2012. Since then, FATF has updated the Recommendations where necessary to address technological developments and new risks. For example, in 2019, the scope of the FATF standards was expanded to include different types of crypto service providers.
All FATF and FSRB member countries are regularly subjected to so-called mutual evaluations. During an evaluation, a team of various experts from other countries assesses a country's national anti-money laundering and terrorist financing combating regime. The results are laid down in mutual evaluation reports.
In 2013, the FATF published its Methodology for assessing compliance. This methodology focuses on the following two aspects of a country's national anti-money laundering and terrorist financing combating framework:
- Technical compliance, where the legal and institutional framework is assessed against the FATF's 40 Recommendations.
- Effectiveness, in terms of the results expected from an effective framework, where the framework is assessed against the 11 results drawn up by the FATF.
Ratings are assigned to the country for both aspects. In addition, the FATF draws up a list of recommendations for the country to resolve identified deficiencies or to achieve further results. Depending on the outcome of the evaluation, the country should report back to FATF periodically on the progress made on the recommendations, through follow-up reports.
Both the FATF and the FSRBs use this methodology in their country evaluations of FATF standards. All FATF and FSRB mutual evaluation reports and follow-up reports are published on FATF’s website. These reports are an important source for countries and financial institutions in assessing how a country's regime for combating money laundering and financing of terrorism has been organised and functions.
FATF typologies reports and guidance
An important element in the work of the FATF is that it brings together experts in the field of anti-money laundering and combating terrorist financing to review and analyse newly identified money laundering and terrorist financing methods. Several projects are launched each year under the aegis of the FATF, resulting in a typologies report. Subjects researched in recent years include ‘Ethnically or Racially Motivated Terrorism Financing’, ‘Money Laundering from Environmental Crimes’, and ‘Trade-based Money Laundering’. Once finalised, the reports are published on the FATF website.
In addition, FATF regularly publishes guidance and best practices that support countries and institutions in implementing the standards, such as guidance on digital identity and on proliferation financing. The FATF has also developed a series of guidance to help implement the risk-based approach, for example ‘Risk-based Approach Guidance for the Life Insurance Sector’ and ‘Guidance on Risk-Based Supervision’.
FAFF warning lists
Following every plenary FATF meeting, the FATF issues warning lists identifying jurisdictions that have serious deficiencies in their regimes for combating money laundering and terrorist financing. These warning lists are published on the FATF website, and we alert financial institutions to them in our news releases on our Open Book on Supervision pages.
There are two types of FATF warning lists:
- High-Risk Jurisdictions subject to a Call for Action (the blacklist). This overview states countries with serious deficiencies in their AML/CFT system that may pose a large risk to the international financial system. Moreover, these countries have not committed themselves to an action plan to address these deficiencies. The FATF expects its members to ensure that institutions conduct enhanced customer due diligence in relation to business relationships and transactions related to countries on this list. In the most serious cases, the FATF also calls on its members to take countermeasures against countries on this list in order to protect the international financial system.
- Jurisdictions under Increased Monitoring (the “grey list”). This list includes countries that have serious deficiencies in their AML/CFT system but are committed to addressing them as soon as possible through an action plan that they agree with the FATF. The FATF encourages its members to take into account the specific circumstances of these countries in the context of AML/CFT risk analyses and measures. For each country on the list, the FATF explains the deficiencies identified and the actions that the country has committed to for addressing these deficiencies. After each plenary session, the FATF updates this explanation according to the country’s progress on these actions.
In the DNB Guideline on the Anti-Money Laundering and Anti-Terrorist Financing Act and the Sanctions Act, DNB provides guidance to institutions on how to deal with the FATF warning lists in the context of compliance with the Anti-Money Laundering and Anti-Terrorist Financing Act (Wet ter voorkoming van witwassen en financiering van terrorisme – Wwft).
- Collective investment schemes
- Crypto service providers
- Electronic money institutions
- Exchange transaction
- Investment firms
- Payment institutions
- Premium Pension institutions
- Trust offices