The Financial Action Task Force (FATF) has been established as a cross-governmental decision-making authority during the G7 Summit held in Paris in 1989 to support the process of AML policymaking. Its objectives are to ensure the formulation of legal and regulatory measures that help in fighting money laundering globally and implementation of the national-level practices that protect international financial systems from fraudulent activities. By 2019, the organization was successful to acquire 37 member jurisdictions worldwide; however, certain limits for the full-fledged membership are still in action for countries such as Pakistan1.
FATF categorizes state jurisdictions in terms of AML applicability based on the two types of lists. The first is a black list, which includes countries that are defined as non-cooperative territories and therefore considered as regions that eventually fund financial terrorism and money laundering. The second is a grey list, which does not directly support financial terrorism but are considered as a safe haven for such operations. The inclusion in grey list mostly serves as a warning of potential association with a black list, while both categories are revised on a regular basis. However, there are certain negative consequences of being included in the grey list, which imposes the risk of economic sanctions and problems with receiving loans from IMF or World Bank, failure to receive international trade benefits, and potential boycott in managing cross-border relationships.
During the recent plenary held in Paris on October 23, 2020, the following outcomes were considered for the FATF in the following three dimensions. First, for strategic initiatives, it was acknowledged that pandemics in its core majorly affected the increasing cases of counterfeiting medical supplies, investment fraud, and new ways of cybercrime injections actively exploited by terrorists. It was also mentioned that there is a risk of exploring the unemployment rise risks based on the remote transactions, which requires implementation of the stimulus protective programs2. Overall, the priority set for strategic initiatives was to enhance cooperation with organizations known as FATF-Style Regional Bodies (FSRBs) that improves networking on the global level and allows better approach towards mutual evaluation of achieved results through implementation of collaborative programs.
Unfortunately, the mutual evaluation programs initiated by FATF were negatively affected by the pandemics with a relationship to country-specific processes. Some of the jurisdictions under increased monitoring were relieved from the identification of strategic deficiencies within an aligned timeframe, eventually resulting in a paper-based call-for-action strategy that is yet to be updated after the physical visits3. The exceptions were made for the state jurisdictions of Iceland and Mongolia based on their respective action plans that successfully addressed AML/CFT deficiencies through the site visits, with further recommendations made to strengthen existing protective regimes for international trade4.
Finally, since June 2019 FATF standards were strengthened with amendments to Recommendation 1 requiring countries and private sectors to “identify, assess, manage and mitigate the risks of potential breaches, non-implementation, or evasion of the targeted financial sanctions related to proliferation financing”5. Furthermore, a new interpretive note for Recommendation 2 related to domestic collaborative efforts in assisting national authorities on AML detection strategies was issued. Meanwhile, given the limited access for physical assessment of state jurisdictions, it is likely that current provisions of FATF are yet to be revised in spite of pandemic travel and assessment restrictions.
Footnotes
- Business Standard (2020) What is FATF. Web.
- Omar, N. and Johari, Z.A. (2015) ‘An international analysis of FATF recommendations and compliance by DNFBPS’, Procedia Economics and Finance, 28, pp. 14-23. Web.
- Nance, M.T. (2018) ‘Re-thinking FATF: an experimentalist interpretation of the Financial Action Task Force’, Crime, Law, and Social Change, 69, pp. 131-152. Web.
- FATF (2020) Outcomes FATF Plenary, 21-23 October 2020. Web.
- FATF (2020) Outcomes FATF Plenary, 21-23 October 2020. Web.