Setting and Implementing Global Standards against Money Laundering and Terrorist Financing

Institute of International and European Affairs

Dublin, Ireland, 25 February 2014

Distinguished guests and visitors.

It is with great pleasure that I am addressing the Institute of International and European Affairs, here in Dublin. I welcome this opportunity to discuss FATF policy with informed participants of a FATF member-state. Ireland has been a member of the FATF since 1991, and has actively contributed to the evolution of the FATF standards throughout its participation.

Today, I look forward to providing you with a brief overview of the FATF, its mandate and membership, and its cooperation within the global network of partner international organizations such as the IMF, United Nations and World Bank, among others. Our coordination has remained essential to harmonizing and implementing the revised set of FATF standards.

I hope to convey to you that international coordination and cooperation is essential to completing the FATF’s work in assisting countries to effectively implement the standards on anti-money laundering and terrorist financing. In addition, I will cover the FATF’s work on assessing compliance with standards.

Mandate and Membership

The FATF is the global standard setter on combatting money laundering and the financing of terrorism and proliferation of weapons of mass destruction. The FATF is an inter-governmental body, which was established in 1989 by the Ministers of its Member jurisdictions. This foundation provides the FATF with a ministerial mandate, meaning that our actions are directly shaped by what our members decide our objectives should be.

I would like to briefly touch on the evolving membership structure in the FATF. From its establishment in July 1989 by the Group of Seven (G-7) Summit in Paris, the FATF has grown to become a body where 34 member countries, two regional organisations and eight FATF-style regional bodies cooperate. The regional bodies have gained a stronger status under the new mandate and currently take part in all FATF activities as Associate Members. Together, these members comprise the Global Network of FATF, which currently represents 192 jurisdictions, with 6 more countries on the way to membership. This leaves about a dozen jurisdictions outside the network. Under the Russian Presidency, the FATF has made it a priority to assist remaining jurisdictions to become members of appropriate FATF-style regional bodies. All member and prospective member countries have to submit written political level endorsement of the FATF Recommendations and agree to full implementation of them and to undergo a peer assessment of compliance.

Three times a year the FATF Plenary brings together member countries, observers and FATF-style regional bodies to carry forward its work plan and to discuss possible new work. Given that we are a task force, we operate under a fixed life-span which requires explicit agreement among Ministers to prolong it. The fact that ministers have extended our current mandate by eight years, to expire in 2020, is a testament to the FATF’s prior achievements, as well as an indicator of the work that remains to be done.

The FATF’s role as the standard setter on countering money laundering, terrorist financing and proliferation financing has necessitated cooperation with many international organizations. While 25 international organizations have the status of FATF Observers, our cooperation is often focused on our partner organisation’s specialities. For instance, we cooperate with FATF-style regional bodies, the International Monetary Fund, and the World Bank to develop our common assessment methodology, and as I will highlight later, the IMF and World Bank also cooperate to provide technical assistance to countries. Additionally, the FATF has worked to adopt numerous United Nations Conventions and Security Council Resolutions into its Recommendations. This level of cooperation would have been impossible without the endorsement and support the FATF has received from international organizations.

FATF Cooperation with International Organizations

We also work with international stakeholders to identify national level vulnerabilities to protect the financial system from abuse. FATF typologies reports are designed to assist relevant stakeholders and countries to identify and respond to money laundering and terrorist financing risks, trends and methods.

The FATF Recommendations are detailed technical standards that cover regulatory, supervisory, law enforcement, and legal issues. Our approach to designing the standards is holistic, integrating measures to combat money laundering, terrorist financing and proliferation financing into a single set of Recommendations. I strongly believe, and experience has shown, that a single set of Recommendations and requirements is less resource intensive and a more effective approach for both governments and the private sector.

In further developing our global network, the FATF will continue to work with the FATF-style regional bodies, the IMF, the World Bank, the United Nations and other bodies.

FATF Recommendations

I would now like to provide an overview of the FATF Recommendations.

The foundation of the FATF Recommendations is the criminalization of money laundering and terrorist financing at the domestic level. Our standards require countries to adopt definitions of money laundering and terrorist financing offences on the basis of international conventions, such as the Vienna Convention and the Terrorist Financing Convention, with the intent of covering the broadest range of predicate offences. Furthermore, we require countries to put in place mechanisms for freezing, seizing, and confiscating assets related to money laundering and terrorist financing.

Our Recommendations also recognise that countries must provide supervisory and law enforcement authorities with the necessary resources and powers. For example, we require that financial institutions should effectively apply the Basel Committee on Banking Supervision’s “Core Principles” to their anti-money laundering and counter-terrorist financing efforts. This allows the FATF to more seamlessly apply its anti-money laundering and counter-terrorist financing supervisory standards across a variety of jurisdictions and financial institutions. Our standards require that supervisors have powers to compel information from, and apply fines to financial institutions. We also require countries to establish financial intelligence units that serve as the nerve-centres for collecting and exchanging information on illicit financial activities. Finally, we require that law enforcement authorities are provided with the necessary investigative powers and human and organisational resources to pursue those engaged in money laundering and the financing of terrorism.

Although empowering authorities is critical to pursuing illicit financial activities, we believe it essential for the financial sector to have in place strong preventive measures to dissuade such conduct from the outset. The FATF’s customer due diligence and record keeping requirements oblige financial institutions and designated non-financial business professionals to conduct due diligence on customers and, where necessary, file reports about suspicious or unusual activities. These standards are further tailored to deal with so-called politically exposed persons, as well as financial techniques and products which pose enhanced risks. While these standards are rigorous, they are founded on a risk-based approach which provides those carrying out due diligence with flexibility in allocating their resources.

A particular focus of the next round of country assessments, which has just begun, is to increase transparency and ensure that countries create the proper frameworks to disclose the beneficial ownership of legal persons and arrangements. For example, revised Recommendations 24 and 25 require that investigative authorities have access to adequate and timely information on persons related to legal entities and arrangements, trusts, bearer shares and nominee shareholders. Such information can play a crucial role in assisting authorities to solve financial crimes.

Finally, our standards provide tools for international cooperation among countries. Our Recommendations on mutual legal assistance require countries to put into place mechanisms for cross-border cooperation on investigating money laundering and terrorist financing crimes. Countries cannot rely on secrecy provisions to refuse requests. Countries are required to set up mechanisms for international asset freezing and confiscation requests. These measures directly counter the advantages criminals or terrorists may enjoy when operating across multiple jurisdictions.

Prior Round of Assessments and Technical Assistance

I would now like to describe how the FATF assessed compliance prior to the latest revisions of our standards. I will then discuss how recent revisions to the standards will affect future assessments.

Money laundering and terrorist financing are transnational crimes. Therefore it is important that assessment of all countries is done in a thorough and consistent manner, and that all countries are required to correct any deficiencies which may be identified in the course of an assessment.

Since 2004, the FATF, the FATF-style regional bodies, the International Monetary Fund and the World Bank have all used the same methodology for assessing compliance with the FATF Recommendations. All assessment reports are publicly available. They have given the FATF a real insight into implementation and compliance issues across many jurisdictions. Importantly, these detailed reports show countries and policymakers which deficiencies are present in their jurisdictions.

The purpose of undertaking these assessments is to identify deficiencies in the country’s AML/CFT system and encourage countries to correct them through a peer review mechanism. The information we gathered through our assessments is also valuable for technical assistance providers and coordinators, such as FATF-style regional bodies, the International Monetary Fund, and the World Bank. With this information those organisations are able to react much faster to identify needs and to assist countries to implement the standards. In addition, the United Nations can also use this framework to deploy the assistance and guidance to countries.

While assessments and technical assistance are critical to the global efforts, further actions are sometimes required to address money laundering and terrorist financing risks. Since 2007, the FATF has analysed high-risk countries and issued specific recommendations through its International Co-operation Review Group. We have regularly issued public statements to highlight deficiencies in particular jurisdictions. We make regular reports on countries judged to have strategic anti-money laundering or terrorist financing deficiencies. In the cases of Iran and North Korea, the FATF has called on its members to apply counter measures in order to mitigate money laundering and terrorist financing risks originating from these countries. The latest FATF list contains nine further countries that have either not committed to an action plan developed with the FATF, or have not made sufficient progress in addressing strategic deficiencies in their anti-money laundering or counter-terrorist financing regimes.

New Assessment Round, Implementation of New Standards, and Technical Assistance

A few brief words on the current round of assessments which the FATF and FATF-style regional bodies have just commenced, as this is one of the core tasks of the Global FATF network.

In addition to a focus on technical compliance, the current round will have a much stronger focus on effectiveness. Generally speaking, the FATF uses the terms “effectiveness” or “effective compliance”
to describe whether a system is achieving the results it should achieve. Although our previous assessments have always taken effectiveness into account, they focused mainly on technical compliance. While this approach has provided a solid understanding of the legal framework that countries have in place, it left an incomplete picture of which countries achieve the required results and effectively comply, and which do not. Therefore, in the current round of assessments, technical compliance and effectiveness will each be assessed and rated.

The goal of assessing a country’s effectiveness is to understand how well the entire structure of a country’s anti-money laundering and counter-terrorist financing system works, and whether the FATF Recommendations are being met in practice and produce the right outcomes. In order to assess effectiveness, the FATF has adopted an assessment framework based on a series of defined outcomes. Given the importance of the revised Recommendations, the FATF has stressed the need for jurisdictions to pursue speedy adoption of legislation to translate the international standards into their own domestic frameworks. As with the assessment of the technical compliance, it is the responsibility of each country to demonstrate to assessors that it is compliant with the effectiveness Outcomes.

The FATF’s high-level objective is to protect the domestic and international financial system from money laundering and terrorist financing, thereby ensuring that the integrity of a country’s financial system is strengthened and secured. At the same time, the FATF recognises that countries have diverse legal, administrative and operational frameworks, in addition to different financial systems, and cannot therefore take identical measures to all threats. In this vein, the FATF is pleased to see that the European Union is taking steps towards finalizing its 4th AML Directive.

Conclusion

Let me conclude by summarizing the main points of today’s presentation.

In terms of achieving its global mandate, the FATF relies on its members as well as the FATF-style regional bodies and observer organisations to establish effective anti-money laundering and counter-terrorism financing systems. The combined perspectives serve to directly enhance the flexibility and efficiency of our standards and their implementation.

Our revised standards place a greater emphasis on transparency and our new assessment methodology provides a tool to assess the extent to which countries are meeting their commitments, including whether their systems are actually working in practice. This is a new and challenging task. It will require our assessors and members to collaborate in novel ways. This need for cooperation underpins the commitment the FATF has to working with its members, FATF-style regional bodies and Observer organisations, to see that the standards are properly and consistently implemented. We have been working to provide guidance to countries on these, and other issues. However, our multi-lateral cooperation allows us to also call on FATF-style bodies, the World Bank, the IMF and the United Nations, which all remain
strongly committed to achieving our common goals. Therefore, moving forward, we will continue to provide assistance to countries through the FATF’s Global Network in pursuing our common goals of preventing money laundering and the financing of terrorism.

I hope that my comments today have provided the audience with a better understanding of how the FATF and its Global Network works and how it intends to work in the years to come.

Thank you for the opportunity to speak with you all today.