Tackling terrorism financing: the revised FATF standards

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Tackling terrorism financing: the revised FATF standards

Remarks by the FATF Executive Secretary Rick McDonell on “Tackling terrorism financing: the revised FATF standards”

at the Special meeting of the United Nations Counter-Terrorism Committee with Member States and relevant international and regional organizations on preventing and suppressing terrorist financing

20 November 2012

Thank you Mr. Vice Chair,

Good morning Excellencies, ladies and gentlemen.

The title of this portion of the meeting "The revision of the FATF’s Standards", which we call the FATF Recommendations. 

Let me, at the outset, indicate that when the FATF was first established, back in 1989, it focused solely on combating money laundering.   But after the terrorist attacks in September 2011, there was recognition within the international community that criminals and terrorist financiers generally move their money using the same types of methods, techniques and vehicles.  Therefore, given the FATF’s experience in combating money laundering, it was felt that the approach and tools of the FATF could be effectively brought to bear in the fight against terrorist financing. 

Special meeting of the UN CTC, November 2012 (McDonell)

FATF Executive Secretary, Rick McDonell

©UN Photo/Rick Bajornas

This led to the FATF issuing its Special Recommendations on Terrorist Financing in October 2001. Since then, the financing of terrorism has remained a fundamentally important issue for the FATF.

Let me elaborate, Mr. Vice Chair, in two parts if I may. First, the relevance of the FATF’s work to your work and secondly, some of the particular changes the FATF has made to the standards it adopted in February this year.

First of all, although the roles are obviously different between the FATF and the UN, from the FATF’s point of view the UN plays the primary role in the fight against terrorist financing by establishing a framework of binding international legal obligations. For example, as has been stated already this morning, the International Convention for the Suppression of the Financing of Terrorism (1999), and the Terrorist Financing Convention Security Council Resolution 1373 in particular.  In relation to those instruments, the FATF complements and reinforces the work of the United Nations through adopting a comprehensive set of measures (called the FATF Recommendations) that help countries to combat terrorist financing and therefore, hopefully, effectively implement the UN Recommendations in this area. For example, Recommendation 5 of the FATF requires countries to “criminalise terrorist financing on the basis of the terrorist financing convention’ and sets out some specific measures aimed at ensuring that those requirements are implemented effectively.  

Recommendation 6 is another example of where our work helps to provide practical measures for countries to implement the UN requirements under the convention and the other instruments.  For example, we require countries who are members of the FATF, and those who are also members of the FSRBs (the FATF-style regional bodies) to implement regimes for asset freezing and prohibitions on making funds available to terrorists, to comply with the UN Security Council Resolutions relating to the Prevention and Suppression of Terrorism and Terrorist Financing including, in accordance with resolution 1267, and its successor resolutions.

The FATF’s Recommendations, in essence, are a comprehensive set of measures and they cover, within the criminal justice system, legal requirements.  They also cover preventive measures to be taken by financial institutions, and other businesses and professions.  They cover measures to ensure transparency of the ownership of legal persons and arrangements, the establishment of competent authorities with appropriate functions, powers and mechanisms for cooperation at the domestic level and mechanisms or arrangements to cooperate with other countries. Those are fundamental and primary aspects of the FATF Recommendations.

I might point out again, although the FATF President has mentioned it in his introductory remarks, that the FATF is a task force.  It has currently 187 members in its global network, which is a very broad coverage of countries and jurisdictions.  But because it is a task force, what it means is that the governments of the countries who have chosen to join the FATF and its sister bodies around the world have committed themselves to the practical implementation of the FATF’s standards, and in the context of terrorist financing, including the ones that I have just mentioned to you.

When the FATF goes about its work, these tools that it has made available are in fact the bedrock of the way in which the FATF does its work.  It is a condition of membership that countries are required to give a high level of commitment to the implementation of the recommendations and to undergo a very stringent assessment process. The FATF Recommendations are backed up by assessments of all our members, they are very detailed and they are published on our website and they do form a basis for future follow-up to ensure that where there are deficiencies in the Recommendations, in terms of their implementation in a given country, that those countries have committed themselves in a follow-up process to fix those deficiencies. 

In relation to the FATF’s revised standards, Mr. Vice Chair, essentially, we are asking for our members to look at new areas, on top of the areas that they have been looking at and implementing for the last twenty years or so.  The key themes are as follows: the first is a policy coordination requirement.  It’s a starting point obviously, for an effective system to have a national framework in which many different bodies and agencies responsible for different elements of combating money laundering and terrorist financing work together. One of the primary changes to the FATF revised standards is the notion of how effective a country is being in implementing the standards.  That means in effect, no longer just looking at the technical compliance measures, whether a country has the necessary laws and regulatory controls in place, but also looking at how in fact those laws are used in practice. How in fact the agencies of government and private sector are working together, as the President has mentioned earlier, in a holistic way to ensure that the outcomes are achieved. 

For example, in relation to terrorist financing, we have one outcome which I will read quickly to you. “To ensure that terrorist financing threats are detected and disrupted, that terrorists are deprived of resources, and those who finance terrorism are sanctioned and thereby contribute to the prevention of terrorist acts.”  That is the outcome of one of the effectiveness criteria that the FATF has set for itself in assessing its members over the next round of country evaluations which will start next year.

In terms of terrorist financing in particular, what that means in practice is that terrorist financing activities need to be investigated, persons who finance terrorism need to be appropriately sanctioned in accordance with the laws of the country.  Secondly, terrorists, terrorist organisations and terrorist support networks are deprived of resources and means, including the misuse of the non-profit sector and that they are prevented from raising, moving and using funds. 

The next round of evaluations will build on the technical requirements that have already been set up in most of the FATF and FSRB member countries, but will concentrate in particular on how well those systems are operating in practice to achieve the outcomes that the FATF has set. When I say “the FATF has set this” it is not a body that is at a distance from its members. Because it’s a task force, these standards have been established on the basis of lengthy discussion, consultation and negotiation with the members and they have committed themselves to these outcomes and therefore committed themselves to both the effectiveness of them and their evaluation, the technical compliance evaluation and to the adherence to the international norms and standards that the United Nations has put out in relation to terrorist financing.

That is the overview of the basis of the standards.  In terms of a small amount of detail which we will get back to no doubt Mr. Vice Chair in questions and answers a little later, there are several key themes to the changes in the standards that the FATF has adopted earlier this year.

One is in relation to money laundering and confiscation. This is in fact the legal heart of the standards, that money laundering should be a criminal offence, and that courts should have powers to confiscate property or assets which are the proceeds of crime.

The next fundamental change has been the terrorist financing measures themselves, which I mentioned to you a little earlier. The main requirements there are to make terrorist financing a criminal offence, to implement the targeted financial sanctions, in particular the freezing of terrorist assets either when they are designated by the UN Security Council or at national or supranational level.

There are also specific safeguards applied to the non-profit sector which has been vulnerable in some instances to misuse by terrorists.

The other changes in relation to the FATF standards which were adopted this year are obligations that require a consistent and effective implementation of all UN measures, without going beyond the UN requirements.

There are some preventive measures, what I mean by that is that at each point of entry to the financial system there need to be mechanisms in place to establish the identity of the person involved through the customer due diligence requirements; to look for and identify types of financial activity which might indicate money laundering or terrorist financing and to report suspicions to an appropriate authority.  Normally, that authority is called the financial intelligence unit, which is the interface between the government and the private sector in relation to what may constitute suspicious transactions which may then need to be investigated.

Finally, Mr. Vice Chair, we are looking at increased stringency in the identification and transparency of legal persons and arrangements. In other words, corporate vehicles such as companies and trusts which are commonly used as a mechanism for money laundering and to a degree for terrorist financing are known and that the beneficial owners of those types of entities are able to be found when they are needed by investigation authorities.

To finalise my overview comments, the international cooperation requirements of the FATF have also been expanded because they are a primary tool.  Money laundering and terrorist financing almost always involves a cross-border set of activities.

This is important because the FATF now requires countries to provide a suite of international cooperation, including mutual legal assistance, information sharing and exchange, joint investigations, extradition of suspects, freezing and confiscation and, eventually, repatriation of criminal property and other forms of cooperation, for example at the pre-investigative stage or between financial supervisors.

That, Mr. Vice Chair, is a very simple overview of the changes that the FATF has made to its standards.  I’d be happy at a later stage to try and answer any questions you have but the overall point is captured in the topic that you have placed before us for this meeting: International cooperation which the FATF is helping to achieve and which involve a number of practical steps which we assess and then follow up in order to ensure their successful and effective implementation.

Thank you.