Speech by David Lewis
FATF Executive Secretary
at the Counter-Terrorism Financing Summit
Bangkok, 8 November 2018
Distinguished guests, ladies and gentlemen
Thank you for inviting me to talk today about the work of the FATF. I am also delighted it provided my first opportunity to visit Thailand.
This Summit is about counter-terrorism financing (CTF) not anti-money laundering (AML). However, we increasingly hear about the crime terror nexus and there is mounting evidence for collaboration between serious organised crime groups and terrorist organisations. And where there is not yet collaboration, the terrorists use the same methods and routes as criminals when it comes to funding.
So today, CTF is in everything we do at FATF, whether it be research into risks, trends and methods, the development of standards, best practice and guidance, or the assessment of the implementation of the standards by countries globally.
FATF created the global standards on CTF following 9/11. They took the form of 9 Special Recommendations, in addition to the 40 Recommendations. In 2012, we reviewed the standards and took the opportunity to make these 9 Special Recommendations part of the 40.
Today CTF is not an add-on to what FATF does. It is at the heart of what we do.
I am not going to talk to you about why CTF is so important. We have heard it time and again. For many of us it is also personal. My own team were directly impacted by the Paris attacks 3 years ago on Tuesday, just two weeks after I started this job. The case for action could not be clearer.
This morning, I will touch on three challenges we face today, that also happen to be the three priorities of the FATF this year under its US Presidency. The first is the challenge of effective implementation of CTF measures, the second is what FATF is now calling “virtual assets”, and the third is proliferation financing.
Immediately following the Paris attacks, we brought together operational experts from around the world to debrief each other and learn lessons. We used this experience to develop the first FATF CTF Strategy and Operational Plan to implement it. This Operational Plan is kept live, reviewed and revised, as necessary, every four months.
It has helped FATF members, and the 205 jurisdictions of the FATF Global Network, to focus their response to the threat as it affects them. I will highlight just three areas of activity from the Op Plan.
Firstly our TFFFI, which was a quick time review of fundamental CFT measures taken by countries. In less than 6 months, my team, with support from the Secretariats for the FATF regional bodies, reviewed and reported on activity in nearly 200 jurisdictions. One of the measures we looked at was the criminalization of terrorist financing. Most countries had done this, but many had gaping holes in the legislation that made them vulnerable to TF. As a result of our report – that was not made public – but a high level summary of which was provided to the G20 – 50 countries took action within three months to close the gaps in their criminal legislation. Fifty. In three months. It just shows that where there is a will, there is a way.
Second, is information sharing. The Paris attacks, and other atrocities around the world, have highlighted the pressing need for better information sharing. Today, much of the talk at events such as this is about public private partnerships. They show great promise. But the bigger challenge we face is the need for better information sharing between agencies domestically, and then across borders with partner agencies in other countries. Through our Operational Plan, FATF has focussed heavily on helping countries improve information sharing, including through the provision of best practice and guidance.
Thirdly, ISIL. We specifically focussed on closely tracking how ISIL raised and accessed funds. Every four months we gathered and shared the latest information and intelligence from the law enforcement and intelligence agencies of our members. These updates were not made public but were shared widely within the FATF Global Network. They led to a better, and much wider understanding of how ISIL was financed and they informed targeted action by countries to disrupt this activity. This year we have expanded that exercise to cover not only ISIL but also Al-Qaeda and its affiliates. Effective CTF action must be based on the latest and best information we have. These updates help to provide that.
Through its Operational Plan, FATF has focussed countries on the actions they can take which will have the greatest benefit and we have significantly advanced global CTF implementation. I can report today that the latest result of this is a detailed study on terrorist financing disruption strategies. This is the first such study and FATF finalized it just two weeks ago. It is now being distributed by member governments to their agencies and we are actively seeking feedback from all countries in the global network on the use they have made of it.
But the challenges we face are as great as ever. Of the 60 odd countries assessed against the latest global standards, only 35% of FATF members and 14% of the FATF Global Network, have been found to be substantially or highly effective at countering terrorist financing. Only half of countries globally, have in place measures to implement UN targeted financial sanctions. Less than a third of those are actually implementing these sanctions. And of those, many are doing so too slowly to prevent asset flight by terrorists and their supporters. Through our compliance document and public statement, we continue to identify the countries that present the greatest risk to the integrity of the financial system and to the safety and security of citizens. We continue to engage Iran but having agreed to a comprehensive plan to take action on money laundering and terrorist financing, this expired in February, and as of last month, they had only completed one of 10 actions from that plan. FATF is disappointed by this, and will review the situation in February and decide on next steps at that point.
As criminals and terrorists continue to evolve, the challenge of effective implementation is only going to increase. We can only seek to evolve with them and where possible, to anticipate their moves in advance and take pre-emptive action.
That brings me to the second of the three challenges we face, the evolution of technology in financial services, specifically what we are now calling virtual assets. While TF continues to be predominantly through the physical movement of cash, the use of money value transfer services, as well as non-profit organisations, pre-paid cards and self-funding, the emergence, attractiveness and use of virtual assets by criminals and terrorists has risen to the top of the political agenda. The FATF has been reporting regularly to the G2O on developments in this area and in July, the G20 asked FATF to look at its standards.
The threat presented from the anonymity afforded by virtual assets is being exploited by serious criminals. They have been used to pay members of organised crime groups in Russia involved in drug trafficking, and in complex money laundering schemes, such as that the US authorities uncovered in their prosecution of BTC-e, through which more than 4bn dollars flowed. This activity is likely to be growing quickly with law enforcement agencies only seeing the tip of the iceberg.
However, it is not just criminals taking advantage of this, we are seeing examples of terrorist organisations using virtual assets to raise, move and hide funds. We have seen ISIL advertise on twitter a handbook to help followers use bitcoin and the dark web to raise and transfer funds to their operations in Syria and Iraq.
That is why, two weeks ago, FATF revised the standards to be crystal clear that they apply to virtual assets. And the term itself has been defined in the glossary to the standards and covers exchanges, wallet providers and ICO service providers. FATF has seen a worrying degree of different approaches by countries to the risks these present. A small number have introduced some form of regulation, some have banned them, and many have done nothing. And this is despite FATF having issued clear guidance on this in 2014.
So as of now, there is no excuse for countries not to act to regulate virtual assets and mitigate the risks they present. We expect them to be licensed, registered, supervised and monitored. We expect regulators to robustly enforce these requirements, conduct inspections and to take action where necessary, including shutting down exchanges that do not comply. For our part, we will help further by developing comprehensive guidance and work on detection, investigation and confiscation to identify challenges and good practices. But my message today is: don’t delay any longer. No more excuses. FATF will start evaluating countries against this standard as early as next year.
Finally, to the third challenge we face today and priority for the FATF this year, proliferation financing.
This is less about the nuclear threat from Iran and North Korea. We have seen evidence of ISIL trying to buy drones. Among the operational agencies of FATF members, there is a real concern that it is only a matter of time before a UAV is used to release a chemical or biological agent on a civilian population. Clearly, this is not a threat we can ignore. Every tool and technique must be used to help detect and prevent proliferation financing that might result in such an attack.
This is a really difficult area, not least for financial institutions. However, proliferation financing has been the poor cousin to AML/CTF regimes for too long. As things stand, there is little to underpin the effective use of financial intelligence to tackle this threat. There is no requirement in the standards for countries to assess the risks they face, to criminalize this activity or to require the reporting of related suspicious activity. Without prejudging the outcome of work this year, FATF has put together a task team of members to focus on this challenge and consider what can and should be done.
In conclusion, counter terror financing is at the heart of what FATF does today and we should be careful not to deal with it in a silo, separately from action on money laundering.
We have made huge strides but much more needs to be done for our collective action to be truly effective and remain so.
This year FATF is focusing on improving implementation of CTF measures by countries, helping them to improve investigation and prosecution and disruption; we are focusing on ensuring a more consistent and effective regulation of virtual assets, and we are prioritizing action to counter proliferation financing.
On behalf of FATF, I would like to thank you for being a huge part of this critical global effort, and encourage you to continue this excellent and currently unique initiative in the CFT Summit.