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Financial Action Task

Force
Reference Guide

Make things easier to do thinks and implement effectively

Kalyanaraman K
kalyanaramanca@yahoo.co.in
04-Oct-08
The Financial Action Task Force (FATF)
Focuses on three principal areas

 FIRSTLY, IT SETS STANDARDS FOR NATIONAL ANTI MONEY LAUNDERING AND COUNTER – TERRORIST FINANCING
PROGRAMS AND PROMOTES THE ADOPTION AND IMPLEMENTATION OF APPROPRIATE MEASURES GLOBALLY

 SECONDLY, IT MONITORS AND EVALUATES THE DEGREE TO WHICH MEMBER COUNTRIES HAVE IMPLEMENTED
NECESSARY MEASURES TO MEET THOSE STANDARDS .

 FINALLY, IT IDENTIFIES AND REVIEWS MONEY LAUNDERING AND TERRORIST FINANCING TECHNIQUES AND TRENDS.

FATF works in close cooperation with other international bodies involved in this area.
• United Nation (UN) office for Drug Control and Crime Prevention
• Council of Europe
• Asia – Pacific Group on Money Laundering
• Caribbean Financial Action Task Force

FATF’s Recommendations – 40 Universal recommendations and 9 Special


recommendations

40 recommendations for Money Laundering

 Framework for Anti money laundering efforts


 Complete set of counter measures against money laundering, covering the criminal justice
system and law
 Now become the global blueprint in Anti-Money Laundering best practices
 The FATF plays an important role in the country’s financial system.
 The IMF regards the Anti-money laundering actions advocated by the FATF as crucial for the
smooth functioning for financial markets.
 FATF’s successful exercise on Non Cooperating Countries and Territories (NCCT) which brought
about a sea change in thinking at the highest political levels.
 In addition to providing countries with the guidance they need to develop effective regimes,
the FATF also places pressure on Countries with its Non Cooperating Countries and Territories
(NCCT) program, which allows it to blacklist countries that do not comply with anti money
laundering practices.
Category of recommendations
Legal system in countries
Scope of the Criminal offence of Money Laundering
Recommendation 1 & 2

All serious offences are to be made predicate offence for the crime of money laundering (Recom., 1)

Provisional measures and confiscation


Recommendation 3

Measures to be taken by Financial Institutions and Non Financial Business and


Professional to prevent Money Laundering and Terrorist Financing
Customer due diligence and Record Keeping
Recommendation 4,5,6,7,8,9,10,11 & 12

Law of secrecy not to inhibit implementation of FATF Recommendations (Recom., 4)

No Anonymous accounts or accounts in fictitious names. Ongoing customer due diligence & verification of
customer identity including occasional customer & beneficial owners

 Financial Institutions, for occasional customer the designated thresholds for transactions USD
/EUR 15,000/-(Recom., 5)

For Politically Exposed Persons (PEP), institute appropriate risk management system

 Establish source of wealth


 Ongoing monitoring of business relationship (Recom., 6)

Additional due diligence measures for correspondent banking & other similar relationship
 Collect information about respondent’s business, reputation & quality of supervision
 Assess AML & Terrorist financing controls
 Documents respective responsibilities
 Respondent bank of verify identity & perform due diligence on customers saving access &
Correspondent account (Recom., 7)

Financial institution to have policy to counter risks due to increasing advancement and use of IT (Recom.,
8)

In countries where financial institutions are allowed to engage third parties for performing customer
identification, ultimate responsibility for identification & verification remains with the financial institution
(Recom., 8)

Pay attention to Large / unusual Transactions & Keep record for 5 years (Recom., 10 &11)

CDD & Record keeping requirement extended to Casinos, Real Estate Agents, Dealers in precious metals &
stones, lawyers, notaries
 The designated threshold for transaction of casinos, including internet casinos USD /EUR 3,000/- (
Recom., 12 &16)

Reporting of Suspicious Transaction and compliance


Recommendation 13, 14, 15 & 16

Report all suspicious promptly (Recom., 13)

Financial Institutions & their employees are protected from breach of confidentiality & prohibited form
disclosing suspicious transaction (Recom., 14)

It is the obligation all financial institutions to develop AML programs, ongoing employee training and audit
function to test the system

 The designated threshold for transactions for dealers in precious metels and dealers in precious
stones when engaged in any cash transaction USD / EUR 15,000/-(Recom., 15 &16)

Other measures to deter money laundering and terrorist financing


Recommendation 17, 18, 19 & 20

Non compliance of FATF rules should be punishable (Recom., 17)

Financial institutions to discontinue correspondent relationship with Shell banks (Recom., 18)

Countries to detect or monitor, physical cross border transportation of currency & bearer N.I & establish
reporting of transaction over a fixed amount (Recom., 19)

Apply FATF recommendations to business posing Risk and encourage secure techniques of money
management ( Recom., 20)

Measures to be taken with respect to countries that do not or insufficiently comply with the FATF
Recommendations
Recommendation 21 & 22

Pay Special attention to transactions form NCCT (Recom., 21)

Apply FATF recommendations to branches and subsidiary abroad (Recom., 22)

Regulation and supervision


Recommendation 23, 24 &25

All financial institutions should be properly regulated & supervised to prevent criminals form being
beneficial owners or from acquiring controlling interest or holding management function (Recom., 23)

Non financial business & Professions should be subject to regulatory & supervisory measures (Recom., 24)

Guidelines & feedback to be provided to financial institutions & non financial business to assist them in
combating money laundering & terrorist financing (Recom., 25)
Institutional and other measures necessary in systems for combating money
laundering and Terrorist Financing
Competent authorities, their powers and resources
Recommendation 26, 27, 28, 29, 30, 31 & 32

Countries are required to setup financial intelligence unit to receive STRs, To assign law enforcement
duties to investigate money laundering & Terrorist financing, to co ordinate between various AML
agencies, compel production of documents & impose sanctions for short comings ( Recom., 26 - 320

Transparency of legal persons and arrangement


Recommendation 33 & 34

Countries will combat abuse of legal persons by money launderers by accessing adequate, accurate &
timely information on beneficial ownership & control (Recom., 33)

Singles out trusts & needs for information on settler, trustee & beneficiaries (recom., 34)

International Co operation
Recommendation 35

Mutual legal assistance and extradition


Recommendation 36, 37, 38 & 39

Seek to strengthen international action by mutual assistance amongst countries. They call for widest
possible co-operation at all levels & Data protection safeguards to ensure information relayed in not used
other than for the purpose intended ( Recom., 36 – 40)

Other forms of co operation


Recommendation 40

9 Special recommendations for Terrorism financing


I. Ratification and implementation of UN instruments
Each country should take immediate steps to ratify and to implement fully the 1999 United Nation
International Convention for Suppression of the Financing of Terrorism.

Countries should also immediately implement the United Nations resolutions relating to the
prevention and suppression of the financing of terrorist acts, particularly United Nations Security
council Resolution 1373.

-IMPLEMENT UN RESOLUATIONS

II. Criminalizing the financing of terrorism and associates money laundering


Each Country should criminalize the financing of terrorism, terrorist acts and terrorist organisations.
Countries should ensure that such offences are designated as money laundering predicate offences.

-DEFINITION AS CRIME
III. Freezing and confiscating terrorist assets
Each country should implement measures to Freeze without delay funds to other assets of terrorist,
those who finance terrorism and terrorist organizations in accordance with the United Nations
resolutions relating to the prevention and suppression of the financing of terrorist acts.

Each country should also adopt and implement measures, including legislative ones, which would
enable the competent authorities to seize and confiscate property that is the proceeds of, or used in,
or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist
organizations.

-POWERS TO FREEZE, SEIZE AND CONFISCATE

IV. Reporting suspicious transactions related to terrorism


If financial institutions, or other businesses or entities subject to anti money laundering obligations,
suspect or have reasonable grounds to suspect that funds are linked or related to ,or are to be used
for terrorism, terrorist acts or by terrorist organizations, they should be required to report promptly
their suspicions to the competent authorities.

-RESPONSIBILITY TO REPORT SUSPICIOUS ACTIVITIES

V. International co- operation


Each Country should afford another country, on the basis of a treaty, arrangement or other
mechanism for mutual legal assistance or information exchange, the greatest possible measure of
assistance investigations, inquires and proceedings relating to the financing of terrorism, terrorist
acts and terrorist organizations.

Countries should also take all possible measures to ensure that they do not provide safe havens for
individuals charged with the financing of terrorism, terrorist acts or terrorist organizations and
should have procedures in place to extradite, where possible, such individuals.

-OBLIGATION TO ASSIST, ONUS TO PREVENT

VI. Alternative Remittance


Each country should take measures to ensure that persons or legal entities, including agents, that
provide a service for the transmission of money or value, including transmission through an informal
money or value transfer system or network, should be licensed for registered and subject to all the
FATF recommendations that apply to banks and non bank financial institutions.

Each country should ensure that persons or legal entities that carry out this service illegally are
subject to administrative, civil or criminal sanctions.

-RECORD AND TRACK, CONTROL OF ENTITIES

VII. Wire Transfers


Countries should take measures to require financial institutions, including money remitters, to
include accurate and meaningful originator information (name, address and account number) on
funds transfers and related messages that are sent, and the information should remain with the
transfer or related message through the payment chain.
Countries should take measures to ensure that financial institutions, including money remitters,
conduct enhanced scrutiny of and monitor for suspicious activity funds transfers which do not
contain complete originator information (name, address, and account number).

-IDENTIFY ORIGIN, DUE DILIGENCE, DETAILS

VIII. Non Profit organisations


Countries should review the adequacy of laws and regulations
regulations that relates to entities that can be
abused for the financing of terrorism.

Non profit organizations are particularly vulnerable and countries should ensure that they cannot be
misused by terrorist organisations posing as legitimate entities to exploit legitimate
legitimate entities as
conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and
to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist
Organisations.

-PREVENT MISUSEE OF VULNERABLE ENTITIES


ENTI

IX. Cash Couriers


Countries should have measures in place to detect the physical cross border transportation of
currency and bearer negotiable instruments, including a declaration system or other disclosure
obligation.

Countries should ensure that their competent authorities have the legal authority to stop or restrain
currency or bearer negotiable instruments that are suspected to be related to terrorist financing or
money laundering, or that are falsely declared or disclosed.

Countries should ensure the effective, proportionate and dissuasive sanctions are available to deal
with persons who make false declaration(s) or disclosure(s) and enable the confiscation of such
currency or instruments.

OWERS TO RESTRAIN & ACT


-ABILITY TO DETECT, POWERS