FATF Advisories and Guidance

November 8, 2021

Disclaimer: The contents of this article are intended to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice, and should not be relied on as such.

 

Keep on top of the latest advisories and guidances from the FATF. This blog will be updated with any new information from the regulator as it becomes available.

 

Oct 21, 2021 – Updated Lists of Jurisdictions with Strategic AML/CFT/CPF Deficiencies

The FATF has added Jordan, Mali, and Turkey to its list of the Jurisdictions under Increased Monitoring. As stated by FATF

Jordan will work to implement its FATF action plan by:

  1. completing and disseminating the ML/TF risk assessments of NPOs (non-profit organizations), legal persons and virtual assets;
  2. improving risk based supervision and applying effective, proportionate, and dissuasive sanctions for noncompliance;
  3. conducting training and awareness raising programmes for DNFBPs (Designated Non-Financial Business and Professions) on their AML/CFT obligations, particularly with regard to filing and submitting STRs;
  4. maintaining comprehensive and updated basic and beneficial ownership information on legal persons and legal arrangements;
  5. pursuing money laundering investigations and prosecutions, including through parallel financial investigations, for predicate offences in line with the risk identified in the NRA (National Risk Assessment);
  6. creating a legal obligation for confiscating instrumentalities used or intended to be used in ML crimes;
  7. developing and implementing a legal and institutional framework for targeted financial sanctions; and
  8. developing and implementing a risk-based approach for supervision of the NPO sector to prevent abuse for TF purposes.

Mali will work to implement its FATF action plan by:

  1. disseminating the results of the NRA to all relevant stakeholders including by conducting awareness raising activities with the highest risk sectors;
  2. developing and starting to implement a risk based approach for the AML/CFT supervision of all FIs and higher risk DNFBPs and demonstrating effective, proportionate and dissuasive sanctions for noncompliance;
  3. conducting a comprehensive assessment of ML/TF risks associated with all types of legal persons;
  4. increasing the capacity of the FIU and the LEAs (Law Enforcement Authorities) and enhancing their cooperation on the use of financial intelligence;
  5. ensuring relevant competent authorities are involved in investigation and prosecution of ML;
  6. strengthening the capacities of relevant authorities responsible for investigation and prosecution of TF cases;
  7. establishing a legal framework and procedures to implement targeted financial sanctions; and
  8. implementing a risk-based approach for supervision of the NPO sector to prevent abuse for TF purposes.

Turkey will work to implement its FATF action plan by:

  1. dedicating more resources at the FIU to supervision of AML/CFT compliance by high-risk sectors and increasing on-site inspections overall;
  2. applying dissuasive sanctions for AML/CFT breaches, in particular for unregistered money transfer services and exchange offices and in relation to the requirements of adequate, accurate, and up-to-date beneficial ownership information;
  3. enhancing the use of financial intelligence to support ML investigations and increasing proactive disseminations by the FIU;
  4. undertaking more complex money laundering investigations and prosecutions;
  5. setting out clear responsibilities and measurable performance objectives and metrics for the authorities responsible for recovering criminal assets and pursuing terrorism financing cases and using statistics to update risk assessments and inform policy;
  6. conducting more financial investigations in terrorism cases, prioritizing TF investigations and prosecutions related to UN-designated groups and ensuring TF investigations are extended to identify financing and support networks;
  7. concerning targeted financial sanctions under UNSCRs 1373 and 1267, pursuing outgoing requests and domestic designations related to UN-designated groups, in line with Turkey’s risk profile;
  8. to fully implement a risk-based approach to supervision of non-profit organisations to prevent their abuse for terrorist financing, conducting outreach to a broad range of NPOs in the sector and engaging with their feedback, ensuring that sanctions applied are proportionate to any violations, and taking steps to ensure that supervision does not disrupt or discourage legitimate NPO activity, such as fundraising.

As part of the FATF update, Botswana and Mauritius were removed from the list of jurisdictions under increased monitoring.

Looking to learn more about how to measure geographic risk? Watch our webinar on  Assessing AML Geographic Risk

 

Aug 18, 2021 – Report: Use of Technologies for AML/CFT

The FATF has released a new report that discusses the opportunities and challenges of new technologies for AML/CFT programs. The 76-page report looks at various aspects of the use of technology for compliance to anti-money laundering regulations including the use of emerging technologies like artificial intelligence (AI), natural language processing (NLP), and distributed ledger technology (blockchain technology).

The report also reviews some of the new digital solutions for customer due diligence and the use of APIs – all designed to help organizations take a risk-based approach to their AML compliance program.

Artificial Intelligence
The FATF describes AI as the “science of mimicking human thinking abilities to perform tasks that typically require human intelligence, such as recognizing patterns, making predictions recommendations, or decisions. AI uses advanced computational techniques to obtain insights from different types, sources, and quality (structured and unstructured) of data intelligence to “autonomously” solve problems and execute tasks.”

Machine learning (ML) and NLP fall are cited as AI-powered capabilities offering great benefit to AML/CFT for regulated entities and supervisors. For compliance programs, machine learning provides the potential to support:

  • Identification and verification of customers
  • Monitoring of the business relationship and behavioral and transactional analysis
  • Identification and implementation of regulatory updates
  • Automated data reporting (ADR)

At Alessa we believe that organizations looking to incorporate machine learning technology into their compliance or fraud detection programs should start with anomaly detection. This advanced technique uses an organizations’ data and data science to detect behaviour that doesn’t fit within the expected normal behaviour profile. There are different types of anomalies that can be detected, including:

Point anomalies are single instances (or outliers) that fall outside of the normal behaviour. These include sudden large deposits or credits to an account.

Contextual anomalies are data points or transactions that appear anomalous without the appropriate context. For example, increased spending during summer months might appear anomalous in itself but in the context of the holiday season, would be considered normal. A similar situation may appear if a client is starting a new business.

A collective anomaly is when a number of data points are considered anomalous but the values of the individual data points are not themselves anomalous. An example of a collective anomaly includes a case where deposits of $4,500 are made into a chequing account. It may be unusual to have frequent deposits of such amount into a personal account but the value of the deposit is not flagged as suspicious.

Natural Language Processing
NLP, a branch of AI that enables computers to understand, interpret and manipulate human language, is being considered for many document processing applications. According to the FATF, the Central Bank of Brazil (BCB) is developing NLP tools to analyze:

  • Social media posts
  • Internal reports and documents
  • External reports and documents (explanatory notes, audit reports, relevant facts and minutes of boards)
  • Internet research (web scrapping)
  • Inspections and follow-ups

The end goal of the Brazilian NLP project is to provide an ancillary source of information for supervision activities and increase the processing capacity of the qualitative information presented. The FATF also states that NLP has the potential to reduce false positives and negatives in processes such as sanction screening processes, overcome problems of data quality and better link elements of information such as search engine results with PEP lists.

Tools for CDD and APIs
When considering tools to support customer due diligence (CDD) activities, the report discusses customer identification tools, machine learning, onboarding tools like geolocation, credit checks and anti-fraud software that allow for quick CDD and client traits analysis. Finally, enhanced use of technologies for client screening and matching, are cited to have the potential to improve compliance processes.
While not new, APIs offer the potential to integrate different and often incompatible systems, including legacy technologies and specialized tools. Benefits in the use of APIs include:

  • Enhancing the interoperability between traditional banking data
  • Moving away from siloed systems with fragmented frameworks
  • Increasing automation that optimizes resources and output accuracy
  • Building a more complete risk profile during onboarding and the course of the relationship.

Visit the FATF’s website to download the full report.

Alessa has been helping organizations leverage technology so they can more effectively implement a risk-based approach to their AML compliance programs. Not only does the solution offer sanctions screening, transaction monitoring, and regulatory reporting, it also allows compliance teams to leverage technologies like machine learning, identity verification, APIs and more.

Contact us to learn about how Alessa can help you achieve your AML/CFT objectives.

 

Mar 19, 2021 – VA/VASP Guidance

FATF is updating its Guidance on the risk-based approach to virtual assets (VAs) and virtual asset service providers (VASPs) and is consulting private sector stakeholders before finalizing the revisions. The revised document addresses six main areas and provides:

  1. Clarification on the definitions of VAs and VASPs and FATF’s position on relevant financial assets
  2. Guidance on how the FATF Standards apply to stablecoins
  3. Additional guidance on the risks and potential risk mitigants for peer-to-peer transactions
  4. Updated guidance on the licensing and registration of VASPs
  5. Additional guidance on the implementation of the ‘travel rule’
  6. Information on the Principles of Information-Sharing and Co-operation Amongst VASP Supervisors.

Before finalizing the revisions to the Guidance, FATF is welcoming feedback on specific areas of focus and the proposed revisions to the text of the Guidance. Responses should be emailed to FATF by 20 April 2021 (18:00 UTC).

Read about FATF’s proposed changes, areas of focus and how to submit your revisions, as well as, an in-depth analysis from CipherTrace on what these proposed changes may mean to the industry.

 

Mar 4, 2021 – Risk-Based Approach to AML/CFT Supervision

To help go beyond a tick-box approach to curb money laundering and terrorist financing, FATF has released a new document called Guidance for a Risk-Based Approach Guidance to Supervision. This publication is designed to help supervisors address the full spectrum of risks and focus resources where the risks are highest. The guidance is composed of three parts:

  • Part 1 explains how supervisors should assess the risks their supervised sectors face and prioritize their activities, in line with the FATF Standards’ risk-based approach.
  • Part 2 provides strategies to address common challenges in risk-based supervision & jurisdictional examples, including examples of strategies for supervising non-financial businesses and professions and virtual asset service providers.
  • Part 3 lists country examples of supervision of the financial sector, virtual asset service providers and other private sector entities.

Download Guidance for a Risk-Based Approach Guidance to Supervision.

 

Feb 25, 2021 – Jurisdictions under Increased Monitoring

In October 2020, the FATF decided to recommence its work to identify new countries with strategic AML/CFT deficiencies and to prioritize the review of listed countries with expired or expiring deadlines.

Albania, Botswana, Cambodia, Ghana, Mauritius, Myanmar, Nicaragua, Pakistan, Panama, Uganda and Zimbabwe had their progress reviewed and their updated statements can be found here. Barbados and Jamaica chose to defer reporting hence the statements issued in February 2020 may not reflect the current status of their AML/CFT regime. Burkina Faso, the Cayman Islands, Morocco, and Senegal are recent additions to the list and information about their AML/CFT regime is available here.

 

Feb 16, 2021 – Follow-up Report for Denmark

Denmark reported back to the FATF on the action it has taken since its last follow-up report, in November 2019. Consequently, to reflect the country’s progress, the FATF has now re-rated the country on the following Recommendations:

6 – Targeted financial sanctions – terrorism & terrorist financing, from partially compliant to largely compliant
7 – Targeted financial sanctions – proliferation, from partially compliant to largely compliant
8 – Non-profit organizations, from partially compliant to largely compliant
15 – New Technologies, partially compliant
25 – Transparency & Beneficial ownership of legal arrangements, from partially compliant to largely compliant
26 – Regulation and supervision of financial institutions, from partially compliant to largely compliant

Read Denmark’s 2021 report.

 

Dec 09, 2020 – Trade-Based Money Laundering Report

A new FATF-Egmont Group report is now available to help the public and private sector with the challenges of detecting trade-based money laundering (TBML). This 66-page document explains the ways in which criminals exploit trade transactions to move money, rather than goods, as well as, TBML risks and trends, and measures and best practices to counteract trade-based money laundering.

Read the full report.

 

Sept. 14, 2020 – Virtual Assets Red Flags

The FATF has identified red flag indicators to help detect whether virtual assets  (VAs) are being used for criminal activity. VAs and related services have the potential to spur financial innovation and efficiency, but their distinct features also create new opportunities for criminals.

The ability to transact across borders rapidly not only allows criminals to acquire, move, and store assets digitally often outside the regulated financial system, but also to obfuscate the origin or destination of the funds and make it harder for reporting entities to identify suspicious activity in a timely manner. These factors add hurdles to the detection and investigation of criminal activity by national authorities.

These indicators are based on more than 100 case studies collected by members and include red flag indicators related to transactions, transaction patterns, anonymity, senders or recipients, source of funds or wealth and geographical risks.

Here are examples from the publication of red flags related to transactions:

  • Structuring VA transactions (e.g. exchange or transfer) in small amounts, or in amounts under record-keeping or reporting thresholds, similar to structuring cash transactions.
  • Making multiple high-value transactions –
    – in short succession, such as within a 24-hour period;
    – in a staggered and regular pattern, with no further transactions during a long period afterwards; or
    – to a newly created or to a previously inactive account.
  • Transferring VAs immediately to multiple VASPs, especially to VASPs registered or operated in another jurisdiction where –
    – there is no relation to where the customer lives or conducts business; or
    – there is non-existent or weak AML/CFT regulation.

To learn about more red flags for VAs, download the report.

 

Sept 2, 2020 – Follow-Up Report Sweden, China

A 1st regular follow-up report and technical compliance re-rating for the country of Sweden is now available. The following were noted:

  • Recommendation 26 – (Regulation and supervision of financial institutions) from partially compliant to largely compliant.
  • Recommendation 15 ( New technologies) from compliant to largely compliant.

Sweden is rated compliant on 14 Recommendations and largely compliant on 23 Recommendations. It is remains partially compliant on 3 Recommendations. Read the full report here.

 

A 1st enhanced follow-up report and technical compliance re-rating for the country of China is now available. The following were noted:

  • Recommendation 26 (Regulation and supervision of financial institutions) – from partially compliant to largely compliant
  • Recommendation 34 (Guidance and feedback) – from partially compliant to largely compliant
  • Recommendation 15 (New technologies) from partially compliant to largely compliant.

China is now compliant on 7 of the 40 Recommendations and largely compliant on 18 of them. It remains partially compliant on 9 of the Recommendations and not compliant on 6 of them. The country remains in enhanced follow-up and will report back to the FATF on progress. Read the full report here.

A number of other assessment reports for other countries are now available, visit here for more information.

 

July 24, 2020 – Illegal Wildlife Trade

The FATF has conducted a new study to provide guidance to countries on measures they can take to combat money laundering from the illegal wildlife trade.

Wildlife traffickers exploit weaknesses in the financial and non-financial sectors, to move, hide and launder their proceeds, enabling further wildlife crimes and damaging financial integrity. One of the most effective ways to identify the broader criminal networks and take the profit out of this crime is to follow the financial trails of wildlife traffickers.

Despite the significant criminal gains involved, countries and private sector are not prioritizing efforts to trace and combat financial flows from this trade in line with risk.

To combat the financial flows from the illegal wildlife trade, countries should therefore as a priority:

  1. Identify and assess their money laundering risks relating to the illegal wildlife trade.
  2. Ensure that national laws and powers for law enforcement allow authorities to go after the finances of wildlife traffickers, and to pursue financial investigations.

Read more about Money Laundering and the Illegal Wildlife Trade

 

July 7, 2020 – FATF View on Stablecoins

This report sets out the FATF’s views on so-called Stablecoins following the G20 request to consider the anti-money laundering and counter-terrorism financing issues relating to so-called Stablecoins.

The FATF has identified potential risks which may require further action including in jurisdictions where weak or non-existent AML/CFT programs and so-called Stablecoins with decentralized governance structures and anonymous peer-to-peer transactions via unhosted wallets.

The FATF proposes that all jurisdictions implement the revised FATF Standards on virtual assets and VASPs. FATF also wants to review the implementation and impact of the revised Standards by June 2021 to consider whether further updates are necessary. This will include monitoring the risks posed by virtual assets, the virtual asset market, and proposals for arrangements with potential for mass-adoption that may facilitate anonymous peer-to-peer transactions.

The FATF says it will provide guidance for jurisdictions on so-called Stablecoins and virtual assets, as part of a broader update of its Guidance. This will set out in more detail how AML/CFT controls apply to so-called Stablecoins, including the tools available to jurisdictions to address the ML/TF risks posed by anonymous peer-to-peer transactions via unhosted wallets.

The organization will also enhance the international framework for VASP supervisors to co-operate, share information, and strengthen their capabilities, in order to develop a global network of supervisors to oversee these activities.

FATF says in order to support those actions, the G20 needs to lead by example and ensure they have implemented the revised FATF Standards and calls on all other jurisdictions to do the same.

Read the entire: FATF Report to G20 on So-called Stablecoins

 

July 7, 2020 – Virtual Assets and VASPs

This report sets out the findings of the 12-month review undertaken by the FATF to measure how jurisdictions and the private sector have implemented the revised Standards.

The FATF has completed a review of the implementation of its revised Standards on virtual assets and virtual asset service providers (VASPs); 12 months after the FATF finalized these amendments. The June 2019 revisions to the FATF Standards clearly placed anti-money laundering and counter-terrorism financing (AML/CFT) requirements on virtual assets and virtual asset service providers. The FATF also agreed to undertake a 12-month review by June 2020 to measure how jurisdictions and the private sector have implemented the revised Standards, as well as monitoring for any changes in the typologies, risks and the market structure of the virtual assets sector.

This report sets out the findings of the review. The report reviews the implementation of the revised Standards and sets out:

  • How money laundering and terrorism financing risks and the virtual asset market have changed since June 2019);
  • Jurisdictions’ progress in implementing the revised Standards;
  • The private sector’s progress in implementing the revised Standards, including the development of technical solutions for the implementation of the travel rule;
  • Issues identified with the revised FATF Standards and Guidance; and
  • FATF’s next steps regarding virtual assets.

Read the 12 Month Review of Revised FATF Standards – Virtual Assets and VASPs

 

June 30, 2020 – High-Risk Jurisdictions

High-risk jurisdictions have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation, according to the FATF.

For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence (EDD), and in the most serious cases, countries are called upon to apply counter-measures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the country.

On 28 April 2020, the FATF decided on a general pause in the review process for the list of high-risk jurisdictions subject to a call for action. Therefore, please refer to the list of High-Risk Jurisdictions subject to a Call for Action adopted in February 2020. While the statement may not necessarily reflect the most recent status in Iran and the Democratic People’s Republic of Korea’s AML/CFT regime, the FATF’s call for action on these high-risk jurisdictions remains in effect.

Read the report on High-Risk Jurisdictions subject to a Call for Action

 

Jun 30, 2020 – Increased Monitoring

Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.

When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the ‘grey list’.

On 28 April, the FATF decided on a general pause in the review process for the list of jurisdictions under increased monitoring.

The FATF continues to identify additional jurisdictions, on an on-going basis, that have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. A number of jurisdictions have not yet been reviewed by the FATF and FSRBs.

Read about the Jurisdictions under Increased Monitoring

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