Outcomes FATF Plenary

 

FATF Publication on the Plenary 21 – 25 June 2021 – Published 25 June 2021
“FATF President, Dr. Marcus Pleyer, chaired the second Plenary under Germany Presidency in June 2021. The Plenary discussed the mutual evaluations of Japan and South Africa.”

 

Introduction

 

The 4^th Plenary of the FATF under the German Presidency of Dr. Marcus Pleyer took place on 21-25 June 2021 in Paris, bringing delegates together representing the 205 members of the Global Network and observer organisations. The world continues to deal with the challenges of the pandemic. While it is important for governments to focus on recovery, they must continue to implement the risk-based FATF Standards and work to prevent terrorism. Important finalised work includes:

• A report that details the financial flows linked to environmental crime and a report on the financing of ethnically or racially motivated terrorism.
• Two reports as part of its project to explore the challenges and opportunities of technological innovation to make AML and counter-terrorist financing efforts more effective.
• A report for government authorities identifies concrete actions to improve asset recovery outcomes, which will help increase assets returned to the victims of crime and remove the drivers for criminal activity.
• A second 12-month review of the progress within the FATF Global Network on implementing the FATF’s revised Standards on virtual assets and virtual asset service providers (VASPs).
• A white paper will be released for public consultation on the transparency and beneficial ownership of legal persons to strengthen measures that will prevent criminals from hiding illicit activity and proceeds.

 

1. Strategic initiatives

 

Opportunities and Challenges

The FATF explored the digital Transformation of AML/CFT in the shape of advanced analytics and machine learning detecting suspicious activities of money laundering (ML) and terrorist financing (TF), analysing financial intelligence, and understanding ML/TF risks. Opportunities of New Technologies for AML/CFT include improved speed, quality and efficiency of AML/CFT measures, more accurate, timely and comprehensive risk assessment and the ability to improve financial inclusion, bringing more people into the regulated financial system and reinforcing the effectiveness of AML/CFT measures. A finalised report (published 1 July 2021) identifies emerging and available technology-based solutions with their conditions, policies and practices and examines obstacles that could stand in the way of successful implementation.

Other opportunities are apparent with Stocktake on Data Pooling, Collaborative Analytics and Data Protection. These developments provide the possibility to analyse large amounts of data and to identify patterns and trends, the possibility to collaborate on mitigating ML and TF risks and to identify criminal activity. New privacy-enhancing technologies offer promising ways to protect data protection and privacy.

 

Virtual Assets

The Plenary finalised a second 12-month review of the implementation of FATF’s revised Standards on virtual assets and VASPs which shows that 58 out of 128 reporting jurisdictions have implemented the revised FATF Standards. The majority of jurisdictions have not yet implemented the FATFs requirements, including the “travel rule”. This disincentivises further investment in solutions and shows that we do not yet have global safeguards which can enable continued misuse of virtual assets through jurisdictional arbitrage. The FATF Standards must be implemented as quickly as possible.The Report (published 5 July) also identifies potential future FATF actions. The FATF’s will finalise a revised Guidance on virtual assets and VASPs in October 2021 to help assist jurisdictions and the private sector.

 

Money Laundering from Environmental Crime

Environmental crime generates billions in illicit profits each year through activities such as illegal mining, logging, land clearing and waste trafficking. There has been limited action to prevent this which makes environmental crimes “low risk, high reward” activities causing devastating damage to the world’s ecosystem. The FATF finalised a report that raises awareness about the scale and money laundering techniques, which highlights that criminals frequently use trade-based fraud and shell and front companies. The report (published 28 June) stresses the need for AML authorities to collaborate with non-traditional partners and foreign counterparts such as environmental investigators.

 

Ethnically or Racially Motivated Terrorism Financing

A finalised report on the funding behind ethnically or racially motivated terrorism or extreme right-wing terrorism (ERW) shows that most ERW attacks were carried out by self-funded lone actors, but also by small and medium organisations and transnational extreme right-wing movements. ERW attacks have increased, highlighting the need to raise awareness about this complex phenomenon. Most ERW funding comes from legal sources which challenge tackling the financing and preventing attacks. It also differs per country how they view the threat, ranging from terrorism to racially motivated violence and which legal regime there exists for addressing ERW activity. The report (published 30 June) encourages countries to continue to develop their understanding of this increasingly transnational and more sophisticated criminal activity and include it in their national risk assessments. It also encourages cooperation between public, private and international partners.

 

Asset Recovery

Asset recovery – taking away profits and therefore removing incentives – is one of the key tools of effective action against ML and TF. It also compensates the victims and keeps illicit funds out of the financial system. The majority of assessed countries however scores low on Asset recovery. The FATF finalised a report for government authorities that analyses the key obstacles to asset recovery and how to overcome them.

 

Guidance on Proliferation Financing Risk Assessment and Mitigation

In October 2020, the FATF revised its Standards (R.1 and INR.1) to require countries, financial institutions and designated non-financial businesses and professions (DNFBPs) to identify, assess, understand and mitigate their proliferation financing risks. The FATF now prepared a Guidance (published 29 June) to help these actors effectively implement the mandatory FATF requirements. The Guidance explains how both public and private sectors should conduct risk assessments and how to mitigate the risks and emphasises proportionality to avoid de-risking or financial exclusion.

 

Prevent the Financing of Proliferation of Weapons of Mass Destruction

The FATF has updated the Interpretive Note to Recommendation 15, to clarify that also VASPs must now identify, assess, and take actions to mitigate their proliferation financing risks.

 

Strengthening the FATF Standards on Beneficial Ownership (BO)

Transparency about BO of companies is crucial to stop criminals from hiding criminal activities from law enforcement behind complex corporate structures. Countries are still not doing enough to ensure that BO information is transparent. G7 Ministers acknowledged this problem and agreed to implement and strengthen their own transparency on company BO information.The FATF is considering amendments to strengthen Recommendation 24 on the transparency and BO of legal persons, ensuring BO information is available to competent authorities, introducing stronger measures and stricter controls.

• The FATF is releasing a White Paper (Recommendation 24 – Public consultation) for public consultation and welcomes input from stakeholders by 27 August 2021. The FATF will discuss the next steps at its October 2021 Plenary meeting.

• OECD beneficial ownership Toolkit – published March 2019

 

Mitigating the Unintended Consequences of the FATF Standards

FATF launched a project in February to study and mitigate the unintended consequences resulting from the incorrect implementation of the FATF Standards. The FATF discussed the stocktake report, which examines de-risking, financial inclusion, undue targeting of non-profit organisations, and the curtailment of human rights. The project will now identify possible options to mitigate these unintended consequences.

 

2. Country-specific processes

 

Mutual Evaluation of Japan and South Africa

The joint FATF and Eastern and Southern Africa AML Group, and IMF-led assessment of South Africa’s measures to combat ML and TF were discussed. It concluded that South Africa has a solid legal framework, but significant shortcomings remain in seeking international cooperation, detecting and seizing illicit cash flows and improving the availability of BO information. Authorities need to make better use of the financial intelligence products and should improve the application of the risk-based approach.

In discussing the joint FATF and Asia/Pacific Group (APG) assessment, the Plenary concluded that Japan has demonstrated good results in understanding, identifying and assessing its ML and TF risks, in the collection and use of financial intelligence and in the cooperation with its international partners. However, the country needs to improve supervision of and preventive measures, the prevention of misuse of legal persons and arrangements, and investigating and prosecuting ML and TF. The FATF will publish these reports in August, after a quality and consistency review.

 

Jurisdictions under – and no longer under Increased Monitoring

The FATF can place a jurisdiction under increased monitoring in which case the country has committed to resolving swiftly the identified strategic deficiencies in their regimes to counter ML, TF and proliferation financing within agreed timeframes and is subject to extra checks. The FATF has updated its statements for countries under review:

• New jurisdictions subject to increased monitoring: Haiti, Malta, the Philippines and South Sudan

• Jurisdictions under increased monitoring

• High-Risk Jurisdictions subject to a Call for Action (unchanged from February 2020)

Ghana is no longer a jurisdiction under increased monitoring as it has made progress in addressing the AML/CFT deficiencies. Ghana will work with GIABA to further strengthen its AML/CFT regime.

 

Strengthening the Global Network

Safeguards to combat ML and TF are only effective if they are implemented globally. The FATF’s regional partners, the FATF-Style Regional Bodies (FSRBs), play a crucial role in promoting the full and effective implementation of the FATF Standards. There is a beneficial trend of intensified support of FATF members to FSRBs.

 

More on: Jurisdictions under Increased Monitoring – 25 June 2021, High-Risk Jurisdictions subject to a Call for Action – 25 June 2021