FATF And Its Role in AML Compliance!

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FATF is an intergovernmental organisation responsible for setting international standards for AML. The FATF was established in 1989 by the G7 to combat the impact of money laundering and terrorism financing. The organisation plays a crucial role in developing and implementing AML policies globally.

The Financial Action Task Force (FATF) is an intergovernmental organisation. It was established in 1989 with the aim of combating money laundering and terrorist financing. The FATF is responsible for setting international standards for anti-money laundering (AML). It also helps in CTF measures and promotes their implementation by member countries.

 

In this blog post, we will take a closer look at the FATF and its role in AML compliance. We will also talk about its history, structure, and the key AML recommendations it has issued.

History Of Financial Action Task Force (FATF)

The FATF was created in response to a growing concern about the impact of money laundering. It was also helpful to minimise terrorist financing on the global financial system. At the time, there was no international framework to address these issues. Additionally, different countries had different approaches to AML and CTF measures.

 

The FATF was established by the G7 in 1989 as a forum for international cooperation on AML and CTF measures. Its original mandate was to develop recommendations for national governments on AML policies. It was also helpful to practise and encourage their implementation.

 

Over time, the FATFs role expanded, and it became a key driver of international AML and CTF standards. Today, the FATF has 39 member countries. Some of them are the United States, Canada, the United Kingdom, and Japan, as well as a number of observer countries and organisations.

Structure Of Financial Action Task Force (FATF)

The FATF is made up of two bodies: the plenary and the secretariat.

 

The plenary is the decision-making body of the FATF and is made up of representatives from each member country. The plenary meets three times a year to review progress on AML and CTF measures and to issue new recommendations or updates to existing ones.

 

The Secretariat is the administrative arm of the FATF and is responsible for implementing the decisions of the plenary. The secretariat is based in Paris, France, and is staffed by a team of experts in AML and CTF measures.

 

 

What Are the Major Responsibilities of FATF?

 

As discussed, FATF is a regulatory body that helps protect the countrys financial system against illegal practices and contributes to national security. This is possible through the execution of the roles assigned to the FATF. Some of them are:-

 

• AML Guidance

Like any other regulatory body, FATF plays a key role in issuing guidance and best practices for AML compliance. A set of 40 recommendations provides a global standard for AML compliance issued by FATF. All these recommendations undergo regular updates that help reflect changes in the global financial landscape and determine new threats and challenges. 

 

• Tools and Watchlists

One of the major responsibilities of FATF is to maintain a series of watchlists and public statements. This helps acknowledge crucial information about countries, jurisdictions, and individuals that may impose a risk of money laundering and terrorist financing. By doing so, it becomes easy to take appropriate actions against the suspicious elements entering the country. 

 

• Enforcement

Aside from laying guidelines and providing tools and resources, FATF is also responsible for enforcing AML standards. It conducts mutual evaluations to determine whether member countries are following FATF recommendations. During these evaluations, experts from other member countries identify the strengths and weaknesses of a countrys AML regime.

 

FATF also encourages non-member countries to join the organisation by helping them improve their AML frameworks. 

AML Regulatory Requirements Issued By The FATF

The FATF has issued a number of key AML recommendations over the years. These are made to help member countries prevent money laundering. These recommendations cover a wide range of AML and CTF measures. It includes customer due diligence, record-keeping, reporting of suspicious activities, and international cooperation.

 

Some AML regulatory requirements issued by the FATF include:

 

• Customer Due Diligence (CDD)

Customer due diligence is important to verify the identity of their customers. It also verifies the beneficial owners of any accounts or transactions. CDD measures should be risk-based. It should also take into account factors such as the type of customer, the nature of the business relationship, and the location of the customer.

 

• Record-Keeping

Financial institutions should maintain adequate records of their transactions and customer information. It includes the purpose and nature of the transaction, the identity of the customer, and any beneficial owners.

 

• Reporting of Suspicious Activities

Financial institutions should have procedures in place to identify and report suspicious activities to the relevant authorities. These procedures should include training for employees on how to recognize suspicious activities.

 

• International Cooperation

Countries should cooperate with each other to prevent and combat money laundering. This includes sharing information and intelligence. It also includes working together on investigations and prosecutions.

 

• Training and Awareness

Financial institutions and businesses should provide training and raise awareness among their employees. They should educate about the risks of money laundering and terrorist financing. Also, the measures they can take to prevent and detect these activities. 

 

The measure are: 

• Providing regular training on AML/CFT regulations procedures
• Maintaining a culture of compliance within the organisation

 

• Beneficial Ownership 

FATF recommends corporate entities to hold accurate and up-to-date information about their beneficial ownership. 

Beneficial ownership refers to the natural persons who ultimately own, control, or benefit from a legal entity. This information is important to prevent the misuse of corporate vehicles for illicit purposes. 

Final Words 

The Financial Action Task Force (FATF) plays a critical role in the global fight against money laundering and terrorist financing. Through its AML standards and guidance, it helps to ensure that financial institutions operate in a safe and secure manner.

 

The key AML recommendations issued by the FATF serve as important measures to prevent and detect money laundering.

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