Outcomes of the FATF Plenary, 25-27 October 2023
Unofficial translation from the Vietnamese original.
Paris, 27 October 2023 - The fourth Plenary of the Financial Action Task Force (FATF) under the Presidency of T. Raja Kumar has concluded. Delegates from the FATF Global Network (more than 200 jurisdictions) and observers from international organisations took part in the discussions at the FATF headquarters in Paris.
Over three days, delegates worked through a detailed agenda on issues relating to anti-money laundering, terrorist financing and proliferation financing. The Plenary discussed the situation in the Middle East.
The FATF agreed to publish a major report on Crowdfunding for Terrorism Financing. Members also agreed to amend FATF Recommendation 8 to clarify the measures applicable to non-profit organisations (NPOs). The FATF will broaden the scope of the criminalisation of terrorist financing (Recommendation 5).
FATF Members recognised the need for full and effective implementation of the FATF Standards by all jurisdictions, including the analysis and sharing of financial intelligence on terrorist financing networks and the use of financial law enforcement tools, such as financial sanctions and confiscation, to cut off terrorists' sources of income and degrade their support infrastructure. This also includes the designation of entities and individuals associated with terrorism identified under the relevant United Nations Security Council Resolutions.
In a significant milestone, delegates also agreed on a set of major amendments to the FATF Recommendations to provide countries with a much stronger toolkit of measures to confiscate the proceeds of crime, a priority of the FATF under its new Singaporean President. To further improve global asset recovery efforts, the FATF also issued a report to strengthen the role and use of asset recovery networks (ARINs) in pursuing transnational money laundering cases.
The FATF also adopted reports on illicit financial flows from cyber-enabled crime and the misuse of citizenship and residency by investment programmes.
Following recent amendments to the beneficial ownership and transparency standards, delegates also agreed to publish the updated FATF risk-based Guidance on Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements.
The FATF welcomed Indonesia as its 40th Member.
Delegates discussed the joint FATF-GAFILAT mutual evaluation of Brazil.
The FATF also updated its statements identifying high-risk and other monitored jurisdictions, and removed four countries from increased monitoring following successful on-site visits.
In preparation for the next round of mutual evaluations, delegates finalised amendments to the FATF Methodology used to assess how effectively countries have implemented the FATF requirements on beneficial ownership and transparency.
In addition, the FATF agreed on a comprehensive set of procedures that all relevant assessment bodies, including all FATF-Style Regional Bodies (FSRBs), will use to assess countries' compliance with the FATF Standards in the next round of mutual evaluations. This common framework for conducting mutual evaluations contributes to a more cohesive and inclusive Global Network.
FATF MEMBERSHIP
Indonesia
The FATF granted full membership to Indonesia. The country underwent a mutual evaluation process, which was discussed and adopted by the Plenary in February 2023. Since then, Indonesia has worked on an action plan to address the key technical compliance and effectiveness issues identified during the evaluation. On the basis of the country's strong political commitment to completing the remaining items in its national action plan on anti-money laundering, counter-terrorist financing and counter-proliferation financing (AML/CTF/CPF), the Plenary agreed to admit Indonesia as a member of the FATF, with effect from the end of this Plenary. Indonesia will benefit from the full rights of membership and will be required to meet the obligations of FATF membership. With Indonesia's accession, the FATF now has 40 members, including all G20 countries.
Russian Federation
The suspension of the membership of the Russian Federation remains in effect. Following the statements issued since March 2022, the FATF reiterates that all jurisdictions should be vigilant to current and emerging risks arising from the circumvention of measures taken against the Russian Federation, in order to protect the international financial system.
STRATEGIC INITIATIVES
Improving asset recovery
Under its Singaporean Presidency, the FATF has prioritised the promotion of policies and actions to ensure that asset recovery is a key pillar of every country's approach to tackling money laundering and terrorist financing. Globally, countries recover only a small fraction of the assets generated by criminal activity. This allows criminals to enjoy their ill-gotten gains freely, fuelling further criminal activity and distorting the legitimate economy.
The FATF has led global efforts to strengthen legal and operational frameworks in order to reinforce the effectiveness of countries' asset recovery actions. In cooperation with INTERPOL, the FATF also brought together policymakers and operational experts at the FATF-INTERPOL Roundtable Engagement (FIRE) to improve outcomes in the freezing, seizing and confiscation of assets. The FIRE discussions highlighted the need for stronger domestic legal frameworks for asset recovery, robust operational structures and enhanced international cooperation.
At the Plenary, delegates welcomed these findings and agreed on major amendments to the FATF Recommendations to provide countries with enhanced tools to freeze, seize and confiscate criminal property more effectively, both domestically and through international cooperation.
The revised Recommendations require countries to have policies and operational frameworks that prioritise asset recovery and to establish non-conviction-based confiscation regimes in their legal systems. They also introduce new features, such as powers to suspend transactions related to money laundering, terrorist financing and serious crime. This will allow the relevant national authorities to secure criminal property more quickly, increasing the chances of successful confiscation and of restitution to victims.
The revised Standards are an important milestone that will help bring about the cultural change needed to ensure that asset recovery becomes a core component of effective crime prevention and mitigation strategies. It is now the responsibility of each country to implement these revised requirements effectively within its national framework and to use these tools to deprive criminals of their illicit assets and contribute to a safer society.
The FATF will now work to amend the relevant parts of its Assessment Methodology for the next round of mutual evaluations to take account of the changes to the Recommendations.
The updated Recommendations will be published in November
Collaboration with Asset Recovery Interagency Networks (ARINs): recommendations and final report
ARINs are informal international or regional networks that bring together law enforcement and judicial authorities working in the field of asset tracing, freezing, seizure and confiscation. They play an important role in enhancing the effectiveness of international asset recovery efforts. The FATF has completed a report analysing the ARIN model, including recommendations to strengthen the cooperation of the FATF Global Network with ARINs and to ensure that investigators and prosecutors use ARINs effectively to “follow the money” across borders and recover assets in transnational criminal cases. The report will be published in November.
Combating the misuse of NPOs for terrorist financing
The FATF agreed to amend the FATF Recommendations to protect NPOs from potential terrorist financing abuse through the effective implementation of risk-based measures. These amendments are the result of intensive discussions and active consultation with stakeholders in the public and private sectors, including through a public consultation that closed in August 2023.
NPOs carry out vital work, often in very difficult circumstances and regions, but the misapplication of the FATF Recommendations has had an adverse impact on legitimate charitable and humanitarian activities. The FATF's work to identify and analyse these unintended consequences showed that countries often apply the FATF's risk-based approach poorly.
The FATF has clarified its requirements in close consultation with NPOs. The amendments make clear that Recommendation 8 does not apply to all NPOs, but only to the subset that falls within the FATF definition. The revised Standard requires countries to identify the types of organisations that fall within the FATF definition, assess the risks of their abuse for terrorist financing, and apply focused, proportionate and risk-based measures to mitigate these risks. It clarifies the approach to low-risk NPOs and the need for countries to ensure oversight or monitoring, without going so far as to supervise the sector in the same way as they do the financial or non-financial sectors. The revised Recommendation also aims to prevent the undue disruption or discouragement of legitimate charitable activities through the implementation of risk-based measures. It emphasises that countries may also take into account, where they exist, self-regulatory measures and related internal control measures in place within non-profit organisations.
The FATF will continue its work to amend the relevant parts of its methodology for the next round of mutual evaluations. In the next round, every country in the Global Network will be assessed against these revised standards and will need to demonstrate that it is applying a risk-based approach to prevent the abuse of the non-profit sector without disrupting or discouraging legitimate charitable activities. The updated Recommendations will also be published in November.
Updated best practices paper on combating the abuse of NPOs
The FATF has also updated its best practices paper to reflect the amendments to Recommendation 8 and to support the effective implementation of these revised requirements. The updated best practices paper reflects input from stakeholders, including input received during the public consultation in July and August 2023.
The best practices paper helps countries, NPOs and financial institutions understand how best to protect relevant NPOs from terrorist financing abuse without unduly disrupting or discouraging legitimate charitable activities. It also assists stakeholders by providing examples of bad practices, explaining specifically how the FATF requirements should not be implemented.
With the amendments to Recommendation 8 and the updated best practices paper, the FATF has fully clarified how its Standards are to be applied to the non-profit sector in line with a risk-based approach. This leaves no room for the implementation of measures that are disproportionate to the assessed terrorist financing risk and thereby place undue burdens or restrictions on organisations operating in the non-profit sector.
Methods of crowdfunding for terrorist financing
Crowdfunding is an innovative fundraising solution for financing ideas, projects or business ventures. Although the vast majority of crowdfunding activity is legitimate, FATF research shows that the Islamic State of Iraq and the Levant (ISIL), Al-Qaeda and other ethnically or racially motivated terrorist individuals and organisations have exploited it to finance their terrorist activities. To address this emerging terrorist financing risk, the FATF has finalised a report analysing how terrorists exploit fundraising platforms and crowdfunding activities on social media to obtain funding for their terrorist purposes. It identifies and explores four main ways in which terrorists abuse crowdfunding platforms. Given the links between crowdfunding and other financial and non-financial sectors, countries should fully implement the FATF Standards relating to virtual assets, NPOs and money or value transfer services, and avoid treating crowdfunding as a separate, unrelated sector.
The report draws on the experience of the FATF Global Network, industry experts, academia and civil society to examine the challenges faced in detecting and preventing terrorist financing through the crowdfunding ecosystem. It also highlights good practices, starting with the inclusion of crowdfunding in national terrorist financing risk assessments, outreach to the crowdfunding sector and robust domestic and international information-sharing mechanisms. A list of risk indicators aims to help public and private sector entities and the general public to identify potential terrorist financing risks associated with crowdfunding.
Illicit financial flows from cyber-enabled crime
Effective measures to combat money laundering and terrorist financing depend on a thorough understanding of the evolving financial crime landscape. Online fraud is a major type of transnational organised crime that has grown exponentially in recent years, both in the number of reported scams and in their global reach. Such crimes can have a devastating impact on individuals, organisations and economies worldwide, causing significant financial losses and eroding trust in digital systems. The transnational nature of this type of crime, with the proceeds of online fraud often moved rapidly across different jurisdictions, makes it a global concern.
As digital innovation continues to develop, the sophistication and scale of cyber-enabled crime will also increase if left unchecked. The FATF, in cooperation with the Egmont Group and INTERPOL, has analysed the methods used to commit online fraud, its links to other crimes and how criminals can exploit vulnerabilities in new technologies. The report highlights examples of national strategies and operational responses that have proved successful in tackling cyber-enabled crime. These include the need to break down barriers and to accelerate and strengthen cooperation between different sectors at both domestic and international levels. The report also identifies risk indicators as well as useful anti-fraud requirements and controls that can help public and private sector entities detect and prevent cyber-enabled crime and related money laundering.
It is essential that countries work together and take action to stem the growing threat of cyber-enabled crime. The report identifies three priority areas in which jurisdictions should take action to tackle this crime and related money laundering more effectively: strengthening domestic coordination between the public and private sectors, supporting multilateral international cooperation, and enhancing detection and prevention by raising awareness and vigilance and facilitating the reporting of such crimes.
Misuse of citizenship and residency by investment programmes
Citizenship and residency by investment (CBI/RBI) programmes are government-administered schemes that grant citizenship or residence to foreign investors by accelerating or bypassing normal migration procedures. These programmes can help boost economic growth through foreign direct investment, but they are also attractive to criminals and corrupt officials seeking to evade justice and launder criminal proceeds amounting to billions of dollars.
In response to the call by FATF Ministers in April 2022 for a greater focus on corruption, the FATF has completed a joint project with the Organisation for Economic Co-operation and Development (OECD) to understand the money laundering and financial crime risks associated with CBI/RBI programmes and their impact on public integrity, taxation and migration. Properly managed CBI or RBI programmes can benefit both host countries and individuals, but in practice such programmes pose significant risks of money laundering, fraud and other forms of abuse. The report highlights how CBI programmes can give criminals greater global mobility and help them conceal their identities and criminal activities behind shell companies in other jurisdictions. It highlights the weaknesses of these complex international investment migration programmes, including the frequent use of intermediaries, the involvement of multiple government agencies, abuse by professional enablers and the lack of appropriate oversight of CBI/RBI programmes.
The report proposes measures and cites examples of good practice that can help policymakers and those responsible for managing investment migration programmes to address these risks. These include in-depth analysis and understanding of how criminals can exploit CBI or RBI programmes, and of how governments can incorporate risk mitigation measures, such as multi-layered due diligence, into the design of investment migration programmes. The report emphasises that the heightened money laundering and financial crime risks in investment migration programmes relate not only to applicants but also to the professional enablers and intermediaries involved in the process. It is therefore essential to ensure clarity about the respective roles and responsibilities of the various parties involved in RBI/CBI programmes so that fraudulent activity can be detected.
Beneficial ownership and transparency
Assessing beneficial ownership and transparency in the next round of mutual evaluations
The Plenary agreed on amendments to the methodology for the next round of mutual evaluations, setting out how assessment teams will determine the effective implementation of the FATF's updated requirements on beneficial ownership and transparency.
In March 2022 and February 2023 respectively, the FATF strengthened its Standards on beneficial ownership. The FATF mutual evaluation process plays a crucial role in ensuring that countries take effective action to close the loopholes and regulatory weaknesses that allow shell companies or other legal persons and arrangements to be used as a cover for criminal activity. In the next round of mutual evaluations, all countries will be assessed against the FATF's strengthened beneficial ownership requirements.
FATF risk-based Guidance on Recommendation 25 on beneficial ownership and transparency of legal arrangements - public consultation
The FATF is developing updated risk-based guidance on Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements. The updated guidance reflects the February 2023 amendments to Recommendation 25 and complements the existing guidance on Recommendation 24 concerning legal persons. The guidance aims to help public and private sector stakeholders involved with trusts or similar legal arrangements to assess and mitigate money laundering and terrorist financing risks.
The Plenary agreed to release the revised guidance for public consultation and expects to finalise this work at the Plenary in February 2024.
Compliance with the FATF Standards
Mutual evaluation of Brazil
The FATF discussed and adopted the FATF/GAFILAT mutual evaluation report of Brazil, which assesses the effectiveness of Brazil's measures to combat money laundering, terrorist financing and the financing of nuclear weapons proliferation, as well as its compliance with the FATF Recommendations.
The Plenary concluded that Brazil has improved its AML/CFT/CPF regime since its last evaluation in 2010 and is achieving some positive results. Brazil demonstrates strong international cooperation, risk assessment and policy coordination. However, the country needs to strengthen cooperation and coordination among certain authorities and improve the prosecution of money laundering offences. Brazil has demonstrated strong supervision of most of the financial sector, but it needs to address gaps in the supervision of designated non-financial businesses and professions, such as lawyers and providers of legal, notarial and company services, which are not subject to any AML/CFT/CPF controls. Brazil should focus more on recovering assets linked to crime and terrorism. Except for corruption-related assets, its confiscation results are not fully consistent with the risks the country faces from crimes such as drug trafficking, environmental crime and the activities of criminal organisations.
Brazil's measures to combat terrorist financing have improved in recent years but still require major improvements to increase their effectiveness.
The FATF will publish the report in December, once the FATF quality and consistency review process has been completed.
High-risk and other monitored jurisdictions
Jurisdictions under increased monitoring
Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their AML/CTF/CPF regimes. When the FATF places a jurisdiction under increased monitoring, it means that the country has committed to implementing an action plan to swiftly resolve the identified strategic deficiencies within agreed timeframes. At the Plenary, the FATF added Bulgaria to the list of jurisdictions under increased monitoring (the grey list).
Jurisdictions removed from the grey list - Albania, the Cayman Islands, Jordan and Panama
The FATF Plenary congratulated Albania, the Cayman Islands, Jordan and Panama on their significant progress in addressing the strategic AML/CFT deficiencies previously identified during their mutual evaluations. These jurisdictions had committed to implementing action plans to swiftly resolve the identified strategic deficiencies within agreed timeframes. These countries will no longer be subject to the FATF's increased monitoring process.
This follows successful on-site visits to each of these countries. Each country will work with the FATF-Style Regional Body of which it is a member to further strengthen its AML/CFT/CPF regime.
Jurisdictions subject to a call for action (the black list)
The FATF identifies countries or jurisdictions with serious strategic deficiencies in their AML/CTF/CPF regimes; these jurisdictions are subject to a call for action to protect the international financial system. No new countries or jurisdictions have been added to this list. The next FATF Plenary will be held in February 2024.
Source: fatf-gafi.org; translated by Thu Ha - Centre 81