Regulations to prevent money laundering and terrorist financing

We meet some of the most relevant organisations and standard-setters in the field of AML and CTF regulation.

This is important because these agencies and organisations have a major influence on the global political agenda when it comes to preventing money laundering and terrorist financing.

Relevant organisations and standard-setting bodies in AML and CTF regulations

1. Financial Action Task Force (FATF)

The first organization on that list is the FATF. The Financial Action Task Force, the FATF, is undoubtedly the most relevant international standard-setting body for anti-money laundering and terrorist financing. The FATF was established in 1989 by the G7 summit in Paris to combat the growing problem of money laundering.

The task force was then charged with studying trends in money laundering, monitoring activities at national and international levels, reporting on compliance and issuing recommendations and standards to combat money laundering. The objectives of FATF have hardly changed. The most important goal is to set standards and promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system.

It is important to note that the FATF is an intergovernmental organisation and a “policy-making body” that works to generate the necessary political will to implement national legislative and regulatory reforms in the area of ​​money laundering.

FATF Recommendations

The most relevant work of the FATF is the so-called FATF Recommendations. These recommendations have a history of their own. 1990 marks the year in which the FATF first issued its first 40 recommendations on money laundering. It was, and is, the primary policy instrument issued by the FATF.

The recommendations are considered the global standard in anti-money laundering practices. Many countries have committed to implementing the forty recommendations. The recommendations concern the criminal justice system and law enforcement, international cooperation and the financial system and its regulation. Speaking about the history of the recommendations: the FATF completely revised the forty recommendations in 1996 and 2003. Later, a ninth special recommendation was added.

In October 2001, following the September 11 terrorist attacks in the United States, the FATF issued eight Special Recommendations on terrorist financing. Later, another Special Recommendation was added. Together, the 40 Recommendations on money laundering and the nine Special Recommendations on terrorist financing form the international standard for measures against money laundering and the fight against the financing of terrorism and terrorist acts. Both sets of FATF Recommendations are intended to be implemented at the national level through legislation and other legally binding measures.

At one point, the FATF issued Interpretative Notes for their Recommendations. Eventually, in 2012, the FATF consolidated its Recommendations and Interpretative Notes into a single document. At the time this course was shot, the most recent version of this document was June 2019.

Mutual evaluations

The FATF also monitors progress in implementing its recommendations through peer reviews of member states. The FATF calls these mutual evaluations. The FATF evaluates a country’s performance based on its assessment methodology, which includes two elements. The first is technical compliance, which concerns the legal and institutional framework and the powers and procedures of competent authorities. The second is an effectiveness assessment, which concerns the extent to which the legal and institutional framework delivers the expected results.

Blacklist and graylist

Countries that do not meet the FATF assessment standards to a certain extent can be placed on the FATF blacklist or the FATF greylist. The blacklist is formally called the “Call for action” list. The greylist is formally called the “Other controlled jurisdictions” list.

FATF describes the blacklisted jurisdictions as having significant strategic deficiencies in their anti-money laundering, countering the financing of terrorism and countering the financing of proliferation. For all blacklisted countries, FATF calls on all members and urges all jurisdictions to apply enhanced due diligence towards them.

This places particular pressure on companies and economies in these countries. In the most serious cases, countries are called upon to take countermeasures to protect the international financial system from the ongoing risks of money laundering, terrorist financing and proliferation financing from these countries. Over the years, the blacklist has been significantly reduced; currently only Iran and North Korea remain on the list.

The grey list currently consists of jurisdictions such as Panama, the Bahamas and Pakistan.

2. United Nations Office on Drugs and Crime

The next relevant organization in the field of AML regulation is within the United Nations. The United Nations maintains the so-called United Nations Office on Drugs and Crime, or UNODC, which was established in 1997. It is responsible for the implementation of the Global Programme against Money-Laundering, Proceeds of Crime, and the Financing of Terrorism.

The broad objective of the global programme is to strengthen the capacity of Member States to implement measures against money laundering and terrorist financing and to assist them in tracing, seizing and confiscating illicit proceeds.

Why is this important or why is this relevant? As part of the United Nations, countries must meet globally accepted standards. UNODC helps countries achieve this by providing relevant and appropriate technical assistance.

In particular, UNODC follows three UN treaties that have been adopted and contain specific provisions for AML and CFT. These are the International Convention for the Suppression of the Financing of Terrorism of 1999, the UN Convention against Transnational Organized Crime of 2000 and the UN Convention against Corruption of 2003.

With this UNODC and its associated treaties, the UN has the capacity and a special mandate to assist Member States in ratifying and implementing international standards on money laundering and terrorist financing. That is why it is relevant.

3. Wolfsberg Group

The Wolfsberg Group is a consortium of thirteen international banks that aims to develop frameworks and guidelines for managing financial crime risks, in particular with regard to Know Your Customer policies, anti-money laundering and terrorist financing.

The group met in 2000 at the Château Wolfsberg in north-eastern Switzerland, accompanied by representatives from Transparency International, including Stanley Morris and Professor Mark Pieth of the University of Basel, to work on drafting anti-money laundering guidelines for private banking. The Wolfsberg Anti-Money Laundering Principles for Private Banking were subsequently published in October 2000, revised in May 2002 and again, most recently, in June 2012. There is also an Asia Pacific division of the group, established in January 2019. Its work complements that of the wider Wolfsberg Group. It provides an important forum for discussing effective financial crime risk management in the Asia Pacific region. It promotes understanding of Wolfsberg Group publications in the region.

Since the first set of AML Principles was released, the Group has published many documents, whether Principles, Guidance, Frequently Asked Questions or Statements. These can all be found on the Wolfsberg Group website.

4. Egmont Group

Last but not least, let’s briefly talk about the Egmont Group. But before we talk about the Egmont Group, we need to talk about the term Financial Intelligence Unit, or FIU.

This brings us back to the FATF. More precisely, this brings us to FATF recommendation number 29, which says that countries should establish a Financial Intelligence Unit (FIU) that serves as a national center for two things:

• Receiving and analyzing reports of suspicious transactions
• Receiving and analysing other information relevant to money laundering, related predicate offences and terrorist financing.

National FIUs collect information on suspicious or unusual financial activities of the financial sector and other entities or professions. FIUs are not normally law enforcement agencies. Their mission is to process and analyze the information received. If sufficient evidence of unlawful activities is found, the case is forwarded to the prosecutors.

Now the Egmont Group is called Egmont Group of Financial Intelligence Units. And you may have guessed it. The Egmont Group is an informal network of more than 160 financial intelligence units around the world.

The aim of the Egmont Group is to provide a forum for FIUs worldwide to enhance cooperation in the fight against money laundering and terrorist financing and to promote the implementation of national programmes in this area.

Because the Egmont Group provides support to affiliated FIUs, it is considered a relevant standard-setting body.

There are many other relevant standard-setting bodies. Depending on who you talk to, what industry you are in, or where you are in the world, these standard-setting bodies will differ.

Final thoughts

Relevant organisations and standard-setters are needed in the field of AML and CTF regulation. When effectively implemented, AML/CFT controls reduce the negative impact of criminal economic activities while promoting the integrity and stability of the financial market.

New measures are being implemented worldwide to combat money laundering and terrorist financing. These measures affect or will affect all financial services providers, including those working with low-income communities. This document summarises the international anti-money laundering (AML) and counter-terrorist financing (CFT) framework for financial services providers working with low-income people and will assist relevant organisations and standard-setters in AML and CTF regulation.