legal, financial and law enforcement expertise, plus members of the FATF secretariat. These reviews provide an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system. These are conducted in accordance with a set of Key Principles that were compiled by the FATF in consultation with the FSRBs, the IMF and World Bank. The FATF is currently preparing for its fourth round of evaluations, which will be conducted under a new methodology for assessing compliance with, and ensuring effective implementation of, the revised recommendations is agreed.
As stated in the 2009–10 FATF Annual Report20, the scope and the purpose of previous evaluations were
to assess whether:
• the necessary laws, regulations or other measures required under the new standards were in force and in effect;
• there had been a full and proper implementation of all necessary measures; • the system in place was effective.
The peer review team assessed the extent to which the evaluated country had implemented an effective AML/CFT system and identified deficiencies that needed to be addressed. Each country was assessed on all of the 40+9 Recommendations, and a rating given for their level of compliance. The mutual evaluation reports are published and can provide useful information to assess money laundering risk in the country concerned. Similar evaluations under the new FATF standards, which will also consider how effective implementation has been, are expected to commence in late 2013.
3.1
The FATF Recommendations
Learning Objective
3.3.2 Know which FATF Recommendations are mandatory and those which are not The preamble to the 2012 revised 40 Recommendations states:
The FATF Recommendations set out a comprehensive and consistent framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of proliferation of weapons of mass destruction. Countries have diverse legal, administrative and operational frameworks and different financial systems, and so cannot all take identical measures to counter these threats. The FATF Recommendations, therefore, set an international standard, which countries should implement through measures adapted to their particular circumstances.
Alongside their recommendations, the FATF issues interpretative notes to some of the recommendations and a glossary of applicable definitions – taken together these comprise the FATF standards. Some of the interpretative notes and definitions in the glossary include examples to illustrate how the requirements could be applied – these examples are merely indicative and are not mandatory for achieving compliance. Similarly, the FATF produces guidance and best practice papers, and other advice for countries, but these too are not mandatory for assessing compliance with the standards.
The FATF also produces a methodology for mutual evaluations21. This allows for a degree of flexibility,
based on risk, and states that:
Where there is a low risk of money laundering and terrorist financing, countries may decide not to apply some of the recommendations requiring financial institutions and Designated Non-Financial Businesses and Professions (DNFBPs) to take certain actions. In such cases, countries should provide assessors with the evidence and analysis which was the basis for the decision not to apply the recommendations.
Thus, there is a presumption that all the recommendations will be implemented, but in strictly limited situations, which countries must be able to explain on the basis of the ML/TF risks posed, some of the recommendations may not be applied to some firms or products.
3.2
FATF Categorisation of Jurisdictions
Learning Objective
3.3.3 Know the categorisation of jurisdictions which FATF considers to have strategic deficiencies In addition to the mutual evaluation processes that are employed, the FATF uses additional mechanisms to identify and respond to jurisdictions perceived to have: strategic deficiencies in their AML/CFT regimes
that pose a risk to the international financial system and impede efforts to combat money laundering and terrorist financing.22
One of the early tools employed by the FATF was the use of blacklisting or name and shame. The first blacklist of non-co-operative countries and territories (NCCTs) was produced in June 2000. This group of countries was considered deficient in having effective countermeasures against money laundering. Removal from this list was only possible after a country had provided practical evidence of effectiveness through its remedial action. Those countries listed as being non-co-operative through either failing to participate, or indeed to improve, were subject to very strong financial pressure by being ostracised from the world’s financial system.
During this process, 23 jurisdictions were listed due to the lack of an effective AML/CFT system, but all were removed from the list by October 2006.
The current focus of the FATF is on identification of high-risk jurisdictions, and it continues to name and monitor the efforts of a number of countries. Since 2007, the FATF’s International Co-operation Review Group (ICRG) has analysed high-risk jurisdictions and recommended specific action to address the money laundering and TF risks emanating from them. This process was revised in 2009, following a call from the Leaders of the Group of 20 (G20) for the FATF to reinvigorate its process for assessing countries’ compliance with the standards and to publicly identify high-risk jurisdictions.
21 FATF, Methodology for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems’, February 2013, at: www.fatf-gafi.org/media/fatf/documents/methodology/FATF%20Methodology%2022%20 Feb%202013.pdf