The Financial Action Task Force (FATF) recently completed their June plenary, an all-member session of the FATF that convenes three times each year. The three-day meeting concluded with expanded guidance in several critical areas of AML/CFT global concerns. As the intergovernmental watchdog for global money laundering and terrorist financing standards and regulatory measures, FATF has or is expected to release significant guidance and special reports within the coming weeks.
FATF Releases New Guidance on Key AML/CTF Concerns
The Financial Action Task Force (FATF) addressed areas of AML global concern.
The agency recently completed their three-day June plenary. They addressed some of the most pressing illicit financial issues the world faces today.
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Following the three-day plenary, FATF released expanded guidance in several areas of AML/CFT global conerns.
The expanded guidance focused on five main areas, including financing of racially or ethnically motivated violent extremism and proliferation finance.
The Money Laundering from Environmental Crime report was released and focuses on forestry crime, illegal mining, and waste trafficking.
FATF releases new guidance following plenary.
- Financing of racially or ethnically motivated violent extremism (REMVEs)
FATF completed a milestone report led by the U.S. and Germany which was released June 30, 2021. According to FATF, this is the first comprehensive assessment of how REMVEs raise, move, and use funds. This is a growing concern worldwide and is a growing threat in the United States. While many of these extremists (also referred to as extreme right-wing (ERW) terrorism) are lone wolves, it is understood that there are also small to medium sized organizations, some transnational. This report highlights the challenges of detection as much of the funding of comes from legal sources. Financial institutions should consider including ERW threats in their enterprise-wide risk assessment.
- Proliferation finance
Guidance on Proliferation Financing Risk Assessment and Mitigation was released on how to implement the October 2020 revisions to the FATF Standards requiring the assessment and mitigation of proliferation financial risks, particularly those related to weapons of mass destruction and its financing. The new updated standards require countries to freeze the funds or other assets used for proliferation. Among growing global concerns, FATF has significantly strengthened their response to weapons of mass destruction proliferation. This new guidance will assist countries and the private sector in understanding and documenting these risks and prepare accordingly for this serious threat to international peace and security.
- Virtual assets
FATF completed a second 12-month review on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) obligations relating to virtual assets to see how jurisdictions and the private sector are implementing the standards issued from the first review. The review finds that globally progress is being made since the first review was conducted, but still weak in many countries. As we know, virtual asset activity is growing at a compounding rate and is expected to continue at this same pace or greater. FATF will continue to monitor AML/CTF trends including the use of virtual assets for ransomware activity. The review concluded that the revised FATF standards have fostered growth and innovation, while better protecting the international financial system. The second 12-month review was published July 5, 2021.
- Financial flows linked to conservation crime
The Money Laundering from Environmental Crime report was released June 28, 2021 and identifies a wide range of associated activities as a source of revenue for criminal organizations within environmental crime, such as forestry crime, illegal mining, and waste trafficking. The report shines a light on corruption, tax fraud, drug trafficking, and labor trafficking as being linked to environmental crime. This illicit activity has been somewhat under the radar and extremely profitable for bad actors, generating billions of dollars due to relatively low sanctions policies. This FATF report identifies methods used and what countries should consider as risk mitigation methods, as well as what financial institutions should consider good practices and risk indicators to detect this illicit activity.
- Whitepaper on beneficial ownership
FATF agreed to release a public whitepaper on transparency and beneficial ownership of legal entities. Using shell companies to hide funds from money laundering, corruption, terrorist financing, and other illicit means has been a global concern for some time. While the U.S. has made improvements in this area, there is much more that needs to happen. One important step toward further global compliance for the U.S. is included in the AML Act of 2020, which requires FinCEN to establish a beneficial ownership registry in which covered legal entities must register. The FATF paper, once published, will give further guidance on strengthening measures to prevent criminals from concealing criminal activities and proceeds.
The U.S. Treasury Department issued a press release June 25, 2021, commending FATF “for tackling some of the most pressing illicit financial issues the world faces today,” said Treasury Secretary Janet L. Yellen. “These reports will be vital in assisting countries to protect the international financial system from illicit finance.” The Financial Crimes Enforcement Network (FinCEN) followed the FATF press release with the first government-wide AML/CFT priorities policy which partially mirrors the FATF plenary outcomes. The message sent by FATF has been well received in Washington, and the hard work mandated by the AML Act of 2020 and FATF recommendations has begun. AML Professionals and executives alike, hold on tight. It looks to be a busy upcoming year ahead.