FATF “40 + 9” Recommendations: Building a Secured & Trusted Business Entity in a Reputable Global Economy
Do you know that the ranking and ratings of your country in the international community can affect your business and rate of investments in your country?
Growing a reputable standard in any regulated/non-regulated business or as a government helps gain more trust from other parties, potential investors and partners looking forward to making business deals, investments or partnerships with other businesses, countries and organizations of interest.
Although, while this may be the dream of all potential partners, investors, stakeholders or sponsors, getting to discover such entity/ entities about to be commissioned have little to no remarkable reputation hampers the development and trust in their investments. Hence, creates room for lack of progress to the entities in question.
While carrying out due diligence on business entities or governments, certain metrics help you understand how well you can trust your investment in certain businesses located in certain parts of the world.
Let’s say it’s more like getting to discover more reports of current status/experiences investors have concerning the deals they have and how well it can result to desired results in the targeted area(s) of interest. So, this means if you’re located in certain areas/countries ranked or rated poorly due to certain index, businesses in such areas have to do more to improve their chances of attracting international businesses or investments from other global entities. Should ratings/rankings drop or documented in the negative, such countries and businesses or organizations can be sanctioned locally or internationally.
SO, WHAT CAN YOU DO?
Businesses and the governments of countries in which they are located in have roles to play when it comes to the establishment of improved measures to boost ratings, and ensuring measures put in place are strictly adhered to.
Measures such as the ”40 and special additional 9” as recommended by The Financial Action Task Force (FATF) can help boost and sustain a healthy ranking/ratings of businesses, Organizations and Countries across the globe.
“ 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 me assures to counter these threats.
The FATF Recommendations, therefore, set an international standard, which countries should implement through measures adapted to their particular circumstances. The FATF Recommendations set out the essential measures that countries should have in place to:
- identify the risks, and develop policies and threats coordination;
- pursue money laundering, terrorist financing and the financing of proliferation;
- apply preventive measures for the financial sector and other designated sectors;
- establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures;
- enhance the transparency and availability of beneficial ownership information of legal persons and arrangements;
- and facilitate international cooperation.
The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money.
In 1996, revised for the first time to reflect evolving money laundering trends, the Recommendations were ends and techniques, and to broaden their scope well beyond drug money laundering. In October 2001 the FATF expanded its mandate to deal with the issue of the funding of terrorist acts and terrorist organisations, and took the important step of creating the Eight (later expanded to Nine) Special Recommendations on Terrorist Financing.
The FATF Recommendations were revised a second time in 2003, and these, together with the Special Recommendations, have been endorsed by over 180 countries, and are universal international standard for anti-money laundering recognized as the anti-money laundering and countering the financing of terrorism (AML/CFT) ” - FATF
The 40 Recommended Measures to combat Money Laundering and Terrorism Financing can simply be summarized as highlighted below;
1. Risk-Based Approach: Countries are advised to adopt a risk-based approach to combat money laundering and terrorist financing.
2. National Cooperation: Establish national cooperation and coordination to combat financial crimes.
3. Money Laundering Offense: Criminalize money laundering and associated activities.
4. Confiscation and Seizure: Enable confiscation and seizure of proceeds of crime.
5. Terrorist Financing Offense: Criminalize terrorist financing.
6. Financial Sanctions: Implement measures to freeze and confiscate terrorist assets.
7. Targeted Financial Sanctions: Implement targeted financial sanctions against individuals and entities associated with terrorism.
8. Non-Profit Organizations: Ensure transparency and integrity of non-profit organizations to prevent terrorist financing abuse.
9. Customer Due Diligence (CDD): Implement CDD measures for customer identification and verification.
10. Record Keeping: Maintain records of customer transactions for a specified period.
11. Suspicious Transaction Reporting: Establish mechanisms for reporting suspicious transactions to competent authorities.
12. Law Enforcement Access: Provide law enforcement access to financial and transaction information.
13. Correspondent Banking: Establish enhanced due diligence for correspondent banking relationships.
14. Shell Banks: Prohibit the establishment of shell banks.
15. New Technologies: Address money laundering and terrorist financing risks associated with new technologies, like cryptocurrencies.
16. Cross-Border Currency Movements: Report cross-border movements of cash and bearer negotiable instruments.
17. Wire Transfers: Ensure the originator information accompanies wire transfers.
18. Cross-Border Declaration: Require individuals to declare currency and bearer negotiable instruments when crossing borders.
19. Higher-Risk Countries: Apply enhanced due diligence to business relationships and transactions involving higher-risk countries.
20. Reporting of Suspicious Transactions: Ensure that financial institutions report all suspicious transactions, not just those related to money laundering.
21. Tipping Off: Prohibit the tipping off of customers about suspicious transaction reports.
22. DNFBPs: Extend AML/CFT measures to Designated Non-Financial Businesses and Professions (e.g., lawyers, accountants).
23. Transparency of Legal Persons: Ensure transparency of beneficial ownership information for legal persons.
24. Transparency of Legal Arrangements: Ensure transparency of beneficial ownership information for legal arrangements.
25. Politically Exposed Persons (PEPs): Apply enhanced due diligence to PEPs.
26. Reliance on Third Parties: Allow financial institutions to rely on third parties for customer due diligence.
27. Wire Transfer Records: Retain wire transfer records for a specified period.
28. Regulators’ Powers: Provide regulators with adequate powers and resources to oversee financial institutions.
29. AML/CFT Supervision: Conduct risk-based supervision of financial institutions for AML/CFT compliance.
30. Sanctions for AML/CFT Non-Compliance: Implement effective, proportionate, and dissuasive sanctions for AML/CFT non-compliance.
31. Powers of Law Enforcement: Provide law enforcement with the necessary legal powers and tools to investigate and prosecute money laundering and terrorist financing.
32. Cash Couriers: Regulate and monitor the activities of cash couriers.
33. Statistics: Collect and maintain statistics on money laundering and terrorist financing.
34. Guidance and Feedback: Provide guidance to financial institutions and feedback on their AML/CFT efforts.
35. Convergence of AML/CFT and Prudential Supervision: Promote convergence of AML/CFT and prudential supervision.
36. Mutual Legal Assistance: Provide mutual legal assistance to other countries in AML/CFT matters.
37. Extradition: Enable extradition for money laundering and terrorist financing offenses.
38. Criminal Liability of Legal Persons: Ensure legal persons can be held criminally liable.
39. Enforcement of Secrecy Laws: Ensure that AML/CFT requirements prevail over bank secrecy laws.
40. Responsibilities of Competent Authorities: Clearly define and assign responsibilities to competent authorities for AML/CFT supervision and enforcement.
THE MERGING OF THE SPECIAL 9 RECOMMENDATIONS BY THE FATF IN THE 2023 EDITION
The list of recommendations above was revised in February, 2012 which led to the provision of the FATF to add certain lists of recommendations that will help boost the reliability and capacity of the AML/CFT systems to particularly tackle the vice of terrorism financing across the world.
These special 9 recommendations as merged into the 40 recommendations touched issues concerning the following topics;
I. Ratification and implementation of UN instruments
II. Criminalising the financing of terrorism and associated money laundering
III. Freezing and confiscating terrorist assets
IV. Reporting suspicious transactions related to terrorism
V. International co-operation
VI. Alternative remittance
VII. Wire transfers
VIII. Non-profit organisations
IX. Cash couriers
However, these special 9 recommendations from 2012 were later merged into the 40 recommendations as listed earlier in the new 2023 recently published version of FATF recommendations.
Going forward, more details concerning recommended principles by the FATF to ensure a comprehensive compliance measures are followed in respect to meeting international standards in respect to each recommendations will be discussed in following articles to come.
CONCLUSION:
Most times a safe business deal is spotted by what key players in the world say or think about your business and the ratings observed through experiences and global surveillance network ratings of either your business, your government and their principles. This is because nobody or no government wants to be part of a fruitless investment or at worst be part of a criminal activity.
The FATF recommendations are highly encouraged for considerations as you build your AML/CFT system. Following these recommendations not only benefit your business, it also helps to keep the country and the world safe. It’s a collective effort to bring corruption, fraudulent and criminal activities down to a little or a level of effect where such vices are considered to be at insignificant proportion.
