The Report on the State of Effectiveness and Compliance with the FATF Standards gives a comprehensive overview of the state of global efforts to tackle money laundering, terrorist and proliferation financing.

Temps de lecture: 7 min |May 1, 2022 à 3:58 PM

Overall, the report finds that countries have made huge progress in improving technical compliance by establishing and enacting a broad range of laws and regulations to better tackle money laundering, terrorist and proliferation financing. This has created a firm legislative basis for national authorities to ‘follow the money’ that fuels crime and terrorism.
>> FATF (2022), Report on the State of Effectiveness Compliance with FATF Standards, FATF, Paris, www.fatf-gafi.org/publications/documents/effectiveness-compliance-standards.html

Executive summary

In terms of laws and regulations, 76% of countries have now satisfactorily implemented the FATF’s 40 Recommendations. This is a significant improvement in technical compliance, which stood at just 36% in 2012, demonstrating the positive impact of the FATF Mutual Evaluation and Follow-up processes.

However, many countries still face substantial challenges in taking effective action commensurate to the risks they face. This includes difficulties in investigating and prosecuting high-profile cross- border cases and preventing anonymous shell companies and trusts being used for illicit purposes.

This report fed into the FATF’s Strategic Review, which aims to make the next cycle of FATF assessments more timely, risk-based and effective. The 5th round of assessments will include (1) a significantly shorter mutual evaluation cycle, so that countries get assessed more frequently, (2) greater emphasis on the major risks and context to ensure that countries focus on the areas where the risks are highest and (3) a results-orientated follow-up assessment process, which will focus on specific actions to tackle money laundering, terrorist financing and the financing of weapons of mass destruction.

Understanding of Risks (Chapter 1)

The risk-based approach and determining a jurisdictions’ understanding of money laundering, terrorism, and proliferation finance risk is a central pillar of the FATF’s 4th round of Mutual Evaluations. Almost all countries have completed an initial assessment of their money laundering and terrorist financing risks, and some have done so multiple times. The FATF and FSRB evaluations have demonstrated that countries have begun taking actions or policies to mitigate their risks with appropriate policy and operational responses.

FATF Member countries demonstrate a good risk understanding and response with over 80% achieving substantial or high effectiveness. On the other hand, only 19% of FSRB members demonstrate substantial or high effectiveness, and need to improve both their understanding of money laundering and terrorist financing risks, and strengthen the effective implementation of risk-based policies.

Low effectiveness often occurs because governments have not yet had time to implement policies and co-ordinate with public and non-public bodies to respond effectively to their risks1. While adoption of new risk assessments shows the clear impact of the FATF’s assessment process, it also has demonstrated that many countries are in the initial stages of developing comprehensive, risk-based AML/CFT/CPF frameworks. Countries must continue to share up-to- date national and other risk assessments as widely as possible with relevant stakeholders.

Prevention and supervision (Chapters 3 & 4)

Private sector entities such as banks, money or value transfer services, lenders, virtual asset service providers and others2 have a shared responsibility to help identify and prevent risks from money laundering and terrorist financing

Financial institutions, in particular larger multi- national financial institutions, generally have a clear understanding of the risks they face and have put in place more effective risk mitigation measures.

In contrast, small financial institutions and the non- financial sector, such as real estate agents, lawyers and accountants, generally have a poor understanding of risks and struggle to mitigate them.

Nearly all (97%) of 120 assessed countries have low to moderate effectiveness ratings for preventing money laundering and terrorist financing in the private sector. In particular, the non-financial sector performs poorly in terms of risk awareness and applying preventive measures. In general, private sector entities need a change of culture in applying a true risk-based approach to conduct customer due diligence, keep records, and file suspicious transaction reports.

Countries have made progress in the supervisory framework of laws and regulations and enhancing the powers of supervisors that monitor relevant entities. However, the implementation and extent of supervision remains inadequate. Just 10% of countries’ supervisory systems demonstrated effectiveness. Countries must prioritize the effective implementation of supervisory frameworks, particularly in the non-financial sector.

Systems to monitor and enforce beneficial ownership and transparency (Chapter 5)

FATF standards cover requirements for transparency in beneficial ownership as anonymous shell companies are one of the most widely used methods for laundering the proceeds of crime and corruption. Today, just about half (52%) of assessed jurisdictions have adequate laws and regulatory structures in place. However, countries are not effectively implementing these laws with only 9% of countries substantially effective in this area. Countries need to prioritize their efforts and demonstrate improvements in recording, reporting and verifying information regarding legal persons and arrangements. In order to mitigate high- risk activities such as bearer shares

The FATF is continuing to review the Recommendations for beneficial ownership and transparency to ensure that these are more closely aligned with risks and better reflect the current global challenges associated with legal persons and arrangements (Recommendations 24 and 25).

Members have 3 and nominee relationships, competent authorities should be able to quickly access accurate and up-to-date information initially agreed on tougher global rules for beneficial ownership of legal persons (Recommendation 24)

The new rules are a major step forwards to preventing illicit enrichment by ensuring that all countries will need to have a beneficial ownership registry or an equivalent system in place. They will help trace the assets of criminals and terrorists, and prevent tax evasion, which help stop criminals, corrupt actors, and UNSC sanctions evaders from hiding their illicit activities and dirty money behind shell companies.

Criminal justice systems for Money Laundering and Terrorist Financing and the use of international co-operation (Chapters 2, 6 & 7)

Criminal justice frameworks to tackle money laundering and terrorist financing are now in place and most countries have financial intelligence units, designated authorities for financial investigations (for both money laundering and terrorism) and specialists tasked with asset recovery for identifying and confiscating the proceeds of crime. Countries are also exchanging more information with international counterparts.

Nevertheless, investigations and prosecutions of money laundering and terrorist financing remain rare in most countries, particularly for complex cases or cases involving a cross-border element, despite some strong international co-operation among countries. Furthermore, only a tiny fraction of all proceeds of crime are recovered. As such, convictions for money laundering are often not in line with the major risks identified within each country.

Countries need to significantly improve the functioning of criminal justice frameworks by increasing specialized expertise, prioritising large- scale money laundering operations and targeting terrorist financing networks in-line with risks, as well as apply proportionate and dissuasive penalties. It is critical therefore, that the FATF take action to help countries address the asset recovery deficiencies identified in the evaluation of their national frameworks, and to support international initiatives to increase the recovery of criminal proceeds.

At the FATF, Members have committed to spearhead global efforts to strengthen countries’ frameworks for asset recovery, and the regional networks that support cross-border asset recovery and repatriation4, to create an effective system that will deprive criminals of their proceeds, root out criminal activity, and protect the financial system.

Conclusions

Countries have made considerable progress in implementing the technical requirements of the FATF Standards, but greater effort is needed to ensure that effective implementation is taking place. Many countries continue to take a “tick box” approach to adopting laws and regulations, and don’t focus on results. To successfully achieve the 11 immediate outcomes of the FATF’s effectiveness-based peer reviews, countries need to make fundamental or major improvements to their money laundering and terrorist financing systems in the next round of mutual evaluations. This can only be achieved if countries redouble their efforts. In this regard, the FATF’s peer review process can help apply pressure and incentivise greater progress.

The FATF is committed to working with all countries to improve their national responses to money laundering, terrorist financing and proliferation financing risks. FATF agreed on a new strategic vision for the Global Network which will further support the collective efforts of the FATF and FATF-Style Regional Bodies. Beyond the FATF Strategic Review, the FATF will continue to evaluate how it assesses countries, and if necessary make changes to its assessment methodology and procedures as risks to the global financial system evolve.