State of Financial Crime 2023 Report
The Financial Action Task Force (FATF), has held its latest plenary in Paris – attended by representatives of its 206 global members, the IMF, UN and World Bank – and has proposed new measures to make the fight against illicit financial flows more effective.
In a statement on the situation in Ukraine, the FATF expressed its “grave concern” about the invasion’s impact on the money laundering (ML), terrorist financing (TF) and proliferation financing (PF) risk environment, the integrity of the financial system and broader impact on the global economy, safety and security. The body says it will review Russia’s role at the FATF and consider necessary future steps to uphold its core values.
Announcements from the Plenary include changes to the next round of mutual evaluations (MERs), an update to Recommendation 24, to improve transparency of beneficial ownership of legal persons, a new report on ML/TF risks of migrant smuggling, and guidance to help the real estate sector implement risk-based measures to better detect and prevent money laundering.
Here are 10 key takeaways compliance teams should know:
1. FATF is to streamline the mutual evaluation process (MERs)
An approved FATF Methodology and FATF Procedures will be created for its next round of MERs. These will have a greater focus on risk and context to ensure countries are prioritizing their efforts in areas where risk is highest.
While these are directly relevant to national FIUs and regulators, they ultimately indicate where bodies will focus efforts to improve AML/CFT compliance practices in their jurisdictions ahead of future MERs – especially in relation to countries on – or at risk of joining – the gray/black lists. Firms should expect the next cycle of MERs to be significantly shorter, and firms should be mindful of key areas of focus for FATF, where a quicker turnaround on effective actions may be expected.
2. France’s MER to be published in May
FATF has indicated that overall, its review is positive, with particular praise for France’s use of financial intelligence, money laundering investigations and prosecutions, and the implementation of targeted financial sanctions. Areas highlighted as needing more work include the real estate sector, the supervision of preventative measures for professionals involved in the activities of legal persons, and improved monitoring of the non-profit sector.
3. UAE has been added to FATF’s gray list
The UAE joins 22 other countries determined by FATF to have strategic AML/CFT deficiencies. Many analysts had stated that this regional financial center was at risk, but confirmation is still likely to damage investor confidence in the country, at a time when it is facing increasing competition from neighboring Saudi Arabia.
While UAE “has made progress” in strengthening its measures, it will need to implement an action plan to show a sustained increase in effective AML/CFT investigations and prosecutions and tackle seven key points, including proactively identifying and combating sanctions evasion.
4. Zimbabwe removed from the gray list
FATF has congratulated Zimbabwe on its significant progress in addressing strategic AML/CFT deficiencies previously identified. FATF said it should continue to work with the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) to further improve its AML/CFT system, including ensuring its oversight of NPOs is risk-based and in line with the FATF Standards.
Meanwhile, Pakistan – a focus of much media attention in the previous plenary in October – remains on the gray list, with one remaining item still to be addressed. This relates to demonstrating a positive and sustained trend of pursuing complex ML investigations and prosecutions.
5. Changes to Recommendation 24
Beneficial ownership changes have been approved, aiming to stop dirty money being hidden through the use of anonymous shell companies. We previously reported on these changes when the wording changes were floated. The key takeaway is the requirement for countries to hold beneficial ownership with a public registry. However, just having a public registry isn’t sufficient, demonstrated in the UK’s proposals to reform its own registry, Companies House.
6. Draft guidance for a risk-based approach to real estate
Highlighted as an issue in France’s MER, this issue has also been a challenge in other major markets, particularly Canada. The report is being published for public consultation, with the deadline for comments 22 April 2022.
7. Ban on new bearer shares
FATF will recommend banning new shares and strengthening disclosure requirements for existing bearer shares and for nominee arrangements, in an effort to stop them being used to hide money laundering. Many countries have already started to assess bearer shares, and in 2015 they were abolished in the UK.
8. Enhancing asset recovery
FATF will begin boosting asset recovery through strengthened collaboration between the FATF/FSRBs and the Asset Recovery Networks – CARIN and the ARINs, and is to consider strengthening Recommendations 4 and 38 on domestic and cross-border frameworks.
9. Migrant smuggling
FATF will publish a new report later in March on ML/TF risks associated with migrant smuggling. This will include information on the most common methods being used to transfer and launder the proceeds of migrant smuggling, along with recommendations and best practice to help trace criminal proceeds.
10. New work on the proceeds of the trafficking of fentanyl and other synthetic opioids
Fentanyl is a huge problem in the US, where two thirds of the more than 270 people a day who died of overdoses in the year to April 2021 had taken fentanyl – and its use is increasing in Europe.
Uncover more compliance guidance with our report on the EU’s new AML/CFT framework.
Originally published March 11, 2022, updated October 17, 2022
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