A Guide to Anti-Money Laundering for Crypto Firms

FATF October Plenary: Key Takeaways For Compliance Teams

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The Financial Action Task Force (FATF) concluded its latest Plenary on October 21st, publishing key updates for compliance teams on cross-border payments, proposed changes to Recommendation 24, and a revised list of jurisdictions under increased monitoring.

“There is still a long road ahead until every country has fully emerged from the COVID-19 imposed restrictions,” FATF announced. “Nevertheless, they must continue to fully and effectively implement the risk-based FATF Standards and ensure that criminals and terrorists do not find new and emerging loopholes to exploit.”

Cross-border payments

At the G20 summit in October 2020, a roadmap for creating seamless cross-border payments systems was endorsed by ministers. In response, FATF launched an industry survey to identify areas where divergent AML/CFT rules were causing problems.

Results from the survey highlight that not all countries are taking a risk-based approach, and that the implementation of AML/CFT requirements is inconsistent. Both of these issues are increasing costs, reducing speed, limiting access, and reducing transparency.

The survey shows four key areas where divergent national approaches are causing problems:

  1. Identifying and verifying customers and beneficial owners
  2. Sanctions screening
  3. Sending and receiving customer/transaction information
  4. Establishing and maintaining correspondent banking relationships

“Many respondents cited inconsistent customer onboarding and due diligence obligations as the biggest factor contributing to increased costs, and reduced speed,” the survey reports. “This leads to delays in customers being able to open accounts and transfer funds, and can lead to reduced access to financial services for those customers, especially if profit calculations do not justify the related compliance costs.”

The report adds that even discrepancies in different jurisdictions on the use of initials or full names can generate queries, follow-ups, and delays in verifying customers.

“Since low-value payments can also be used to finance terrorism or to fund AML/CFT predicate offenses, and as sanctions legislation applies regardless of amount, all cross-border payments need to be sanctions-screened and any alerts investigated, which drives up costs and reduces efficiency,” the report states.

FATF also criticized some firms for their approach to filing suspicious transaction reports [STRs], stating that it “has become more about technical regulatory compliance rather than effective risk management.” Firms are filing STRs to avoid regulatory sanctions, driving a high number of false positives. FATF advises institutions to take a risk-based rather than risk-averse approach and put clear benchmarks, guidance and tools in place to determine appropriate rule settings.

FATF’s conclusions in the survey highlight that information sharing continues to be a major challenge, particularly in relation to risk monitoring, transaction processing, and sanctions screening. There is a need for a broader global understanding of FATF requirements, and national registries for know your customer (KYC) and beneficial ownership information – alongside better infrastructure to ensure accuracy.

Consultation on revisions to Recommendation 24

FATF has published proposals for amending Recommendation 24  – designed to increase transparency around beneficial ownership of legal persons –  following consultations this summer.

Particularly timely following the revelations in the Pandora Papers, the proposed amendments include strengthening the language used in the Recommendation, and ensuring it is as specific and actionable as possible. Feedback on the changes should be received by 3 December 2021.

Find out more about the FATF’s response to the Pandora Papers and proposed changes to Recommendation 24 in our blog.

Changes to jurisdictions under increased monitoring

FATF has made changes to its ‘grey list’ of countries in need of increased monitoring while they improve their AML/CFT policies. Jordan, Mali, and Turkey have been added to the list, while Botswana and Mauritius have been removed.

Being placed on the grey list makes it harder for countries to access international finance, trade, and investment. An IMF study published in May found that FATF greylisting had a “large, significant negative effect” on a country’s capital inflows.

The European Commission will now review available information from FATF and decide whether to add/remove the countries from its own money-laundering list, which identifies high-risk non-EU jurisdictions that threaten the EU’s financial system.

Given the increased risk of money laundering and terrorist financing that black list and grey list countries present, most financial authorities require firms to have suitable risk-based AML/CFT protection in place to mitigate that threat.

Firms should screen customers against the FATF black list and grey list during onboarding and throughout their business relationship, and monitor their transactions on an ongoing basis. To screen accurately, firms should ensure customer due diligence measures verify their customer’s residence in, or business with, listed countries and that their transaction monitoring measures can scrutinize the size, frequency, and pattern of transactions involving high-risk countries, to establish whether a criminal activity, such as money laundering, is taking place.

Originally published November 28, 2021, updated May 6, 2022

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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