Today, the Paris-based Financial Action Task Force (FATF) released its long anticipated revised set of standards for anti-money laundering (AML) and counter terrorist financing (CTF) which replace the 40 Recommendations + 9 Special Recommendations compiled in 2003. The revised FATF Recommendations integrate AML and CTF controls into one document and are quite expansive in that they expand the mandate of the FATF into the supervision of international policy for proceeds of corruption, tax crimes and the financing of the proliferation of weapons of mass destruction.
The material changes are as follows:
- Risk-Based Approach – Confirmation that countries are required to adopt a risk-based approach to their AML and CTF laws, and not a set of laws applicable to all reporting sectors regardless of identified risks. The FATF indicated that the implementation of the risk-based approach will require governments and the private sector (reporting entities) to work in partnership, to clearly understand the money laundering and terrorist financing risks that affect them, and to adapt their systems to the nature of these risks. The underlying principle, clearly stated in the revised Recommendations, is that enhanced measures should be applied where the risks are higher, and simplified measures applied where the risks are lower. The reporting sector guides previously produced by the FATF were meant to provide guidance with respect to those risks. Canada has not adopted a risk-based approach in its legislation thus far.
- Proliferation of Weapons of Mass Destruction – Governments should implement economic sanctions to address the proliferation of weapons of mass destruction and the financing thereof. This Recommendation is consistent with the UN Security Council Resolutions relating to the prevention, suppression and disruption of the proliferation of weapons of mass destruction and its financing that require countries pursuant to sanctions regimes, to freeze the funds and assets of those identified as associated with the proliferation of weapons of mass destruction.
- National Policies on AML – Governments will have to undertake reviews and assessments of the risks of AML/CTF in reporting sectors and based on those reviews, adopt national AML/CTF policies. This will require working with reporting entities, FIUs, government agencies and law enforcement. Each country will have to designate an authority that is responsible for the oversight of the policies, and their periodic review and revision.
- Politically Exposed Persons – Clarification that PEP rules apply to domestic, and not just foreign, PEPs. Some countries, such as Canada, have no AML/CTF measures in place with respect to domestic PEPs, even though there is no evidence that foreign PEPs are any more corrupt than domestic PEPs or pose a greater money laundering or terrorist financing risk. A PEP will now also include close associates of the PEP. A PEP is a person who holds a prominent public position (i.e., head of state, head of government, member of legislature, judge, ambassador, military officer, president or CEO of Crown corporation). PEPs represent a greater money laundering risk because of the possibility that they may abuse their position to carry out corrupt acts, such as accepting or extorting bribes, or misappropriate state assets, and use the financial system to launder those proceeds.
- Transparency as to Legal Persons – The Recommendations contain several changes that will require the transparency of corporations and trusts; specifically, governments need to ensure that reporting entities can easily access incorporation information and information as to trusts, including names of shareholders of private and public corporations, their directors and officers, and names of trusts and their trustees and beneficiaries. This Recommendation will be impossible to be complied with in Canada, given the current securities and corporate law regime, and the way in which corporations are established and corporate records maintained. The same applies to trusts in this country, the existence of which are only known to the trustees, their lawyers and, in some cases, the CRA if there are tax implications with respect to a trust.
- New Technologies – Countries and banks will have to identify and assess the money laundering and terrorist financing risks with new products and services (such as prepaid access and virtual currencies like Bitcoin) before permitting those products and services to be made available in the marketplace, and will be required to take measures to mitigate any risks associated with new products or services.
There are several additional changes as well. The FATF Recommendations are available on the FATF website.