In response to mounting concern over money laundering, the Financial Action Task Force (FATF) was established by the G-7 in 1989 as a transitory body to develop and promote policies, both at the national and international level, to combat money laundering.
In 1990, the FATF issued a report containing forty recommendations for addressing global money laundering concerns, which came to be known as the Forty Recommendations. In 2001, the development of standards to fight terrorist financing were added to the mandate of the FATF and it adopted eight new recommendations to address terrorist financing, known as the Eight Recommendations.
The continued evolution of money laundering techniques led the FATF to revise the FATF standards comprehensively and in October 2004, the FATF published a Ninth Special Recommendation. The FATF monitors compliance among member countries, including Canada, with its Forty Recommendations and Nine Special Recommendations – referred to as the FATF 40 + 9 Recommendations.
The 40 + 9 Recommendations are summarized as follows:
40 Recommendations on Money Laundering
- Countries should criminalize money laundering and apply the crime of money laundering to the widest range of predicate offences. Predicate offences for money laundering should extend to conduct that occurred domestically or in another country.
- Countries should ensure that the intent and knowledge element required to prove the offence of money laundering meets the standards in the Vienna Convention and Palermo Convention, including that mental state be inferred from factual circumstances. Additionally, criminal liability should apply to legal persons.
- Enforcement authorities should have the competence to confiscate laundered property, proceeds from money laundering or from underlying predicate offences.
- Bank secrecy laws should not impede the implementation of FATF Recommendations.
- Financial institutions should ascertain and verify the identity of all their customers when establishing business relations and carrying out transactions; report when they have reasonable grounds to suspect money laundering or terrorist financing; and refuse to allow anonymous accounts to exist.
- Financial institutions should have risk management systems to identify politically exposed persons, take reasonable steps to establish the source of funds and obtain senior management approval to open the accounts of politically exposed persons.
- Financial institutions should take extra precautionary steps in connection with correspondent banking relationships.
- Financial institutions should pay special attention to money laundering threats from new technologies.
- Countries may allow financial institutions to rely on intermediaries for customer due diligence provided they take certain additional protective steps that include ensuring that ensuring that third party intermediaries are regulated and supervised.
- Financial institutions should keep records for five years.
- Special attention should be given to complex large transactions that are unusual and that have no apparent economic or lawful purpose.
- Customer due diligence and record keeping obligations in FATF Recommendations 5, 6, 8 to 11 apply to casinos, real estate agents, dealers in precious jewels, lawyers/notaries and trust companies.
- If a financial institution has reasonable grounds to suspect that funds are proceeds of crime, or related to terrorist activity, it should be required to report that suspicion.
- Financial institutions, their officers, directors and employees should be protected from criminal and civil liability for breaching any restriction on disclosure of information imposed by contract or law if they file suspicious transaction reports in good faith and should also be prohibited from tipping off.
- Financial institutions should develop anti-money laundering programs.
- Recommendations 13 to 15 and 21 apply to all designated non-financial businesses and professions except, for example, lawyers when they are subject to professional secrecy or legal privilege.
- Countries should have effective, proportionate and dissuasive sanctions to deal with natural or legal persons who fail to comply with the anti-money laundering or terrorist financing requirements.
- Countries should prohibit the existence of shell banks and financial institutions should refuse to enter into correspondent relationships with shell banks.
- Countries should consider whether requiring banks to report currency transactions above a certain threshold is feasible and useful.
- Countries should consider extending the application of the FATF Recommendations to other professions and business that pose a threat.
- Financial institutions should give special attention to transactions with countries who are not FATF compliant.
- Financial institutions should ensure that the FATF Recommendations applicable to them apply to their foreign branches and subsidiaries.
- Countries should ensure that financial institutions are subject to adequate regulation and supervision and are effectively implementing the FATF Recommendations.
- Casinos should be subject to a comprehensive regulatory regime that ensures that they have effectively implemented the necessary anti-money laundering and terrorist-financing measures. At a minimum, casinos should be licensed; criminals or their associates should be prohibited from holding or being the beneficial owner of a significant or controlling interest, holding a management function in, or being an operator of a casino; and regulatory agencies should ensure that casinos are effectively supervised for compliance with requirements to combat money laundering and terrorist financing.
- Countries should establish guidelines for compliance with anti-money laundering and terrorist financing requirements and provide feedback to reporting entities in their application of the legislation.
- Countries should set up a financial intelligence unit to receive and investigate money laundering and terrorist financing reports from reporting entities.
- Countries should make sure that there are designated police forces for money laundering and terrorist financing investigations.
- Enforcement agencies should have the competence to force production of records held by reporting agencies and to seize evidence for money laundering and terrorist financing investigations.
- Bank supervisory agencies should have the competence to monitor and ensure compliance by financial institutions with money laundering laws.
- Law enforcement agencies should have adequate financial resources to combat money laundering and terrorist financing investigations and prosecutions.
- Countries should ensure that there are mechanisms in place among financial intelligence units, law enforcement and regulatory agencies to allow them to develop and implement anti-money laundering policies.
- Countries should ensure that authorities can review the effectiveness of their anti-money laundering system.
- Countries should ensure that legal persons (i.e. corporations) cannot be used by money launderers and that law enforcement agencies can obtain information on beneficial owners of legal persons.
- Countries should ensure that legal arrangements (i.e. trusts) cannot be used by money launderers and that law enforcement agencies can obtain information on beneficial owners of trusts.
- Countries should ratify the Vienna Convention, the Palermo Convention and the United Nations International Convention for the Suppression of the Financing of Terrorism.
- Countries should provide the widest range of mutual assistance to other countries in money laundering and terrorist financing investigations and prosecutions.
- Countries should enter into mutual legal assistance agreements. If dual criminality is required for extradition or mutual assistance, countries should essentially ignore the dual criminality requirement by deeming that requirement satisfied.
- Authorities should be able to identify, freeze, seize and confiscate property at the request of a foreign state if the property is from proceeds of crime.
- Money laundering should be an extraditable offence.
- Countries should ensure that they provide the widest international cooperation to foreign countries.
9 Recommendations on Terrorist Financing
- Countries should ratify the United Nations Resolutions relating to the prevention and suppression of the financing of terrorist acts, especially the United Nations Security Council Resolution 1373.
- Countries should criminalize the financing of terrorism, terrorist acts and terrorist organizations.
- Countries should implement measures to freeze the assets of terrorists, financiers of terrorism, and terrorist organizations and to allow law enforcement to seize their property.
- Reporting entities should, on reasonable grounds of suspicion, be required to report terrorist financing.
- Countries should enter into treaties or mutual assistance agreements to give the greatest possible assistance to foreign countries in matters of criminal, civil and administrative investigations or proceedings relating to the financing of terrorism, terrorist acts and terrorist organizations. Countries should also ensure they are not safe havens for persons charged with financing of terrorism, terrorist acts or affiliated with terrorist organizations and should have procedures in place to ensure the extradition of such persons.
- Countries should licence money transmission services and make them subject to the FATF Recommendations.
- Financial institutions should take measures to include accurate and meaningful information on funds transfer and to treat as suspicious, those transfers that omit meaningful information.
- Countries should review the adequacy of their legislation in connection with charities to ensure they cannot be misused for terrorist financing or to conceal or obscure the clandestine diversion of funds.
- Countries should have measures in place to detect the cross-border transportation of currency and bearer negotiable instruments and include a declaration system.