FATF’s vital recommendations and why they’re important for your business

Being a CEO, MD, or compliance officer, or holding such a post in any type of business, irrespective of the place of operation, is not a cakewalk. Simply because there are a lot of expectations attached to your role. 

One person is expected to know the job of a salesperson working on the floor as well as the strategy head to sail through any situation and propel your business to the top. It goes without saying that as a Head, you should be aware of what your competitors are doing in addition to knowing your own product’s strengths and weaknesses. In fact, you are also expected to know which regulations apply to your place of work and which ones you can turn a blind eye to, and the recommendations of FATF are not something you can ignore. 

The Financial Action Task Force was created to address the following three enormous problems that are causing a ruckus throughout the world: 

• Money laundering 
• Terrorist 
• Proliferation financing 

Money laundering and terrorism have far more profound effects than one may fathom. Terrorist operations require funding, which naturally cannot be obtained through our banking systems. This is where money laundering comes into play!

Money laundering standalone is also very deadly for any business operation. 

With a staunch endeavour to put up a fight against money laundering and terrorist funding, the Financial Action Task Force, which goes by its nickname—FATF, was established.

In this blog, we are going to learn a little about FATF and about a few of its vital recommendations that are at the center of developing and curating business policies and processes. 

A little bit about FATF: 

Headquartered in Paris, FATF has been working nonstop for 25 years now. Given the appalling work that FATF has done, it would not be incorrect to argue that many heinous and anti-human behaviours, at a global level, have been prevented as a result of FATF. 

So, one might wonder how the FATF contributes to preventing such activities. In order to guarantee that most governmental bodies can successfully track down illicit finances connected to drug trafficking, the illegal arms trade, cyber fraud, and other major crimes, FATF, consisting of 40 members, establishes worldwide norms, also called the famous ‘FATF Recommendations.’

These recommendations are then tweaked and customized to form national standards/legislation for counterterrorism financing (CFT) and anti-money laundering (AML). 

Here are the broad agendas around which FATF works: 

• Studies ways in which money is being laundered and terrorist organisations are funded 
• Drawdown plans to mitigate the relative risks
• Keep a tab on whether or not nations are taking effective action.

Based on the last agenda point, it curates a list. The List!

Goal: Don’t be Black/Grey Listed by FATF

A nation may be designated a ‘High-Risk Jurisdiction’ or a ‘Jurisdiction under Increased Monitoring’ depending on how obediently it follows the FATF recommendations.

These are frequently referred to as “the grey and black lists”.

Currently, the following nations fall under these lists: 

Black List: North Korea, Iran, and Myanmar. 

Grey List: Algeria, Angola, Bulgaria, Burkina Faso, Cameroon, Côte d’Ivoire, Croatia, Democratic Republic of Congo, Haiti, Kenya, Lebanon, Mali, Monaco, Mozambique, Namibia, Nigeria, Philippines, South Africa, South Sudan, Syria, Tanzania, Venezuela, Vietnam, and Yemen.

We have published this list for your consideration before making any business-related decisions, even if you have a remote base in one of the aforementioned nations. 

We spoke about the FATF recommendations and their relation to businesses; let us discuss these recommendations in a bit more detail now. 

FATF Recommendations got a new look in November 2023: 

The FATF recommendations list was last updated in November 2023. It is now a comprehensive list of 40 recommendations divided into various categories like AML/CFT policies and coordination, money laundering and confiscation, terrorist financing and financing of proliferation, preventive measures, and so on. 

You can have a look at the entire list here.

Listing a few of FATF’s vital recommendations:

Politically Exposed Person Screening: Your company must have a sanctions screening procedure if your FIU has imposed a sanction on individuals suspected of engaging in financial terrorism or money laundering. 

According to FATF recommendations, financial institutions should be required to perform normal customer due diligence measures to: 

(a) have appropriate risk-management systems to determine whether the customer or the beneficial owner is a politically exposed person; 

(b) obtain senior management approval for establishing (or continuing, for existing customers) such business relationships;  

(c) take reasonable measures to establish the source of wealth and source of funds; and 

(d) conduct enhanced ongoing monitoring of the business relationship. 

Know more about PEPs here. 

Ultimately, it will fall on your head to ensure that none of your stakeholders are listed on any relevant sanctions lists and to refrain from doing business with such people, organisations, or nations that have been sanctioned.

Do not worry! We got you covered. Reach out to us in case you want to screen your customers against the PEPs and sanction lists and flag the individuals with money laundering risks early in the onboarding process.

Robust Compliance System: All the FIUs are given the charge to enforce national AML/CFT policies. You must comprehend and abide by any laws established by your governing FIU. Establish compliance systems that can take care of the applicable governing laws. 

Record Keeping: FATF recommends all “Financial institutions to maintain, for at least five years, all necessary records on transactions, both domestic and international.”

So, our company should keep track of all consumer transactions and activities and maintain a record of them. This will guarantee that you can react promptly to any questions or inquiries made by the authorities.

Customer Due Diligence: The steps a financial institution must take to assess and lower a customer’s risk of money laundering are referred to as customer due diligence (CDD).

To know about the steps financial institutions must take to comply with the CDD rules, click here. FATF also has put out specific instances as to when CDD must be carried out. 

New Technologies: FATF suggests that the risks of money laundering and terrorist financing should be recognized and evaluated by nations and financial institutions in connection with (a) the creation of new goods and business methods, such as new delivery systems, and (b) the application of new or emerging technologies for both new and existing goods. 

Further, one cannot ignore the rampant risks posed by new technologies such as AI. 

AI has already become a part of our lives. While now you can play a song by just saying “Ok Siri” or “Ok Google” or finish your 2000-word assignment by punching just a few words on your laptop, it comes with its own set of lethal risks. This is very crucial, especially for financial institutions. 

FIUs must keep evaluating the dangers posed by these new items as technology advances and changes. Make sure you have systems that can support and adhere to all pertinent regulations established by your governing FIU before implementing any new technology in your company.

One might think, why should I take so much stress in evaluating the FATF’s recommendations?  Remember, your business is a part of the ecosystem of a nation, so anything you do will directly have an impact; don’t forget. 

At Signzy, we comprehend what you need, and we endeavor to cater to you with the best in the market. To learn more about us and our services, visit us at https://www.signzy.com/.