Money banknote and Anti - Money Laundering

AML-compliant jurisdictions doubled in last 10 years, but FATF says more work to be done

The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, has published a landmark report on the state of effectiveness of and compliance with the FATF anti-money laundering standards.

The FATF standards and recommendations guide the development of countries’ legislative framework for combating money laundering and terrorist financing. Though not legally binding, they are highly influential on member countries and failure to implement the standards can land a country on the FATF’s “non-cooperative countries or territories” list, inviting further scrutiny from member countries.

“Overall, the report finds that the countries have made huge progress in improving technical compliance by establishing and enacting a broad range of laws and regulations to better tackle money laundering, terrorist and proliferation financing,” reads the report.

According to FATF, 76% of countries have “satisfactorily” implemented the FATF’s recommendations, compared to 36% in 2012. The FATF attributes this rise in part to the implementation of the FATF mutual evaluation process, which involves a comprehensive and objective assessment of the degree to which a country has adopted the FATF recommendations.

Despite the growth in satisfactorily compliant jurisdictions in the past 10 years, the FATF report distinguishes between “technical” compliance and “effectiveness.” While 76% of countries are technically compliant, effectiveness sits at just 21%, indicating there is much more work to be done.

The figures contained in the report come from FATF’s measurement of States against 11 “Immediate Outcomes” established in the mutual evaluation process. These are the “key goals” that any AML/CFT regime should achieve. The latest report is broken into these 11 goals and sets out a number of key figures extracted from the mutual evaluation process.

For example, under immediate outcome one, “Money laundering and terrorist financing risks are understood and… actions coordinated domestically to combat money laundering and the financing of terrorism,” the FATF reports that over two-thirds of countries identify drug trafficking as the major predicate offense for money laundering.

Under immediate outcome four, which covers financial institutions adequately applying preventative measures corresponding with their own AML risks, the FATF examined the level of understanding of AML and CFT risks within private sectors around the world. Banks tended to have the best understanding, with 64% assessed to have a ‘Good-Very Good’ risk understanding. Lenders and money service businesses (which includes digital asset exchanges) had the poorest understanding among financial institutions, with 49% and 43% assessed as having a ‘Poor-very poor’ understanding, respectively.

The report’s conclusion states that it “reveals a number of areas of progress but also highlights the major shortfall and challenges that remain. It is clear that nearly all countries need to make substantial improvements regarding the effective implementation of the FATF’s standards.”

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