Compliance & Regulation

FATF announces Outcomes of February Plenary

The Financial Action Task Force (on Money Laundering) have announced the outcomes of the second FATF Plenary of the People’s Republic of China, chaired by President Xiangmin Liu, which discussed Strategic Priorities, Country-specific processes, and other initiatives.

Of the discussion of FATF’s Strategic Priorities, The Plenary adopted a new guidance paper on digital identity in response to the growing number of digital financial transactions which requires a better understanding of how digital financial services identify and verify their customers.

The guidance paper aims to help government agencies as well as private sector stakeholders develop a clearer understanding of how digital ID systems work. It explains the FATF’s requirements for customer identification and verification and ongoing due diligence and how these can align with key components of digital ID systems. The guidance sets out the risks and the benefits of digital ID, such as potentially increasing financial inclusion.

The guidance is technology neutral but sets out a decision-process to determine whether a digital ID meets the FATF’s requirements for customer due diligence. The FATF recognises the potential that innovation offers to improve AML/CFT efforts. Robust digital ID systems can improve the reliability, security and efficiency of identifying individuals in the financial sector and reduce the weaknesses of human control measures, according to the statement by FATF.

In addition to this, the FATF have been closely monitoring the implementation and impact of its new standards to address the potential money laundering (ML) and terrorist financing (TF) risks of virtual assets, including the progress made towards fully implementing the “travel rule”, which requires transparency about the originator and beneficiary of payments.

The FATF discussed progress in its 12-month review of the implementation of the FATF’s new requirements, taking into account updates from private sector representatives on their proposed technical solutions. The FATF will report to the G20 in July 2020 on its analysis of ML/TF risks associated to so-called stablecoins and the application of the FATF Standards to them.

Stablecoins are cryptocurrencies designed to minimise the volatility of the price of the stablecoin, relative to some "stable" asset or basket of assets.

In regard to the outcomes of the FATF discussion of Country-specific processes, the FATF and the Asia/Pacific Group on Money Laundering jointly assessed Korea’s measures to combat ML and TF. The Plenary discussed this evaluation and concluded that Korea understands the risks it faces and has a sound legal and institutional framework that is delivering some good results.

These include the effective use and development of financial intelligence, and recovery of criminal proceeds. However, the country needs to implement AML/CFT measures and supervision to non-financial businesses, strengthen supervision, focus on preventing the misuse of legal persons and arrangements for ML and TF, and prioritise money laundering investigations and prosecutions.

The Plenary also discussed the joint FATF-MENAFATF assessment of the United Arab Emirates and concluded that the country has implemented many recent measures to strengthen its system to combat ML and TF, including by developing a national risk assessment, AML/CFT strategy and effective measures to investigate and prosecute TF.

However, the country needs to refine its understanding of ML/TF risks, enhance ML investigations and prosecutions, and international cooperation, according to the FATF. It should also better focus on preventing the abuse of legal persons and arrangements, supervision, and on ensuring that assets with links to terror or the financing of weapons of mass destruction are frozen without delay.

When addressing the follow-up report for the mutual evaluation of the United States, The Plenary discussed the progress that the United States has made since its 2016 mutual evaluation report. The FATF Plenary agreed to re-rate the United States on one Recommendation to reflect the country’s current level of technical compliance. In due course, the FATF will publish the follow-up report, which sets out the actions that the United States has taken to strengthen its measures to combat money laundering and the financing of terrorism and proliferation of weapons of mass destruction.

The FATF have stated that Trinidad and Tobago are no longer subject to increased monitoring, congratulating the nations for the significant progress made in addressing the strategic AML/CFT deficiencies identified earlier by the FATF and included in its action plan.

However, the FATF has identified Albania, Barbados, Jamaica, Mauritius, Myanmar, Nicaragua and Uganda as jurisdictions with strategic AML/CFT deficiencies. Each jurisdiction has developed an action plan with the FATF to address the most serious deficiencies.

When discussing Pakistan, the jurisdiction’s high-level political commitment to work with the FATF and APG to strengthen its AML/CFT regime and to address its strategic counter-terrorist financing-related deficiencies has led to progress in a number of areas in its action plan.

All deadlines for this plan have expired, and while noting recent and notable improvements, the FATF again expresses concerns given Pakistan’s failure to complete its action plan in line with the agreed timelines and in light of the TF risks emanating from the jurisdiction.

Pakistan has largely addressed 14 of 27 action items, with varying levels of progress made on the rest of the action plan, leading to the FATF strongly urging Pakistan to swiftly complete its full action plan by June 2020. Otherwise, should significant and sustainable progress especially in prosecuting and penalising TF not be made by the next Plenary, the FATF will take action.

Iran has also been highlighted for failing to execute its action plan, despite the deadline for the plan having been set as January 2018. In October 2019, the FATF urged all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran, amongst further cautionary action.

Now, given Iran’s failure to enact the Palermo and Terrorist Financing Conventions in line with the FATF Standards, the FATF fully lifts the suspension of counter-measures and calls on its members and urges all jurisdictions to apply effective countermeasures.

Iran will remain on the FATF statement on [High Risk Jurisdictions Subject to a Call for Action] until the full Action Plan has been completed.

The FATF also carried out discussion on combating the laundering of proceeds of the illegal wildlife trade, promoting and facilitating more effective supervision at the national level, the progress being made in the strategic review of the FATF Global Network assessment processes, and have elected Dr Marcus Pleyer to be the next FATF President. His term will begin on 1 July 2020, and he will be the first FATF President with a two-year term.