The Financial Action Task Force (“FATF”) is an inter-governmental body established in 1989. The mandate of the FATF is to set standards and to promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and the financing of proliferation, and other related threats to the integrity of the international financial system.
The original FATF Forty Recommendations were drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money and have been revised several times in order to keep up with the ever evolving money laundering trends and. In 2001, the FATF expanded its directive to deal with the issue of the funding of terrorist acts and terrorist organizations. As a result, the FATF created Eight Special Recommendations on Terrorist Financing (later to become Nine). In 2003, the FATF Recommendations were revised once again, and these, along with the Special Recommendations, were endorsed by over 180 countries and are collectively recognized as the international standard for anti-money laundering and countering the financing of terrorism (“AML/CFT”).
In February 2012, FATF issued new and revised Recommendations regarding International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. The revised FATF Recommendations signals for all countries to implement effective measures to bring their national systems for combating money laundering, terrorist financing and the financing of proliferation into compliance with the revised FATF Recommendations.
Among the new and revised Recommendations, one in particular stands out, Recommendation 1. Recommendation 1 calls on both countries and financial institutions to apply a risk based approach and advocates conducting risk assessments for AML/CFT. Whether you are a Central Bank, Financial Intelligence Units (“FIU”), or reporting entities, including financial institutions or Designated Non-Bank Financial Businesses and Persons (“DNFBPs”), an AML/CFT risk assessment involves systemically assessing money laundering and financing of terrorist risks and vulnerabilities. While risk assessments are not new to most financial institutions and reporting entities, there could be a growing demand for AML/CFT technical assistance.
To date, consultants and government agencies have conducted national assessments in over 20 countries, identifying AML/CFT threats and vulnerabilities. Recommendation 1 requires financial institutions and DNFBPs to identify and assess risks. The latest recommendation from FATF, Recommendation 23, emphasizes the need for countries to include DNFBPs. To date, most countries have not consistently applied AML/CFT regulations to DNFBPs because: either they consider doing so a low priority; or they lack the expertise to accomplish it. Consulting firms possessing expertise in these areas can expect to obtain more business. But, perhaps, the biggest winners will be companies that sell automated AML/CFT systems.
Obtaining the best systems for the money is of paramount importance to both government and private sector clients. Historically, there has been a greater demand by both the public and private sectors in the United States and other developed countries, but more and more U.S. vendors have enjoyed sales of automated AML/CFT systems in developing countries as AML/CFT laws are introduced and strengthened. Automated AML/CFT System providers who have superior products will do better in countries where their clients are more knowledgeable of available products and their system needs.
There are numerous examples where Automated AML/CFT System clients did not do their homework and would have paid greatly for their AML/CFT systems. For example:
All too often, commercial banks and other entities purchase systems only to find out in a short time these systems do not adequately meet their needs, or the requirements of their regulators. Recognizing this problem, the United States Agency for International Development (“UAID”) held a conference in Jordan in 2007. The focus of the conference was anti-money laundering systems. The conference provided commercial bankers and others guidance on obtaining an AML/CFT system designed to fit their needs and at the right price. Commercial bankers hailed the conference as being very informative.
Vendors providing automated AML/CFT Systems which serve the needs of well-informed clients will do well.