The Financial Action Task Force (FATF) , founded in 1989 by the G7 countries , is an intergovernmental organization, developing and supporting policies in the field of combating money laundering and terrorism financing.
While initially FATF was established with the aim of developing measures for preventing money laundering, after 11 September 2001, in addition to combating money laundering, combating terrorism financing has been added to its mission. Nowadays, the organisation engages in combating money laundering, combating proliferation of terrorism and nuclear weapons financing and recently it has focused its works on tax crimes. FATF in this regard, engages in activities that aim at setting out the principles of multilateral fight against threats to the international financial system in the abovementioned fields; setting up an interstate cooperation by developing certain standards, to promote the effective application of the established legal, regulatory and operational measures of the states.
FATF also, with a view to preventing abuse of the international financial system, endeavours to identify the weak points at a national level on the issue, by working in cooperation with the other international organizations in the field.
FATF currently has a total of 36 members , including our country, of which 34 are states and 2 are regional organisations. Also, MENAFATF, MONEYVAL, APG, GAFISUD, CFAFT, EAG, ESAAMLG and GIABA, which are regional organizations similar to FATF, enjoy the status of associate members.
FATF is an international organization, as well as an interstate independent organization, founded with the purpose of producing and developing policies for protecting and watching over the global financial system against financing terrorism and money laundering throughout the world. In this regard, the main subject of activity of FATF can be defined as combating money laundering, terrorist financing and financing of proliferation of nuclear weapons. FATF reviews money laundering and terrorist financing acts and defines if new counter-measures are needed to combat these. With this purpose, FATF has 40 Recommendations, published with this aim, the organization monitors the member countries' progress in implementing the FATF Recommendations. FATF also provides technical assistance to non-member countries upon their requests, concerning combating money laundering and terrorism financing.
FATF conducts its activities via its “Plenary meetings”, which is its decision-making body and via its working group meetings, formed for working on various issues. The FATF Plenary Meetings are convened three times every year, in October, February and June.
The FATF member countries are being monitored periodically by FATF for their progress in preventing money laundering and terrorist financing. This type of supervision, named “Mutual Evaluation Process”, consists of the following stages:
- A questionnaire, prepared according to the 40 Recommendations and AML/CFT methodology, is being answered by the related state, with the purpose of acquainting the country under supervision with the system of combating money laundering and terrorist financing,
- The FATF Board of Assessors, consisting of representatives of the other member states and of the FATF Secretariat, visits the country (on-site visit),
- Assessment of the answers to the questionnaire and discussion of the country report, prepared by FATF following the on-site visit, at the Plenary meeting.
Additionally, deficiencies specified in the country report, are being followed up by an “Biennial Update”, conducted once in every two years (Biennial Update) and a “Regular Follow up”. The country being followed up, is liable to take the required measures to eliminate the deficiencies, indicated in the report. Otherwise, successive enforcements shall be applied stage by stage. These stages are range as follows:
- Sending a letter by the FATF president to the related minister in the member country, pointing out the non-compliance to the recommendations,
- High-ranking representatives’ visit to the related country to strengthen this message,
- Publishing a notice, proclaiming that the related country is not able to show a satisfactory compliance to the recommendations,
- Suspending of the FATF membership till the related country shows full compliance to the recommendations,
- Terminating of the membership of the related country.
4. Enforcement Mechanism
Due to the effective monitoring mechanism of FATF, it has been observed that the member states are choosing to remedy their deficiencies swiftly related to the recommendations. The most important tool, providing this effect, is releasing some of the decisions to public, adopted in the FATF Plenary meetings and enforcements, applied to countries that are considered risky. In this regard, proclaiming to the whole world that a country has serious omissions or deficiencies in combating money laundering or terrorist financing, has serious negative impacts on the prestige and trade relations of that country.
In this regard, the following sanctions may also be applied against countries, which fail to fulfil their responsibilities in compliance with FATF criteria:
- making the tight “know your customer” measures mandatory for financial institutions.
- starting tight unit mechanisms or systematic notification about the financial transactions,
- not allowing the country, subject to enforcement, to open affiliates or branches or representative office,
- limiting business relations or financial transactions with the country, subject to enforcement, or with persons in that country,
- prohibiting financial institutions, within the frame of implementing the elements of the know-your-customer process, to conduct transactions by relying on financial intermediaries in the country, subject to enforcement,
- making mandatory for financial institutions to review, amend or terminate, if necessary, their correspondence relations with financial institutions in the country, subject to enforcement,
- making enhanced audition and/or external audition responsibilities mandatory for branches and affiliates of financial institutions in the country, subject to enforcement,
- making enhanced external audition responsibilities mandatory the branches and affiliates of financial groups that are located in a country, to which enforcement is being applied.
5. FATF Recommendations
The FATF Recommendations, form a comprehensive and permanent framework, in view of the measures, required to be applied by the countries in combating money laundering, terrorist financing and financing proliferation of weapons of mass destruction . The FATF Recommendations regulate the fundamental measures that are to be applied by the countries in fulfilling the following matters:
* Identifying the risks, developing policies and domestic cooperation;
* Monitoring money laundering, terrorism financing and financing proliferation of weapons of mass destruction ;
* Applying preventive measures to the finance sector and to the other specified sectors;
* Defining the powers and responsibilities of the competent authorities (i.e. investigation, law enforcement, auditions authorities and the other institutional measures;
* Developing the issue of transparency of legal entities and of availability of real useful information;
* Facilitating international co-operation.
FATF, initially in 1990, published a report containing the “40 Recommendations”, aiming to prepare a comprehensive action plan on combating money laundering.
Along with adding combating terrorist financing to the mission of FATF; in addition to the 40 Recommendations, it issued the “8 Special Recommendations”, defining the standards, dealing with combating terrorist financing in 2001. A constant development of money laundering techniques, led to a comprehensive revision in 2003 in the FATF standards. And in 2004 it was re-revised and the FATF published the “9 Special Recommendations”, further strengthening the agreed international standards for combating money laundering and terrorist financing.
In 2012, the FATF completed a thorough review of its standards and published the current revised 40 FATF Recommendations, consisting of the 40 Recommendations which have been published with the purpose of forming standards for combating money laundering and terrorist financing and 9 Special Recommendations, which aim at combating terrorist financing.
In this revision process, new and developing threats have been dealt with; while the required progress and precision is being preserved, many of the present responsibilities have been clarified and strengthened. Also, in combating money laundering and terrorist financing, responsibilities on high risk areas have been tightened, and these responsibilities have been expanded to have effects on financing proliferation of nuclear weapons, corruption and tax crimes (smuggling).
Most of the measures, focusing on financing terrorists, in their previous form, have been spread generally throughout the recommendations and have removed the need for special recommendations. Along with this, the 5th Recommendation (criminalizing terrorist financing), found in Part C of the FATF Recommendations; the 6th Recommendation (financial sanctions, aimed at terrorism and terrorist financing); and the 8th Recommendation (measures for preventing exploitation of non-profit organizations) particularly focuses on combating terrorist financing. FATF also, with the purpose of combating financing of proliferation of weapons of mass destruction , has adopted a new Recommendation (Recommendation 7), which aims at consistently and effectively practicing the financial sanctions, targeted with the call of the UN in this regard.
The FATF Recommendations consist of forty recommendations, collected under 7 main headings:
- Policies and Co-ordination for Combating Money Laundering and Terrorist Financing
- Money Laundering and Confiscation
- Terrorist Financing and Financing of Proliferation of Weapons of Mass Destruction
- Preventive Measures
- Transparency and Real Utilitarianism in Legal Entities
- Powers and Responsibilities of the Competent Authorities and Other Institutional Measures
- International Co-operation.
Also known as Le Groupe D’Action Financiere (GAFI).
The G-7 countries are the USA, Japan, Germany, France, the UK, Italy and Canada.
Countries, member of FATF, are the USA, Germany, Argentina, Australia, Austria, Belgium, Brazil, China, Denmark, Finland, France, South Africa, the Netherlands, Hong-Kong, the UK, Ireland, Spain, Sweden, Switzerland, Italy, Iceland, Japan, Canada, Luxemburg, Mexico, Norway, Portugal, Russian Federation, Singapore, Turkey, New Zealand, Greece, India and South Korea; regional organizations are the European Commission (EC) and the Cooperation Council for the Arab States of the Gulf (GCC).