FATF & its Regional Associates Should Merge & be Reborn as a UN entity
MAY 03, 2019
By TIOL Edit Team
FINANCIAL Action Task Force's (FATF's) revised mandate and its latest report to G20 need guarded welcome.
Guarded, because corruption, tax evasion & terrorism continue to thrive globally despite best efforts by FATF. There are also other factors that warrant caution & concern as well which we will figure out later in the editorial.And welcome, because the latest initiatives show that FATF is seriously engaged in a catch-up game with criminals.
On 12th April 2019, FATF issued 18-page ministerial declaration-cum the revised mandate. It says: " We agree to make this Mandate open-ended starting in 2020, recognising that the FATF has evolved from a temporary forum to a sustained public and political commitment to fight money laundering, terrorist financing, and proliferation financing ".
The Ministers from FATF's 38 member countries resolved: " We commit to step up our fight against these significant threats to global security and the integrity of the international financial system ".
They acknowledged that Criminals exploit the financial system to move illegally obtained proceeds. This poses risk to economic stability. Terrorists exploit vulnerabilities in the financial system to raise and move funds that then are used to support and facilitate attacks against our citizens. State and non-state actors take advantage of lax laws or weak oversight in some countries to channel funding to the development of weapons of mass destruction (WMD)
It is not for the first time that FATF has revised its mandate. It did it thrice earlier.
A quick comparison revised mandate with the preceding 12-page mandate (2012-2020) shows both are largely similar. FATF's eight functions listed under the two documents are the same. The revised mandate has an additional function.
It reads as: " Maintaining engagement with other international organisations and bodies, in particular the United Nations (UN), to increase the outreach of the activities and objectives of the FATF ".
This function should actually serve as a springboard for FATF's transformation into a permanent organization of UN on lines of United Nations Office on Drugs and Crime (UNODC). It is also entrusted with the task of overseeing implementation of UN Convention Against Corruption.
If FATF becomes a UN organization, it would not be perceived as elite club of rich and other relatively well-off nations. Operating as an arm of UN, it can rope in many more countries that are out of reach of ambit of FATF's anti-money laundering (AML) and countering the financing of terrorism (CFT) framework.
In fact, all nine FATF-style regional bodies (FSRBs)should merge with FATF as a UN entity. FSRBs such as Asia/Pacific Group on Money Laundering (APG) are associate members of FATF.
This will facilitate cohesion and optimization of skills and avoid duplication of efforts.
Alternatively, FATF can consider becoming an appendage of International Monetary Fund, the World Bank or World Trade Organization (WTO).
The underlying objective should be to enlarge membership and reach of AML/CFT framework.
If FATF is keen to retain its exclusive identity, then it can transform itself into a formal, permanent body created under a global pact with defined set of obligations and rules.
FATF was formed by G-7 Summit in Paris in July 1989 to examine measures to combat money laundering to rein in drugs mafias. In 1990, the FATF issued Forty Recommendations to address this problem. The Recommendations have been revised and enlarged over the years.
Till the time FATF enhances its reach and clout, it should improve compliance by member countries of AML/CFT recommendations. The consolidated rating of its member countries has classified them into four on the basis of 11 outcomes or parameters.
The four categories are: jurisdictions with 1) high level of effectiveness; 2) substantial level of effectiveness; 3) moderate level of effectiveness and 4) low level of effectiveness.
As for technical compliance with its recommendations, FATF has grouped the member countries into three: 1) compliant; 2) largely compliant and 3) partially compliant.
A huge chart combining these two ratings shows that FATF needs a lot more to improve effectiveness of its framework to prevent financing of terrorist organizations and prevent money laundering for hiding or transforming proceeds of crime ranging from corruption to trade frauds.
FATF lacks the teeth /powers available like WTO to rein in countries notorious for non-compliance with its recommendations and norms.
In its report submitted last month to G20 Finance Ministers and Central Bank Governors, FATF has referred to its ongoing work. One of these relate to coping with ML and terror funding risks posed by virtual assets such as block chains and other distributed ledger technologies.
FATF will update by June 2019 its 2015 Risk-based Approach Guidance on Virtual Currencies. FATF should urge BASEL Committee to lead banks into taking a global call on introduction or banning of virtual assets. If they are to be allowed, then effective rules must be put in place to prevent them from being abused for all crimes that FATF is meant to fight.
To conclude, FATF has to move over from incremental improvements to reinventing itself and the manner in which it should function.
