A global financial crime watchdog group has issued a multitude of updates and reports in recent weeks on key issues, from terror finance to de-risking, and noted that while some countries, such as Ecuador and Sudan, have improved, others, like Vanuatu, have failed to make progress.
The bevy of news by the Paris-based Financial Action Task Force (FATF), comes at the heels of their plenary session, which finished last week, and in the midst of the ongoing mutual evaluations of its 36 full-time members and regional organizations, including many of the largest economies in the world, such as the United States, China, Russia and the United Kingdom.
The findings of the group and its eight FATF-style regional bodies – covering more than 180 jurisdictions throughout the Middle East and North Africa, Europe, Asia and Europe – have taken on even greater importance as banks the world over struggle with rising regulatory expectations and higher penalties for financial crime compliance missteps.
The full reports can be accessed at www.fatf-gafi.org. Here are some of the key takeaways from the FATF plenary and related initiatives:
Vexing Vanuatu: the FATF has concerns about the “serious deficiencies” in Vanuatu’s financial crime framework, noting that the jurisdiction is graded as “inadequate” in technical compliance and effectiveness related to its laws to go after money launderers, terrorists and comply with international sanctions regimes.
It has also failed to implement stringent customer due diligence measures for financial institutions and rules and oversight for non-bank businesses.
Moving on up: Ecuador and Sudan have worked their way off of the FATF’s multi-tiered blacklist. The countries have made “significant progress” in improving rules and regulations tied to fighting financial crime and uncovering and prosecuting terrorist financing.
Dangerous de-risking: The broad “de-risking” going on in recent years by international banks wary of being burned by certain clients, like money services businesses in higher risk regions, could move illicit funds underground, which would aid criminal groups and hamper the tracking and reporting of suspicious transactions.
Terror financing: The FATF found that there are tough challenges ahead in better uncovering terrorists, foreign terrorist fighters and their financiers due to the “significant vulnerabilities” inherent in these groups using social media, including anonymity, access to a wider range and number of potential sponsors or sympathizers and the relative ease with which it integrates electronic payment mechanisms.”
At the same time, donors are “often unaware of the end-use of funds supported by social media, including crowdfunding, which presents a risk that terrorist organizations can exploit.”
Many of these systems, the group concluded, can be “accessed globally and used to transfer funds quickly. While transactions may be traceable, it proves difficult to identify the actual end-user or beneficiary.”
As well, electronic, on-line and new payment methods “pose an emerging terrorism financing vulnerability which may increase over the short term as the overall use and popularity of these systems grows.”