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FATF Adopts Revised International AML Standards

Ulrika Lomas,, Brussels

20 February 2012

The Financial Action Task Force (FATF) anti-money laundering (AML) standards have been revised to strengthen global safeguards and further protect the integrity of the financial system, by providing governments with stronger tools to take action against financial and tax crimes.

The FATF is the global standard-setter for measures to combat the threats of money laundering and terrorist financing. It is an intergovernmental body with 36 members, and its standards (the FATF Recommendations) are applied by over 180 countries, through a global network of affiliated regional bodies.

The FATF Recommendations require all countries to have effective systems for preventing and addressing money laundering and terrorist financing. They set out, for example, the measures that countries should have in place within their criminal justice and regulatory systems, the preventive measures to be taken by financial institutions and professions, and measures to ensure transparency on the ownership of legal persons.

They have now been revised with the aim of strengthening their requirements in areas of higher risk or where implementation could be enhanced, and to be clearer on transparency and tougher on corruption. They are also said to be better targeted.

A risk-based approach will allow financial institutions and other designated sectors to apply their resources more efficiently by focusing on higher risk areas while there is more flexibility for simplified measures to be applied in low risk areas.

The FATF calls upon all countries to implement these measures effectively in their national systems. It is pointed out that a well-implemented risk-based approach means that the AML system will be more effective, and will help countries implement measures to encourage financial inclusion, as called for by the G20.

It is deemed apparent that a lack of transparency about the ownership and control of legal persons and legal arrangements, or about the parties to wire transfers, makes those instruments vulnerable to misuse by criminals and terrorists. The FATF has strengthened transparency requirements in these areas, meaning a requirement for reliable information to be available about the beneficial ownership and control of companies, trusts, and other legal persons or legal arrangements.

With the increasing globalization of money laundering and terrorist financing threats, the FATF has also enhanced the scope and application of international cooperation between authorities. The revised Recommendations will mean more effective exchanges of information for investigative, supervisory and prosecutorial purposes. This will also assist countries in tracing, freezing and confiscating illegal assets.

The list of predicated AML offences has also been expanded to include serious tax crimes. This will bring the proceeds of tax crimes within the scope of the powers and authorities used to investigate money laundering. The smuggling offence has also been clarified to include offences relating to customs and excise duties and taxes with the intention of ensuring better coordination between law enforcement, border and tax authorities, and the remove of potential obstacles to international cooperation regarding tax crimes.

The European Commission (EC), which is a full member of the FATF, participated actively in the development of the FATF Recommendations. As the FATF will start to check that their new standards are being implemented from the end of 2013, the EC has recognized that it needs to act fast to incorporate the new standards into existing European Union (EU) law.

To this end, the EC has confirmed that it has already launched a process to review the functioning of the relevant legislation, the 3rd AML Directive. At the end of March, the EC will adopt a report on its application, following which work will begin on an impact assessment and the accompanying legislation, with the intention of adopting a legislative proposal, amending the 3rd AML Directive, by the end of 2012.

Singapore, which has been reported to be the destination of a large part of the additional funds being invested recently in Asia, has also fully committed itself to implementing the new FATF Recommendations. It was disclosed that Singaporean agencies have been actively involved in the FATF review process in developing those new AML standards.

Its Ministry of Finance stressed that, “as an international financial centre, Singapore is highly vigilant against illicit funds that could threaten its integrity. Singapore’s regime seeks to deter and prevent criminal abuse, and it is our policy to actively cooperate with foreign jurisdictions to combat money laundering and terrorist financing.”

TAGS: individuals | money-laundering | compliance | tax | investment | European Commission | tax compliance | law | banking | financial services | Singapore | excise duty | enforcement | offshore | professionals | legislation | offshore banking | standards | Financial Action Task Force (FATF) | European Union (EU) | services | Europe

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