The Financial Action Task Force (FATF), established by the Group of Seven industrial nations, is a global force in the fight against money laundering, terrorist financing and proliferation financing. This text delves into the role and significance of FATF, examining its functions, international influence, and recent initiatives to address emerging challenges, particularly in cryptocurrency and blockchain-based assets.
What is FATF?
Wondering what is the financial action task force? In short, the Financial Action Task Force is an international policy-making body comprising 39 members. Formed in 1989 and based in Paris, it actively works to bring about national legislative and regulatory reforms to combat money laundering and terrorist financing by setting Standards and counter-terrorist financing measures. To date more than 200 countries and jurisdictions have committed to implement these Standards. Despite its influential role, FATF recommendations do not possess the force of law. The FATF Standards (also known as Recommendations) act as guidelines meant to shape the AML/CFT legislation across jurisdictions.
Evolution of FATF recommendations
The FATF first established 40 Recommendations in 1990 as a response to the financial system being misused to launder drug money. The first revision of the Recommendations occurred in 1996 to reflect evolving money laundering typologies. With this revision, the Recommendations were endorsed by over 130 countries and were established as the international antimoney laundering standard.
After the 9/11 terrorist attack, in October 2001 the FATF expanded its scope to tackle the issue of financing of terrorism, issuing the Eight Special Recommendations on Terrorist Financing, complementary to the Forty Recommendations. In October 2004, the FATF published a Ninth Special Recommendation on terrorist financing.
In 2012, FATF substantially revised its 40 + 9 recommendations, consolidating them into 40 comprehensive guidelines. These recommendations serve as a benchmark for nations in developing and implementing their anti-money laundering frameworks. FATF also releases annual typology reports, shedding light on current trends and methods in money laundering and terrorist financing activities.
Last update to the Recommendations was made in November 2023.
Financial Action Task Force on money laundering – cryptocurrency and blockchain focus
Recognizing the evolving finance landscape, FATF regularly issues guidance on cryptocurrency and blockchain-based assets. It introduced the Virtual Assets Red Flag Indicators, providing a framework for Suspicious Activity Reports (SARs) related to these digital assets. Additionally, the expanding of ‘Travel Rule,’ to VAs, mandates the reporting and recording suspicious transactions exceeding a specified threshold.
Travel Rule Requirements
Under the FATF Travel Rule guidelines, obliged entities must obtain, retain and transmit specific information for payment orders of 1,000 EUR/USD or more. This includes the originator’s name, address, payment order amount, and date. These measures aim to enhance transparency and accountability in financial transactions.
The Financial Action Task Force – collaboration and expert consultation
FATF actively seeks advice from external organizations, such as Coinfirm, for reviews of past and future Anti-Money Laundering (AML), Know Your Customer (KYC), and Counter Financing of Terrorism (CFT) recommendations. This collaborative approach ensures that FATF remains informed and adaptable in the face of emerging financial threats.
Financial Action Task Force (FATF) – effective prevention of money laundering
The Financial Action Task Force is crucial in shaping global efforts to combat illicit financial activities. Through its recommendations, reports, and targeted initiatives, FATF contributes to establishing robust anti-money laundering frameworks worldwide. As the economic landscape continues to evolve, FATF remains committed to adapting and addressing emerging challenges, safeguarding the integrity of the global financial system.
Related Articles
- 5 steps into the 5 Anti-Money Laundering Directive
- Risk-Based Approach to Virtual Currencies: 5th AML Directive
- The Key To Compliance with Travel Rule Regulations
- Exclusive Report: Virtual Assets Compliance with FATF’s Travel Rule
- Coinfirm launches FATF Travel Rules solutions providing crucial transparency to crypto transactions
Sign up for a free Coinfirm Academy course and get certified
Find out which institutions stand at the basis of the regulatory framework for financial markets, be it fiat or crypto, reports issued and how their work interlocks.
