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Anti-Money Laundering and Combating the Financing of Terrorism Money laundering refers to the act(s) of concealing the true identity, nature, source, location, and ownership of money or monetary assets to avoid detection and reporting requirements. Usually money laundering takes the form of illegal cross-border transfers between countries which may be ill-gotten gains through various activities that include criminal, corrupt, or commercial acts. Money-laundering methods are diverse and are constantly evolving. The number and variety of transactions used to launder money have become increasingly complex, often involving numerous financial institutions from many jurisdictions and increasingly using non-bank financial institutions (e.g., bureaux de change, wire remittance services, cash couriers, insurers, brokers and traders), as well as non-financial businesses and professions (e.g., lawyers, accountants, and trust and company service providers).
The United Nations' (UN) 1999 International Convention for the Suppression of the Financing of Terrorism defines Terrorist Financing (TF) as follows: "Any person commits an offence within the meaning of this Convention if that person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out: (a) an act which constitutes an offence within the scope of and as defined in one of the treaties listed in the annex; or (b) any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act..."
The Financial Action Task Force (FATF) was established by the G-7 Summit in Paris in 1989 to develop a coordinated international response to the mounting activities in money laundering. The FATF works closely with other international bodies, such as the World Bank, the International Monetary Fund (IMF) and FATF-style regional bodies involved in combating money laundering. While its secretariat is housed at the Organization for Economic Cooperation and Development (OECD), the FATF is not part of the OECD.
The FATF Standards are comprised of Forty Recommendations on Anti-Money Laundering (AML) and Nine Special Recommendations on Combating the Financing of Terrorism (CFT). The Forty Recommendations on Money Laundering (issued first in 1990) set out the framework for anti-money laundering efforts and are designed for universal application. In October 2001, the FATF expanded its mission beyond money laundering to focus its energy and expertise on a world-wide effort to combat terrorist financing and issued Eight Special Recommendations on Terrorist Financing, which were expanded to Nine in October 2004. Taken together, the Forty Recommendations and the Nine Special Recommendations provide a comprehensive framework for combating money laundering and terrorist financing.
Money laundering methods and techniques change in response to developing counter-measures and in recent years the FATF has noticed increasingly sophisticated techniques used to launder money and fund terrorism. The FATF's Forty plus Nine Recommendations and accompanying methodology (2004) therefore serve as an important tool for regulators in identifying, investigating and prosecuting crimes relating to money laundering and terrorist financing activities. It also helps countries set up the necessary laws, institutions and regulations necessary for an effective AML/CFT regime.
The 2004 Methodology incorporates the FATF's 2003 Forty Recommendations on AML and the 2001 and 2004 Nine Special Recommendations on CFT. The FATF has, as of September 2007, conducted sixteen third round mutual evaluations (assessments) of its member countries. There also have been several mutual evaluations conducted by FATF-style regional bodies, such as the Asia Pacific Group and the Council of Europe (MONEYVAL). The IMF's Reports on the Observance of Standards and Codes for AML and CFT, which are available on the IMF website for several countries, also follow the FATF methodology; however, some of these reports are based on the old (2002) methodology and therefore outdated.
The above mentioned assessments are the most comprehensive and widely used. Nonetheless, other reports by organizations such as the U.S. Department of State, IMF and Deloitte and Touché also provide quasi-assessments on the subject. |
Standard Setting Body Financial Action Task Force (FATF) FATF's Forty Recommendations on Anti-Money Laundering (AML) FATF's Nine Special Recommendations on Combating the Financing of Terrorism (CFT) FATF's 2004 Methodology Further Reading Journal of Money Laundering Control, West Yorkshire, England: Emerald Group Publishing Limited. Schott, Paul Allan, “Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism,” Second Edition, Washington, D.C.: World Bank, January 2006. Baker, Raymond W., “Capitalism’s Achilles Heel: Our Love Affair with Dirty Money, What It Costs Our World, and How We Can Reform the Free-Market System,” New York, NY: John Wiley & Sons, August 2005.
Wolfsberg Standards |