Financial Action Task Force

Financial Action Task Force The pace of international activity in the AML field accelerated in 1989 when the G-7 nations launched FATF at its annual economic summit in Paris. With France serving as its first chair, this multinational group started working toward a coordinated effort against international money laundering. Originally referred to as the G-7 Financial Action Task Force, today FATF serves as the vanguard in promulgating AML guidance to governmental bodies around the globe. The International Monetary Fund (IMF) and the World Bank also offer important perspectives to the field. FATF has brought significant changes to the ways in which financial organizations and businesses around the world conduct their affairs. It also has brought about changes in laws and governmental operations. The intergovernmental body is based at the Organisation for Economic Cooperation and Development (OECD) in Paris, where it has its own secretariat. FATF can be accessed online. FATF Objectives FATF’s stated objectives are to “set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system. Starting with its own members, the FATF monitors countries’ progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and countermeasures; and promotes the adoption and implementation of the FATF Recommendations globally.” FATF fulfills these objectives by focusing on several important tasks, including: • Spreading the AML message worldwide • Monitoring implementation of the FATF Recommendations among its members • Reviewing money laundering trends and countermeasures Spreading the AML message worldwide FATF promotes the establishment of a global AML and anti-terrorist financing network based on expansion of its membership, the development of regional AML bodies in various parts of the world, and cooperation with other international organizations. Monitoring implementation of the FATF Recommendations among its members With its fourth round of mutual evaluations, FATF adopted a new approach to assessing technical compliance with the Recommendations and determining whether a member’s AML/CFT system is effective. The new methodology was informed by the experience of FATF, FATF-Style Regional Bodies (FSRBs), the IMF, and the World Bank in conducting compliance assessments with earlier versions of the FATF Recommendations. Collectively, the technical compliance and effectiveness assessments provide an integrated analysis of the extent to which a country is compliant with the FATF Recommendations and how successful it is in maintaining a strong AML/CFT system. The methodology focuses on the technical compliance assessment, effectiveness assessment, and reviewing money laundering trends and countermeasures. Technical compliance assessment The technical compliance assessment evaluates the specific requirements of the FATF Recommendations, including how a member relates them to its relevant legal and institutional frameworks and the powers and procedures of its competent authorities. The focus is on the fundamental building blocks of an AML/CFT system. For each Recommendation, assessors reach a conclusion about whether a country complies with the FATF standard. The result is a rating of five possible levels of technical compliance: compliant, largely compliant, partially compliant, noncompliant, and not applicable. Effectiveness assessment The goal of the effectiveness assessment is to assess the adequacy of a member’s implementation of the FATF Recommendations and ensure there is evidence that a member is achieving a defined set of outcomes that are central to a robust AML/CFT system. The focus is on the extent to which the legal and institutional frameworks of the member are producing the expected results and protecting the financial system from abuse. FATF defines effectiveness as “the extent to which the defined outcomes are achieved.” Effectiveness is evaluated on the basis of 11 Immediate Outcomes: 1. Money laundering/terrorist financing (ML/TF) risks are known, and actions are coordinated to combat or thwart the proliferation of ML/TF. 2. International cooperation provides actionable information to use against criminals. 3. Supervisors regulate financial institutions and nonbank financial institutions (NBFIs) and their risk-based AML/CFT programs. 4. Financial institutions and NBFIs apply preventive measures and report suspicious transactions. 5. Legal persons are not misused for ML/TF, and beneficial ownership information is available to authorities. 6. Financial intelligence information is used by authorities in money laundering and terrorist financing investigations. 7. Money laundering offenses are investigated and criminally prosecuted, and sanctions are imposed. 8. Proceeds of crime are confiscated. 9. Terrorist financing offenses are investigated and criminally prosecuted, and sanctions are imposed. 10. Terrorists and terrorist organizations are prevented from raising, moving, and using money and are not permitted to abuse NPOs. 11. Persons and organizations involved in the proliferation of weapons of mass destruction are prevented from raising, moving, and using money. Each of the 11 Immediate Outcomes represents a key goal of an effective AML/CFT system. They also feed into the three Intermediate Outcomes that represent major thematic goals of AML/CFT measures: 1. Policy, cooperation, and coordination to mitigate money laundering and terrorist financing 2. Prevention of proceeds of crime entering into the financial system and reporting of such when they do 3. Detection and disruption of ML/TF threats. For each individual immediate outcome, assessors reach conclusions about the extent to which a country is (or is not) effective and provide an effectiveness rating based on the extent to which the core issues and characteristics are addressed. Ratings include a high, substantial, moderate, or low level of effectiveness. If a country has not reached a high level of effectiveness, assessors provide reasons why it fell below the standard and recommend measures the country should take to improve its ability to achieve the outcome. Under the fourth round of FATF mutual evaluations, whether under regular or an enhanced follow-up status, follow-up assessments are conducted after five years. FATF does not have the power to impose fines or penalties against recalcitrant member nations. However, in 1996, FATF launched a policy for managing nations that fail to comply with the FATF Recommendations, which it describes as “a graduated approach aimed at enhancing peer pressure.” This approach ranges from requiring the country to deliver a progress report at plenary meetings to suspension of membership. In September 1996, Turkey became the first FATF member exposed to the peer pressure policy. Although a member since 1990, Turkey had yet to criminalize money laundering. FATF issued a warning to financial organizations worldwide to be vigilant in their business relations and transactions with people and entities in Turkey due to its lack of laundering controls. One month later, Turkey enacted a money laundering law. Turkey became the first country to be added to the FATF list of Jurisdictions under Increased Monitoring. This list is often referred to the “greylist.” Countries on the grey list have committed to resolve their identified strategic deficiencies and are subject to increased monitoring. Reviewing money laundering trends and countermeasures Faced with a financial system that has few geographic limitations, operates around the clock in every time zone, and maintains the pace of the global electronic highway, criminals are constantly searching for new points of vulnerability and adjusting their laundering techniques to respond to countermeasures introduced by FATF members and other countries. As such, FATF members are continually gathering information on money laundering trends to ensure the organization’s Recommendations remain up to date. For example, in October 2013, FATF and the Egmont Group of financial intelligence units (FIUs) released a research report titled Money Laundering and Terrorist Financing Through Trade in Diamonds, which examined the vulnerabilities and risks of the “diamond pipeline” and described all sectors of the diamond trade, including production, rough diamond sale, cutting and polishing, jewelry manufacturing, and jewelry retailers. Since its creation in 1989, FATF has been working under five-year mandates. In 2019, on FATF’s 30th anniversary, FATF members adopted of an open-ended mandate. This mandate acknowledges that FATF’s mission will continue to exist, as there are enduring concerns for the integrity of the financial system. In addition, a sustained political commitment to fight money laundering, terrorist financing, and proliferation financing is required. Since its establishment, FATF has focused its work on three main activities: • Standard setting • Ensuring effective compliance with the standards • Identifying money laundering and terrorist financing threats These activities will remain at the core of FATF’s work. FATF will continue to build on that work and respond to new and emerging threats, such as proliferation financing and vulnerabilities in new technologies that could destabilize the international financial system. FATF 40 Recommendations A key element of FATF’s efforts is its detailed list of appropriate standards for countries to implement. These measures are detailed in the 40 Recommendations, which were first issued in 1990 and have since been revised. FATF has also issued various Interpretative Notes, which are designed to clarify the application of specific recommendations and provide additional guidance. After the events of September 11, 2001, FATF adopted and published the FATF IX Special Recommendations on terrorist financing, which were later merged into the 40 Recommendations. FATF’s Recommendations have become the world’s blueprint for effective national and international AML/CFT controls. The IMF and the World Bank have recognized the FATF Recommendations as the international standard for combating money laundering and terrorist financing. The IMF, World Bank, and FATF use a common methodology to assess compliance with the FATF Recommendations. The FATF 40 Recommendations provide a complete set of countermeasures against money laundering and terrorist financing, covering the following elements: • Identification of risks • Development of appropriate policies • Criminal justice system and law enforcement • Financial system and its regulation • Transparency of legal persons and arrangements • International cooperation FATF recognizes that, because countries have different legal and financial systems, they cannot use identical measures to fight money laundering and terrorist financing. The Recommendations set minimum standards of action for countries to implement according to their specific circumstances and constitutional frameworks. With its 2012 revision, FATF introduced risk assessment as the first recommendation, underscoring that assessing risk is the first step in combating money laundering and terrorist financing. With its 2003 revisions of the 40 Recommendations, FATF expanded the reach of its global blueprint for preventing the illicit movements of funds. It introduced substantial changes intended to strengthen measures to combat money laundering and terrorist financing, which established further enhanced standards by which countries can better fight these crimes. The most important changes made to the Recommendations in 2003 were: • Expanded coverage to include terrorist financing • Widened the categories of business that should be covered by national laws, including real estate agents, precious metals dealers, accountants, lawyers, and trust services providers • Specified compliance procedures on issues such as customer identification and due diligence, including enhanced identification measures for high-risk customers and transactions • Adopted a clearer definition of money laundering predicate offenses • Encouraged prohibition of “shell banks,” which are typically established in offshore secrecy havens and consist of little more than nameplates and mailboxes • Urged improved transparency of legal persons and arrangements • Included stronger safeguards, notably regarding international cooperation in, for example, terrorist financing investigations In 2012, the Recommendations were revised again, to incorporate the IX Special Recommendations on terrorist financing. The most important changes in this revision were: • Creation of a Recommendation on implementing a process to identify, assess, monitor, manage, and mitigate AML/CFT risks using a risk-based approach • More information on assessing risks and applying a risk-based approach to all AML/CFT efforts • Creation of a Recommendation for targeted financial sanctions related to the proliferation of weapons of mass destruction (WMD) • More attention on domestic PEPs and individuals entrusted with prominent functions by international organizations • New requirement for the identification and assessment of risks of new products prior to their launch • New requirements on obtaining and sending accurate originator, intermediary, and beneficiary information in wire transfers (travel rule) • New requirement for financial groups to implement group-wide AML/CFT programs and establish procedures for sharing information within the group • Inclusion of tax crimes within the scope of designated categories of offenses for money laundering The following table outlines the groups and topics of the FATF Recommendations by number. FATF 40 Recommendations Group Topic Recommendation Number I AML/CFT Policies and Coordination • 1–2 Assessing risks and applying a riskbased approach • National cooperation and coordination II Money Laundering and Confiscation • Money laundering offenses • Confiscation and provisional 3–4 measures III Terrorist Financing and Financing of Proliferation • Terrorist financing offenses • Targeted financial sanctions related to terrorism and terrorist financing • Targeted financial sanctions related to proliferation • Nonprofit organizations 5–8 IV Financial and Nonfinancial Institution 9–23 Preventative Measures • Financial institution secrecy laws • Customer due diligence and recordkeeping • Additional measures for specific customers and activities • Reliance, controls, and financial groups • Reporting of suspicious transactions • Designated nonfinancial businesses and professions V Transparency and Beneficial Ownership 24–25 of Legal Persons and Arrangements • Transparency and beneficial ownership of legal persons • Transparency and beneficial ownership of legal arrangements VI Powers and Responsibilities of Competent Authorities and Other Institutional Measures • Regulation and supervision • Operational and law enforcement • General requirements • Sanctions 26–35 VII International Cooperation • International instruments • Mutual legal assistance • Mutual legal assistance regarding 36–40 freezing and confiscation • Extradition • Other forms of international cooperation Highlights of the 40 Recommendations include: • Risk-based approach: Countries should start by identifying, assessing, and understanding the money laundering and terrorist financing risks they face. Then they should take appropriate measures to mitigate the identified risks. The risk-based approach allows countries to allocate their limited resources in a targeted manner in line with their own specific circumstances to increase the efficiency of preventive measures. Financial organizations should also use a risk-based approach to identify and mitigate their risks. • Designated categories of offenses: The Recommendations specify crimes, referred to as “designated categories of offenses,” which are considered money laundering predicates (i.e., crimes that offenders attempt to conceal through financial subterfuge that should constitute precursory offenses to money laundering). Countries should also put in place provisions to allow for the confiscation of the proceeds of crime or otherwise prevent criminals from accessing their criminal proceeds. • Terrorist financing and financing of proliferation: Countries should criminalize terrorist financing, including the financing of terrorist acts, organizations, and individual terrorists, even if no terrorist activity can be directly attributed to the provision of financing. Countries should impose sanction regimes that allow them to freeze the assets of persons designated by the United Nations Security Council for involvement in terrorism or the proliferation of WMD. Countries should also establish sufficient controls to mitigate the misuse of NPOs to provide support to terrorists. • Knowledge and criminal liability: The Recommendations include the concept that the knowledge required for the offense of money laundering may be inferred from objective factual circumstances. This concept is similar to what is known in some countries as “willful blindness,” or deliberate avoidance of knowledge of the facts. In addition, the Recommendations urge that criminal liability—or civil or administrative liability, when criminal liability is not possible—should apply to legal persons as well. • Customer due diligence measures: Financial organizations should conduct CDD when they establish business relations, carry out occasional transactions above the specified threshold (US$15,000 and €15,000) or for a wire transfer in circumstances covered by the FATF Interpretive Note to Recommendation 16, have a suspicion of money laundering or terrorist financing, and have doubts about the veracity or adequacy of previously obtained customer identification information. Recommendation 16 applies to cross-border wire transfers and domestic wire transfers, including serial payments, and cover payments (transactions between financial institutions and certain debit/credit card transactions are exempted). Countries may adopt a de minimis threshold for cross-border wire transfers (no higher than USD/EUR 1,000), below which less stringent requirements apply. In particular, in countries deciding to apply a threshold, for wire transfers below the threshold financial institutions must include: the name of the originator, the name of the beneficiary; and an account number for each, or a unique transaction reference number. FATF requires verifying the accuracy of this information if there is a suspicion of money laundering or terrorist financing. Financial organizations must, using a risk-based approach: • Identify the customer and verify the customer’s identity using reliable, independent source documents, data, and information. Establishing accounts in anonymous or obviously fictitious names should be prohibited. • Take reasonable measures to verify the identity of the beneficial owner, such that the financial organization is satisfied that it knows who the beneficial owner is. For legal persons and arrangements, this requirement includes understanding the ownership and control structure of the customer. • Understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship. • Conduct ongoing due diligence on the business relationship and scrutinize transactions undertaken in the course of that relationship to ensure that they are consistent with the organization’s knowledge of the customer, customer’s business and risk profile, and, when necessary, source of funds. • Maintain records of the above customer information and all transactions to enable compliance with requests from competent authorities. • Rely on other parties to conduct CDD in certain circumstances; however, the relying institution remains liable for compliance with completing the required CDD. • • Establish a group-wide AML/CFT program for financial groups. Additional CDD on specific customers and activities: Some customer types and activities pose heightened risks, particularly the following: o PEPs: Appropriate steps must be taken to identify PEPs, including obtaining senior management approval of such business relationships, taking measures to establish the sources of wealth and funds, and conducting ongoing monitoring. o Cross-border correspondent banking: Appropriate steps must be taken to understand the respondent institution’s business, reputation, supervision, and AML/CFT controls; obtain management approval of such relationships; document the responsibilities of each institution; mitigate risks associated with payable-through accounts; and ensure accounts are not established for shell banks. o Money or value transfer services (MVTS): Countries should ensure that MVTSs are licensed or registered and subject to appropriate AML/CFT requirements. o New products, delivery mechanisms, and technologies: Countries and financial organizations should assess the risks associated with the development of new products, business practices, delivery mechanisms, and technology. They should assess these risks prior to launching new products and take appropriate measures to mitigate the identified risks. o Wire transfers: Countries should require financial institutions to obtain and send required and accurate originator, intermediary, and beneficiary information with wires transfers and related messages (travel rule). Financial institutions should monitor wires for incomplete information and take appropriate measures. They should also monitor wires for the involvement of parties designated by the United Nations Security Council and take freezing actions or otherwise prohibit the transactions from occurring. International wire transfers are liquid and difficult to retrieve, which make them susceptible to use as a tool by criminals to perform thefts or account takeovers to clear proceeds of crime. The requirements include virtual assets and exchanges. o Suspicious activity reporting: Financial organizations must report to the appropriate FIU when they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial organizations and employees reporting such suspicions should be protected from liability for reporting and prohibited from disclosing that they have reported such activity. One of the main concerns related to sharing of suspicious activity reports (SARs), the fact that a SAR has been filed, or the underlying SAR information is ensuring their confidentiality, which is critical to the effective functioning of the reporting regime. • Derisking: Derisking refers to the phenomenon of financial organizations terminating or restricting business relationships with customers and categories of customers to avoid, rather than manage, risk. This practice is in line with FATF’s risk-based approach. Derisking can result from concerns about profitability, prudential requirements, anxiety after a financial crisis, and reputational risk, among other reasons. The Recommendations only require financial organizations to terminate customer relationships, on a case-by-case basis, when the money laundering and terrorist financing risks cannot be mitigated. • Expanded coverage of industries: The Recommendations expand the fight against money laundering by adding new nonfinancial businesses and professions to the list of financial institutions that are the usual focus of AML/CFT efforts. Expanding the scope of AML scrutiny is a key area on which many governments have been aiming their efforts, in response to an increased flow of illicit money. These designated nonfinancial businesses and professions (DNFBPs) include: o Casinos when customers engage in financial transactions equal to or above a designated threshold. At a minimum, casinos should be licensed. Authorities should prevent criminals from participating in casino operations and supervise casinos to ensure compliance with requirements to combat money laundering and terrorist financing. o Real estate agents when they are involved in transactions for clients o Dealers in precious metals and stones when they engage in any cash o Lawyers, notaries and independent legal professionals and accountants concerning buying and selling properties transaction with a customer at or above a designated threshold when they prepare or carry out transactions for clients concerning buying and selling real estate; managing client money, securities, and other assets; establishing or managing bank, savings, and securities accounts; organizing contributions for the creation or management of companies; creating, operating, and managing legal persons or arrangements; and buying and selling businesses o Trust and company service providers when they prepare or carry out transactions for a client concerning certain activities (e.g., when acting as a formation agent of legal persons, acting as a director or secretary of a company, acting as a trustee of an express trust, or acting as a nominee shareholder for another person) FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial organizations should monitor for occasional customers is US$15,000; for casinos, including internet casinos, it is US$3,000; and for dealers in precious metals, when engaged in any cash transaction, it is US$15,000. • Transparency and beneficial ownership of legal persons and arrangements: Countries should take appropriate measures to prevent the misuse of legal persons for money laundering and terrorist financing, including ensuring that information about the beneficial ownership and control of such legal persons is available to competent authorities, particularly with regard to legal persons who can issue bearer shares or have nominee shareholders or directors. • Powers and responsibilities of competent authorities: Countries should oversee financial organizations to ensure they are implementing the FATF Recommendations and are not owned by or controlled by criminals. The supervisors should be given sufficient resources and powers to effectively oversee financial organizations within their jurisdictions. DNFBPs also should be subject to oversight when they engage in certain financial activities. Countries should establish FIUs and provide law enforcement and investigative authorities with sufficient resources and powers to investigate money laundering and terrorist financing and seize or freeze criminal proceeds when found. Countries should implement measures to detect the physical cross-border movement of currency and bearernegotiable instruments. The authorities should provide meaningful statistics, guidance, and feedback on AML/CFT systems. • International cooperation: Several Recommendations address strengthening international cooperation. Countries should rapidly, constructively, and effectively provide the widest possible range of mutual legal assistance in money laundering and terrorist financing investigations, freezing and confiscation of criminal proceeds, extradition, and other matters. Countries should ratify United Nations conventions against significant crimes and terrorism. FATF Members and Observers FATF originally comprised 16 member jurisdictions. It has rapidly increased in membership and influence, and it now represents most major financial centers around the globe. Refer to the FATF-GAFI website for a current list of members and observers. FATF membership criteria The following criteria are applied when considering a country as a potential candidate for FATF membership: 1. The jurisdiction should be strategically important based on quantitative and qualitative indicators and additional considerations. • • Quantitative Indicators o Size of gross domestic product (GDP) o Size of the banking, insurance, and securities sectors o Population Qualitative Indicators o Impact on the global financial system, including the degree of openness of the financial sector and its interaction with international markets • o Active participation in an FSRB and regional prominence in AML/CFT o Level of AML/CFT risks faced and efforts to combat those risks efforts Additional considerations o Level of adherence to financial sector standards o Participation in other relevant international organizations 2. FATF’s geographic balance should be enhanced by the jurisdiction becoming a member. Process for FATF membership Step 1—Engaging with the country and granting observership • The country should submit a written commitment at the political/ministerial level: o Endorsing and supporting FATF Recommendations and the FATF o Agreeing to undergo a mutual evaluation during the membership AML/CFT Methodology 2013 (as amended from time to time) process for the purposes of assessing compliance with FATF membership criteria, using the AML/CFT methodology applicable at the time of the evaluation, as well as agreeing to submit subsequent followup reports o Agreeing to participate actively in FATF and meet all the other commitments of FATF membership, including supporting the role and work of FATF in all relevant fora • The Plenary decides that a high-level visit to the country is warranted to verify the written commitment with the relevant ministers, representatives of the Parliament, and competent authorities. The visit will also determine whether the country will be in a position to undergo a successful mutual evaluation and achieve a satisfactory level of technical compliance, including with the Recommendations essential for the establishment of a robust AML/CFT regime, such as Recommendations 3, 5, 10, 11 and 20, within 3 years. Consideration should also be given to the country’s level of implementation of the essential Recommendations and its progress toward assessing and addressing its ML/TF risks, as described in Recommendation 1. The high-level visit should include the FATF President, selected members of the Steering Group, and heads of delegations. It is accompanied by the FATF Secretariat. The report of the high-level visit is presented at the following Plenary meeting. • Based on the outcomes of the report of the high-level visit, the Plenary may decide to invite the country to participate in FATF as an observer, beginning with the next Plenary meeting. If the Plenary decides not to invite the country to attend FATF meetings as an observer, it may appoint a contact group to advise as to the appropriate time to extend such an invitation to the country. Then the contact group should engage with the competent authorities of the country to determine when the country will be able to undergo a successful mutual evaluation, as described in Step 2. The contact group is open to all FATF members and associate members and should include at least one member of the Steering Group. It is assisted by the FATF Secretariat. It will meet regularly and reports on the progress made by the country at each Plenary meeting. Step 2—Carrying out a mutual evaluation, agreeing on an action plan, and granting membership Membership is granted if the mutual evaluation is satisfactory. A mutual evaluation is not satisfactory if the country meets one of the following criteria: • Within a maximum of 3 years after being invited to participate in FATF as an observer, the mutual evaluation process for the country should be launched. During this period, a new contact group may assist the country to ensure that it is ready for its mutual evaluation. • Has eight or more noncompliant/partially compliant (NC/PC) ratings for technical compliance • Is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 and 20 • Has a low or moderate level of effectiveness for seven or more of the 11 effectiveness outcomes • Has a low level of effectiveness for four or more of the 11 effectiveness outcomes If the mutual evaluation is not satisfactory, but it is close to being satisfactory, the country should provide a clear commitment at the political/ministerial level to reach the expected results within a reasonable timeframe (i.e., a maximum of 4 years). A detailed action plan including the steps to be taken and timeframe is prepared by the country and reviewed by the second contact group before its adoption by the FATF Plenary. At each FATF meeting, the Plenary closely monitors the implementation of the country’s action plan. If it is not satisfied with the pace and/or extent of progress made, the Plenary can decide to apply to the country the enhanced measures listed under paragraph 77 of the procedures for the FATF fourth round of AML/CFT mutual evaluations. A country will not be granted full membership if it is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 or 20. Other than that, the Plenary may decide, at any time during the course of completion of the action plan and in light of the progress made by the country, to grant full membership before the action plan is completed. Noncooperative Countries Since its inception, FATF has had a practice of “naming and shaming” countries that it determines maintain inadequate AML controls or do not cooperate in global AML/CFT efforts. For years, FATF was engaged in an initiative to identify noncooperative countries and territories (NCCTs) in the global fight against money laundering. It developed a process to seek out critical weaknesses in specific jurisdictions’ AML systems that obstruct international cooperation in this area. On February 14, 2000, FATF published an initial report on NCCTs that listed the 25 criteria that help identify relevant detrimental rules and practices and that are inconsistent with the 40 Recommendations. It described a process whereby jurisdictions with such rules and practices can be identified and encouraged to implement international standards in this area. The 25 distinct criteria are categorized in the following four broad areas: 1. Loopholes in financial regulations • No or inadequate regulations or supervision of financial organizations • Inadequate rules for the licensing or creation of financial organizations, including assessing the backgrounds of managers and beneficial owners • Inadequate customer identification requirements for financial organizations • Excessive secrecy provisions regarding financial organizations • Lack of efficient SAR reporting 2. Obstacles raised by other regulatory requirements • Inadequate commercial law requirements for registration of business and legal entities • Lack of identification of the beneficial owner(s) of legal and business entities 3. Obstacles to international cooperation • Obstacles to cooperation from administrative authorities • Obstacles to cooperation from judicial authorities 4. Inadequate resources for preventing and detecting money laundering activities • Lack of resources in public and private sectors • Absence of an FIU or equivalent mechanism The goal of the NCCT process was to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centers adopt and implement measures for the prevention, detection, and punishment of money laundering, according to internationally recognized standards. The next step in the NCCT initiative was the publication in June 2000 of the first review, which identified 15 NCCTs. The NCCT process ultimately involved 24 jurisdictions, including up to 19 jurisdictions at one time, until the jurisdictions eventually took the necessary steps to get off the list. At that point, FATF ceased the process. The NCCT list has been replaced by a new process whereby FATF started identifying jurisdictions with deficiencies in their AML/CFT regimes. This new FATF process was in response to the G-20 countries’ efforts to publicly identify high-risk jurisdictions and issue regular updates on jurisdictions with strategic deficiencies. It was also in response to criticism of the term “noncooperative,” as many noncompliant jurisdictions simply lack the tools and infrastructure necessary to fight financial crime. FATF’s two public documents FATF identifies these jurisdictions in two public documents issued three times a year. The first document, High-Risk Jurisdictions Subject to a Call for Action (previously known as Public Statement), identifies countries and jurisdictions with strategic deficiencies that are so serious that FATF calls on its members and nonmembers to apply EDD and, in the most serious cases, countermeasures. This list is often referred to in the media as the “FATF blacklist.” The second document, Jurisdictions under Increased Monitoring (previously known as Improving Global AML/CFT Compliance: On-going process), identifies countries that are already actively engaging with FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. Once a jurisdiction is under increased monitoring, it means it has committed to swiftly resolve the identified strategic deficiencies within an agreed-upon time frame, while FATF keeps it under close scrutiny. This list is externally referred to as the “FATF greylist.” FATF encourages its members to consider the strategic deficiencies identified within these jurisdictions. If a country fails to make sufficient or timely progress, FATF can increase its pressure on the country to make more meaningful improvements by making it subject to a call for action. FATF also names jurisdictions that are no longer subject to its ongoing global AML/CFT compliance process. Typically, a country is considered to have made significant progress in improving its AML/CFT regime when it establishes a legal and regulatory framework for meeting its commitments in its action plan regarding the previously identified strategic deficiencies. However, the country must continue to work with the appropriate FSRB to address the items noted in its mutual evaluation report. Review process FATF’s International Cooperation Review Group (ICRG) oversees the process of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies. The process began in 2007 and was enhanced in 2009. It was updated in 2015 to reflect the revised FATF standards and mutual evaluation process. FATF reviews jurisdictions based on threats, vulnerabilities, and specific risks. Thus, a jurisdiction will be reviewed when it refuses to participate in an FSRB, does not allow its mutual evaluation results to be published in a timely manner, and/or has achieved poor results on its mutual evaluation. Results are considered “poor” when the jurisdiction has 20 or more noncompliant (NC) and partially compliance (PC) ratings for technical compliance, or a low level of effectiveness for 6 or more of the 11 immediate outcomes. A jurisdiction that enters the ICRG review process as a result of its mutual evaluation results is given a one-year observation period to work with FATF or its FSRB to address deficiencies before possible public identification and a formal review by FATF. FATF then prioritizes the review of those countries that have more significant financial sectors, such as US$5 billion or more in financial sector assets. When FATF deems a jurisdiction’s progress insufficient to address its strategic deficiencies, it develops an action plan with the jurisdiction to address the remaining strategic deficiencies. For all countries under review, FATF requires a high-level political commitment that the jurisdiction will implement the legal, regulatory, and operational reforms required by the action plan.