AML Compliance

The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of policies, both at national and international levels, to combat money laundering and terrorist financing.

The Task Force is therefore a "policy-making body" which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

Since its creation the FATF has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals.

It established a series of Recommendations in 1990, revised in 1996 and in 2003 to ensure that they remain up to date and relevant to the evolving threat of money laundering, that set out the basic framework for anti-money laundering efforts and are intended to be of universal application.

The FATF monitors members' progress in implementing necessary measures, reviews money laundering and terrorist financing techniques and counter-measures, and promotes the adoption and implementation of appropriate measures globally.

In performing these activities, the FATF collaborates with other international bodies involved in combating money laundering and the financing of terrorism.

The FATF does not have a tightly defined constitution or an unlimited life span. The Task Force periodically reviews its mission. The FATF has been in existence since 1989.

The 40 Recommendations provide a complete set of counter-measures against money laundering (ML)covering the criminal justice system and law enforcement, the financial system and its regulation, and international co-operation.

They have been recognised, endorsed, or adopted by many international bodies.

The Recommendations are neither complex nor difficult, nor do they compromise the freedom to engage in legitimate transactions or threaten economic development.

They set out the principles for action and allow countries a measure of flexibility in implementing these principles according to their particular circumstances and constitutional frameworks.

Though not a binding international convention, many countries in the world have made a political commitment to combat money laundering by implementing the 40 Recommendations.

Recommendations - Examples

Recommendation 1

Countries should criminalise money laundering on the basis of United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988 (the Vienna Convention) and United Nations Convention against Transnational Organized Crime, 2000 (the Palermo Convention).

Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences.

Predicate offences may be described by reference to all offences, or to a threshold linked either to a category of serious offences or to the penalty of imprisonment applicable to the predicate offence (threshold approach), or to a list of predicate offences, or a combination of these approaches.

Where countries apply a threshold approach, predicate offences should at a minimum comprise all offences that fall within the category of serious offences under their national law or should include offences which are punishable by a maximum penalty of more than one year’s imprisonment or for those countries that have a minimum threshold for offences in their legal system, predicate offences should comprise all offences, which are punished by a minimum penalty of more than six months imprisonment.

Whichever approach is adopted, each country should at a minimum include a range of offences within each of the designated categories of offences.

Predicate offences for money laundering should extend to conduct that occurred in another country, which constitutes an offence in that country, and which would have constituted a predicate offence had it occurred domestically. Countries may provide that the only prerequisite is that the conduct would have constituted a predicate offence had it occurred domestically.

Countries may provide that the offence of money laundering does not apply to persons who committed the predicate offence, where this is required by fundamental principles of their domestic law.

Recommendation 2

Countries should ensure that:

a) The intent and knowledge required to prove the offence of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such mental state may be inferred from objective factual circumstances.

b) Criminal liability, and, where that is not possible, civil or administrative liability, should apply to legal persons.

This should not preclude parallel criminal, civil or administrative proceedings with respect to legal persons in countries in which such forms of liability are available.

Legal persons should be subject to effective, proportionate and dissuasive sanctions.

Such measures should be without prejudice to the criminal liability of individuals.

Recommendation 3

Countries should adopt measures similar to those set forth in the Vienna and Palermo Conventions, including legislative measures, to enable their competent authorities to confiscate property laundered, proceeds from money laundering or predicate offences, instrumentalities used in or intended for use in the commission of these offences, or property of corresponding value, without prejudicing the rights of bona fide third parties.

Such measures should include the authority to:

(a) identify, trace and evaluate property which is subject to confiscation;

(b) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property;

(c) take steps that will prevent or void actions that prejudice the State’s ability to recover property that is subject to confiscation; and

(d) take any appropriate investigative measures.

Countries may consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction, or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation, to the extent that such a requirement is consistent with the principles of their domestic law.

Risk management guidelines related to anti-money laundering and terrorist financing issued by the Basel Committee

Being aware of the risks incurred by banks of being used, intentionally or unintentionally, for criminal activities, the Basel Committee on Banking Supervision is issuing these guidelines to describe how banks should include money laundering (ML) and financing of terrorism (FT) risks within their overall risk management.

 The Committee has a long-standing commitment to promote the implementation of sound Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) policies and procedures that are critical in protecting the safety and soundness of banks and the integrity of the international financial system.

Following an initial statement in 1988, it has published several documents in support of this commitment.

In September 2012, the Committee reaffirmed its stance by publishing the revised version of the Core principles for effective banking supervision, in which a dedicated principle (BCP 29) deals with the abuse of financial services.

 The Committee supports the adoption of the standards issued by the Financial Action Task Force (FATF).

In February 2012, the FATF released a revised version of the International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (the FATF standards), to which the Committee provided input.

In March 2013, the FATF also issued Financial Inclusion Guidance, which has also been considered by the Committee in drafting these guidelines.

The Committee’s intention in issuing this paper is to support national implementation of the FATF standards by exploring complementary areas and leveraging the expertise of both organisations.

These guidelines embody both the FATF standards and the Basel Core Principles for banks operating across borders and fits into the overall framework of banking supervision.

 Therefore, these guidelines are intended to be consistent with and to supplement the goals and objectives of the FATF standards, and in no way should they be interpreted as modifying the FATF standards, either by strengthening or weakening them.

 In some instances, the Committee has included cross-references to FATF standards in this document in order to assist banks in complying with national requirements based on the implementation of those standards.

However, as the Committee’s intention is not to simply duplicate the existing FATF standards, cross-references are not included as a matter of routine.

 The Committee's commitment to combating money laundering and the financing of terrorism is fully aligned with its mandate “to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability”.

 Sound ML/FT risk management has particular relevance to the overall safety and soundness of banks and of the banking system, the primary objective for banking supervision, in that:

• it helps protect the reputation of both banks and national banking systems by preventing and deterring the use of banks to launder illicit proceeds or to raise or move funds in support of terrorism; and

• it preserves the integrity of the international financial system as well as the work of governments in addressing corruption and in combating the financing of terrorism.

The inadequacy or absence of sound ML/FT risk management exposes banks to serious risks, especially reputational, operational, compliance and concentration risks.

Recent developments, including robust enforcement actions taken by regulators and the corresponding direct and indirect costs incurred by banks due to their lack of diligence in applying appropriate risk management policies, procedures and controls, have highlighted those risks.

These costs and damage could probably have been avoided had the banks maintained effective risk-based AML/CFT policies and procedures.

 It is worth noting that all these risks are interrelated.

However, in addition to incurring fines and sanctions by regulators, any one of them could result in significant financial costs to banks (eg through the termination of wholesale funding and facilities, claims against the bank, investigation costs, asset seizures and freezes, and loan losses), as well as the diversion of limited and valuable management time and operational resources to resolve problems.

 There is a number of related Basel Committee papers, including the following:

Core principles for effective banking supervision, September 20125

• The internal audit function in banks, June 2012

• Principles for the sound management of operational risk, June 2011

• Principles for enhancing corporate governance, October 2010

Due diligence and transparency regarding cover payment messages related to cross-border wire transfers, May 2009

• Compliance and the compliance function in banks, April 2005

In an effort to rationalise the Committee’s publications on AML/CFT guidance, this document merges and supersedes two of the Committee’s previous publications dealing with related topics:

Customer due diligence for banks, October 2001 and Consolidated KYC risk management, October 2004.

In updating these papers, the Committee has also increased its focus on risks associated with the usage by banks of third parties to introduce business and the provision of correspondent banking services.

Despite their importance and relevance, other specific risk areas such as politically exposed persons (PEPs), private banking and specific legal structures that were addressed in the previous papers have not been specifically developed in this guidance, since they are the subject of existing FATF publications.

As stated in BCP 29, the Committee is aware of the variety of national arrangements that exist for ensuring AML/CFT compliance, particularly the sharing of supervisory functions between banking supervisors and other authorities such as financial intelligence units.

Therefore, for the purpose of these guidelines, the term “supervisor” might refer to these authorities.

In jurisdictions where AML/CFT supervisory authority is shared, the banking supervisor cooperates with other authorities to seek adherence to these guidelines.

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