Updates of the latest FATF Plenary Meeting (October 2021)
Last week, the Financial Action Task Force held its latest Plenary Meeting, which is being organized every quarter, and discussed several areas that need close attention, such as, the risk-based approach on virtual assets and their service providers, cross-border payments, digital transformation of AML/CFT operations, environmental crime and beneficial ownership register, which we will dive into in this article.
Gray list (Jurisdictions under Increased Monitoring)
First, looking at some country-specific updates of the meeting, three new jurisdictions have been added to the gray list, (Turkey, Jordan and Mali) and two jurisdictions have been removed from this list in light of the fact that significant progress has been made to tackle the strategic AML/CFT deficiencies that were identified before (Botswana and Mauritius).
Black list (High-risk Jurisdictions subject to a Call for Action)
The high-risk jurisdictions have strategic deficiencies in their regimes to counter money laundering, terrorist financing and financing of proliferation. For these countries, all members have to apply EDD and in the most serious cases apply counter-measures to protect the international financial system. During the COVID-19 pandemic the FATF has paused the review process and the list of February 2021 remains unchanged (Iran and North Korea).
The FATF has also issued statements on the risks associated with the situations in Afghanistan and relating to ISIL, Al-Qaeda and affiliates.
In relation to the recent events in Afghanistan, FATF expressed its concern about the current and evolving money laundering and terrorist financing risk environment and reaffirms the recent UN Security Council Resolution (UNSCR 2593 (2021)) which demands that Afghan territory will not be used to threaten or attack any country or to shelter or train terrorists, or to plan or to finance terrorist acts. The FATF calls on all jurisdictions’ competent authorities to facilitate information sharing with their private sectors and help them assess and mitigate any emerging ML/TF risks, and to protect NPOs from being misused for terrorist financing. The FATF will closely monitor the situation, including any changes to money laundering and terrorist financing risks in Afghanistan.
In relation to ISIL, Al-Qaeda and affiliates, since 2020, both terrorist organisations have increased their online propaganda, to incite unaffiliated individuals to launch attacks and to raise funds. Both groups have access to new payment technologies for raising and transferring funds and the use of virtual assets is highly at risk, as well as other types of risks relating to their activity that have increased.
The FATF continues its strategic focus on countering terrorist financing through projects that tackle illegal arms trafficking with ethnically or racially motivated terrorism and the risk emanating from migrant smuggling. The FATF will update the risk indicators to help the public and private sectors detect terrorist financing and it calls on all jurisdictions to follow this statement and all relevant guidance of FATF and to fully implement its standards.
In relation to cross-border payments, the FATF has published the final report on results of the implementation of the FATF Standards. The report mentions that enhancing cross-border payments is a key priority of G20.
The G20 endorsed the Roadmap for Enhancing Crossborder Payments, which FATF is also a part of, taking the lead in identifying areas where divergent AML/CFT rules and divergent implementation can cause friction for cross-border payments. The consequences of divergent implementation seem to be raised costs, reduced speed and inconsistent levels of transparency. The key factors of these issues are the conflicting laws and regulations and interpretation on a national level, inconsistent supervisory approaches across different jurisdictions, as well as divergent interpretation of data protection and privacy rules.
In relation to the Revised Guidance for a Risk-Based Approach to Virtual Assets and Service Providers, the FATF has finalised the guidelines which will explain how the FATF recommendations will apply to these services and will clarify definitions and standards. Moreover, the guidance addresses the issues of licensing and registration of service providers, the risks of peer-to-peer transactions and the tools to mitigate such risks and includes the principles of information-sharing and cooperation among supervisors.
Regarding environmental crime, the FATF reports highlight it differs from other types of predicate crimes because there are significant discrepancies in how countries define environmental crime. The Plenary agreed to add indicative examples to the FATF Glossary to clarify the types of offences that qualify as such, depending on their risk and context.
And lastly, and maybe the most relevant point, especially from a European perspective is the FATF’s take on beneficial ownership. After the public consultations on the Revision to Recommendation 24 and the Interpretive Note, on the transparency of beneficial ownership of legal persons, the FATF has taken into account the proposals and has drafted a new text. Before finalising, it is once again asking all stakeholders for their views on the following areas of interest, (before 3 December 2021):
Multipronged approach to collection of Beneficial Ownership information (paragraph 7)
Countries should decide, on the basis of risk, context and materiality, what form of registry or alternative mechanisms they will use to enable efficient access to information by competent authorities, and should document their decision. This should include requiring companies to:
- To obtain and hold accurate and up to-date information on the company’s own beneficial ownership; to cooperate with competent authorities and to cooperate with financial institutions including making the information available in a timely manner
- Should require a public authority or body(for example a tax authority, FIU, companies registry, or beneficial ownership registry) to hold adequate, accurate and up-to-date information on the beneficial ownership of legal persons.
- To use an alternative mechanism if it provides an efficient access to adequate, accurate and up-to-date BO information, and to use additional supplementary measures that are necessary to ensure the beneficial ownership of a company can be determined.
Bearer Shares and Nominee arrangements (paragraph 14 and 15)
Countries should take measures to prevent and mitigate the risk of the misuse of bearer shares and bearer share warrants by:
- Prohibiting the issuance of new bearer shares and bearer share warrants;
- For the existing ones applying the following mechanisms: converting them into a registered form; or immobilising them by requiring to be held with a regulated financial institution or professional intermediary, and during the period before any of the two measures is completed, requiring holders of bearer instruments to notify the company, and the company to record their identity before any rights associated therewith can be exercised.
Countries should take measures to prevent and mitigate the risk of the misuse of nominee shareholding and nominee directors by:
- Requiring nominee shareholders and directors to disclose their status and the identity of their nominator to the company and to any relevant registry, financial institution, or DNFBP which holds the company’s basic or beneficial ownership information, and for this information to be included in the relevant register as part of basic information;
- Requiring nominee shareholders and directors to be licensed, for their nominee status and the identity of their nominator to be recorded in company registries, and for them to maintain information identifying their nominator and the natural person on whose behalf the nominee is ultimately acting, and make this information available to the competent authorities.
Countries should be required to assess the ML/TF risks associated with foreign created legal persons and take appropriate steps to manage and mitigate them. A risk-based approach should also be applied to verification of beneficial ownership information.
Access to Information (paragraph 12 and 13)
Competent authorities, in particular law enforcement authorities, should have the powers necessary to obtain timely access to the basic and beneficial ownership information held by the relevant parties, including rapid and efficient access to information held or obtained by a public authority or body on basic and beneficial ownership information, and on the financial institutions or DNFBPs which hold this information.
Countries should require their company registry to provide and facilitate timely access by financial institutions, DNFBPs and other countries’ competent authorities to the public information they hold, and to the basic information.
Revisions to Recommendation 24 and the Interpretative Note, par. 4(a) “company name, proof of incorporation, legal form and status, the address of the registered office, basic regulating powers (e.g. memorandum & articles of association), a list of directors, and unique identifier such as a tax identification number or equivalent (where this exists)”