FATF's New President Discusses Priorities, Next Round of Evaluations

The Financial Action Task Force plans to revise the standards by which nations assess their exposure to illicit finance in a bid to foster global financial inclusion, the intergovernmental group's new president told ACAMS moneylaundering.com.

In an interview ahead of the group's latest tri-annual summit in Paris, Elisa de Anda Madrazo, a director general in Mexico's Finance Ministry whose two-year term at the helm of FATF began in July, said that tackling de-risking and ensuring a strong start to the fifth round of mutual evaluations rank as top priorities of her presidency.

FATF will also build closer ties with FATF-styled regional affiliates around the world, make the processes and rationale behind its decisions more transparent, and re-examine the threat posed by funds linked to terrorism and nuclear proliferation, de Anda Madrazo told Koos Couvée, moneylaundering.com's bureau chief in London,

An edited transcript of their conversation follows.

Can you say a little more about what you want to prioritize during your presidency?

Firstly, in relation to setting the global standards, it is a priority for the Mexican presidency to support financial inclusion. It's a recognition of the fact that if we want to boost financial integrity, we need people to be in the system, and to ensure that money flows through the regulated system.

We are looking into revising our first technical recommendation, which requires countries to assess the money laundering- and terrorist financing-related risks they are exposed to, as this forms the backbone of the risk-based approach.

We want to make sure that where there is a high-risk, enhanced measures are implemented, but that there's also the opportunity to simplify due diligence for lower-risk scenarios. This would, for example, allow jurisdictions prone to financial exclusion to offer certain financial products and services to more individuals.

While I cannot anticipate all of what FATF's members will decide this week, this particular item will likely be approved. We plan to launch a public consultation in November on the proposed changes to the recommendation and its interpretative note, and we will update the relevant guidance to include examples on how to use simplified due-diligence measures and avoid de-risking.

It's a whole package.

This carries large implications for national regulators, who will have to update their own guidance in response.

An effective and risk-based approach to supervision remains a challenge. We changed our standards 10 years ago, but the fact is we still haven't really moved from rules-based to risk-based supervision. We really need supervisors to incentivize the private sector so they feel confident in using a risk-based approach.

We're also issuing updated our guidance on national risk assessments. We have learned a lot in this area during the fourth round of mutual evaluations—both good practices and bad.

What are your other priorities?

Supporting the members and the global network of regional affiliates as we work through a new round of assessments, which will be a shorter round with a stronger focus on risk and effectiveness.

Furthermore, an important aspect of FATF's mission is identifying new financial crime-related risks and trends. That's why we are also launching a global risk assessment on terrorist financing and proliferation financing that will hopefully be adopted in June 2025.

Countering terrorist financing and proliferation financing are fundamental to our mandate. Clearly there's a need for an assessment that also takes into consideration the regional aspects of how terrorist financing develops. We certainly see changes in the way terrorists are raising and moving funds to sustain their activities. The same goes for proliferation financing.

Other priorities for my presidency include beneficial ownership, asset recovery and virtual assets, which I see as very much linked, and they touch on a lot of the financial crime typologies we see.

FATF's standards in these areas have recently changed and we want to support their adequate implementation on the ground. A lot of this work has to do with coordinating technical assistance and capacity building in jurisdictions where we see such a need.

In what ways will the fifth round of evaluations differ from the fourth in terms of focus as well as impact?

During the last round, we assessed countries' effectiveness in implementing FATF's standards for the first time, which means that in the upcoming round we will have a picture to compare countries to. We can more accurately measure their commitment against financial crime, the resources they have invested and the progress they have made, and hold them accountable.

Evaluations will also be better informed by the specific risks a country faces. Assessors will produce a 'scoping note' ahead of their onsite visit that will be very much informed by those risks and that will help them focus their interviews, their visits to local authorities and other meetings, including with the private sector and nonprofit organizations.

When you look at the revised methodology, you'll see we also made changes to what country-specific risk factors and types of information will be considered by assessors, including issues such as the existence of the rule of law, proneness to corruption, etc.

The next round will also be shorter—six years instead of 10—which means more regular follow-up evaluations and updates. Finally, whereas the follow-up process previously focused mainly on technical compliance, this time we'll focus on effectiveness as well, which will ensure that countries will undergo more robust post-evaluation scrutiny.

FATF has also revised the processes by which the International Cooperation Review Group adds and removes countries from the global "gray list."

FATF has moved closer to transparency by publishing this year, for the first time, the procedures for the ICRG, and changing the factors that may lead to inclusion to reflect the challenges developing countries and lower-capacity jurisdictions face, and to focus more on the level of risk that countries' shortcomings create for the global financial system.

We estimate that the number of least developed countries that are publicly identified [included on the gray list] may be reduced by around 50 percent, and that we'll be holding high-income countries with strong financial sectors to a higher standard.

What financial crime-related typologies and emerging risks will FATF prioritize during your presidency?

This is more of a personal view, because our work in this area is ultimately determined by members, but when I think of predicate offenses, there's always the traditional ones that need to be re-examined. Specifically, I'm thinking of organized crime—drug dealing especially—which continues to be a major source of illicit proceeds. This is an area where we could refresh our analysis, because organized crime is changing dynamically.

Secondly, while FATF has increasingly focused on ransomware, we need to continue to identify and study new trends in cyber-enabled crime more broadly. Generally speaking, national authorities face a challenge in this area as law enforcement is still mostly focused on 'traditional' crimes that take place on the streets.

It's not explicitly in FATF's mandate, but I'd like to see countries conducting more financial investigations linked to cyber-enabled crimes.

Will authoritarian abuse of financial intelligence and other unintended consequences of global implementation of FATF's standards remain an area of focus?

The first thing I'd like to point out is that FATF's standards align with human and fundamental rights. Members also updated FATF's eighth technical recommendation last year to ensure that only proportionate and risk-based measures are used to mitigate the risks posed by nonprofit organizations.

Without naming specific jurisdictions, we've been very clear that infringing human rights and targeting legitimate nonprofits cannot be done in FATF's name, and we see that change is now happening in Latin America, in Africa and elsewhere.

FATF turned 35 this year. How will the group ensure that it and its mission stay relevant amid increasing geopolitical tension?

Firstly, there's the global network. We have more than 200 jurisdictions committed to implementing FATF's standards and undergoing assessments, which cannot be understated.

The second thing to mention is the technical nature of FATF. All our standards and procedures are the same for all jurisdictions. We make our decisions on consensus, and the technical nature of our work gives us a degree of isolation from other dynamics.

Finally, the awareness of the private sector, the fact that it is engaged in our work, provides input and is committed to our standards is also fundamental. It really is a public-private partnership.

Contact Koos Couvee at kcouvee@acams.org

• Topics: Anti-Money Laundering and Countering the Finance of Terrorism, Terrorism Financing, Sanctions and Non-proliferation Finance, Fraud
• Source: FATF
• Document Date: October 24, 2024