The Financial Action Task Force (FATF), which develops and promotes policies to combat money laundering and terrorist financing, recently held its plenary meeting in Paris. The discussions focused on the challenges and possible solutions to terrorist financing and hidden beneficial ownership.
Focus on terrorist financing
A focus of the meeting was how the FATF could help countries to improve their implementation of measures to prevent, detect and counter terrorist financing. In recent months, the FATF has deepened its knowledge and understanding of what methods Islamic State uses to raise, move and use funds, and how the terrorist organisation has changed its financing strategy since October last year. It was noted that Islamic State has used new payment products and technology, including virtual currencies. The FATF said that up-to-date knowledge and understanding of how this group and its affiliates are financed "is critical to taking effective actions to disrupt their access to funding and to deprive them of the ability to finance terrorist attacks".
The FATF said that improved international cooperation is important for combating terrorist financing. There was also discussion of a survey by the Institute of International Finance which identified obstacles to information sharing by the private sector. Companies may come under more pressure from governments and regulators to share information on third parties and the sources of their revenue.
Research into the 'challenge' of beneficial ownership
The FATF repeated its concern that implementing its standards on transparency and beneficial ownership "continues to be a challenge" for member countries. Although it strengthened its standards on beneficial ownership in 2012, the FATF warned last November that only two of the nine countries it has assessed so far have implemented the standards with "a substantial level of effectiveness".
The FATF has carried out research into why the implementation of beneficial ownership registers has been difficult for many countries. It has studied the mechanisms used to hide and obscure beneficial ownership of corporate vehicles, the role of professional intermediaries, and the challenges in establishing beneficial ownership and how to overcome them. Preliminary findings of this research were discussed at the plenary meeting, and another update will be given at a meeting in Moscow in April.
Improvements in Brazil's efforts to stop terrorist financing
The FATF evaluates countries on how effectively they have implemented its standards on money laundering, terrorist financing and beneficial ownership, and at February's meeting it released an update on individual countries' compliance. Brazil was praised for taking "several significant steps" to combat terrorist financing since the FATF's warning in February 2016 that Brazil had failed to remedy "serious deficiencies" identified in an earlier FATF report. However, the FATF noted that deficiencies remain regarding targeted financial sanctions.
Brazil's government and regulatory authorities appears to be taking a tougher approach to money laundering, bribery, corruption and terrorist financing. Last year, a report by the University of Richmond Law School Anti-Corruption Team suggested that recent corruption scandals involving the government and oil firm Petrobras are "evidence of newly enacted corruption laws taking effect". In particular, the Clean Company Act of 2014 imposed tougher measures to prevent bribery in the awarding of public contracts.
'Strategic deficiencies' in anti-money laundering
The FATF also used the plenary meeting to criticise the Democratic People's Republic of Korea (DPRK) for failing to "address the significant deficiencies in its anti-money laundering and combating the financing of terrorism regime". It called on countries to advise their financial institutions to carry out enhanced scrutiny on transactions with DPRK companies. It also identified a number of countries with "strategic deficiencies" which might leave them vulnerable to terrorist financing and money laundering. These include Afghanistan, Bosnia and Herzegovina, Iraq, Syria, Uganda and Yemen. Unlike DPRK, these countries have provided the FATF with a "written high-level political commitment" to address these deficiencies. But companies considering doing business in these jurisdictions should consider increasing the level of their due diligence efforts to mitigate the risks of money laundering and terrorist financing.