Effectiveness has moved to the top of the FATF agenda

Statement by FATF President Bjørn S. Aamo at the EU Conference "Fighting money laundering and terrorist financing - New framework, future challenges"

More than 400 people from all parts of Europe took part in this conference in Brussels on 15 March.  The conference heard statements by EU-Commissioners Michael Barnier and Cecilia Malmstrøm on the draft 4th EU Anti-Money Laundering Directive. Principal Administrator John Carlson of the FATF Secretariat presented the revised international standards.

Future Challenges

I generally welcome the EU proposal for 4th EU Anti-Money Laundering Directive which I find broadly consistent with the new FATF Recommendations issued last year.  I hope the Directive will be adopted in the near future and thus contribute to progress in the implementation of the Recommendations for many of our members.

In preparing for the fourth round of assessments of the FATF members' compliance with our Recommendations, 'effectiveness' has moved to the top of our agenda. We observe challenges both in countries with low capacity and in the most advanced and complex financial markets. How to meet these challenges was an important topic for discussion at our recent plenary meeting: Outcomes of the FATF Plenary, 20-22 February 2013.

We admit that previous assessments have focused more on technical compliance with FATF Standards [1], which was essential if an Anti-Money Laundering / Counter Terrorist Financing (AML/CFT) regime is to have a solid foundation.  Now we move to focus much more on effectiveness – does the system work?

The Methodology for assessing this is based on a systematic series of questions, looking at 11 predefined outcomes that are central to a robust AML/CFT system. These outcomes have been agreed by FATF and others included in this process. These assessments will be challenging as they need to make judgements on how various components of the AML/CFT regime interact, and if things are not working, then why not. Assessments will focus on the areas of higher risk. The reports will provide a basis upon which countries can address the issues that are most critical for them.

As technical compliance and effectiveness are closely interlinked, these reports will look at the totality of the AML/CFT regime. Based on my previous role as head of the Norwegian financial supervisory authority, I believe that supervisors will have an even more important role going forward.

The Directive proposes that the 3 European supervisory authorities will have to provide important guidance on risk as part of their functions. Given the increasing complexity of the international financial sector, and the recent compliance failings of major institutions, supervisors have a significant challenge ahead as the risk based approach is more widely implemented.

The objective is to focus resources and efforts in areas where it matters most: areas where the risks are higher. Countries will need to undertake a comprehensive process to assess risks by assessing both the criminal and terrorist threats and identify the vulnerabilities of their system and then determine what might be the impact or consequences. FATF issued new guidance last month to help countries in this risk assessment process.

Large institutions already have complex risk assessments and processes to deal with them. However, as we have recently seen, it is challenging to assess the risks and properly mitigate them. For smaller institutions, while the risks may be less complex, the challenges remain.  It will be important for government and industry to engage and to have a productive dialogue on these issues.

Key objective of laundering is to hide the real ownership of the illegal assets. Most major criminal cases – whether money laundering, corruption or serious tax crime, involve misuse of companies, trusts or other corporate vehicles. The new Recommendation 24 adds a number of new requirements to increase transparency. In particular it lays out certain mandatory basic requirements for corporate registries. This is complemented by Art 29/30 of the draft 4^th Directive which requires companies and trusts to keep adequate, accurate and current information on their beneficial owners to ensure this information can be accessed in a timely way by both competent authorities and obliged entities. If these requirements can be effectively implemented it will be a major step forward.

Company registries may play a central role in these processes.  They may not always give all details or the full story.  If they have good quality and are open to the public, they may however provide important building blocks so that both authorities and private institutions, like banks, can get necessary information on Beneficial Ownerships.

Addressing serious tax crime is a major priority for governments these days. Tax crimes (both direct and indirect taxes) are now predicate offences for money laundering.  There is a need for the tax and AML authorities to work together more closely to exchange information and take action (including internationally) to prevent serious tax crime and associated money laundering.

FATF has worked closely with private sector for some years and our level of engagement continues to deepen. The FATF Consultative Forum and other consultative mechanisms have allowed an effective exchange of views on the revision of the Standards and on other major issues of mutual interest. We are currently working jointly on various guidances papers, such as on the risk-based approach.

Finally I want to stress the importance of global action. If the new draft 4th Directive shall serve its purpose and raise standards for fighting money laundering and terrorist financing in EU and the European Economic Area, it is important that FATF continue to raise the global standards.

The chain we build is only as strong as its weakest link.

[1] The FATF Standards comprise the FATF Recommendations and their Interpretive Notes.