The fight against money laundering and illicit financial activities has become an unavoidable priority. In this context, the Recommendations of the Financial Action Task Force (FATF) hold a central place on the agenda of all companies and organizations related to the financial sector.

Since its establishment in 1989, this intergovernmental body has played a fundamental role in promoting global standards to combat money laundering, terrorist financing, and other crucial financial risks.

In this article, we will delve into what the FATF recommendations are, whether compliance is mandatory, and how they can be effectively implemented.

Understanding these guidelines is essential to ensure integrity and security in financial operations and to contribute to the stability of the international financial system. Ready?

What is FATF?

The FATF (Financial Action Task Force) is a prominent intergovernmental organization and an influential “policy-making body.” Its main focus is to generate the political will necessary to drive legislative and regulatory reforms at the national level, especially in the field of money laundering and illicit financial activities.

Indeed, the primary objective of the FATF is to establish standards and promote the effective implementation of legal, regulatory, and operational measures aimed at combating money laundering, terrorist financing, and other threats that affect the integrity of the international financial system.

Initially, the FATF was promoted by the Ministries and jurisdictional bodies of the member states, which originally were those of the G8, but currently extend to a total of 39 jurisdictions and two international member organizations: the European Commission and the Cooperation Council for the Arab States. Additionally, both the World Bank and the International Monetary Fund are participating members of this institution.

It is noteworthy that the FATF closely collaborates with other international organizations that share its goal, such as the Financial Action Task Force of Latin America (GAFILAT), the Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL), and the APG (Asia/Pacific Group on Money Laundering).

The organization exercises constant oversight over its member states to ensure the effective implementation of the current 40 recommendations and issues requirements to those that do not comply with its standards, either due to the inaction of their governments in incorporating the FATF recommendations into their local regulations or to companies that fail to comply with the regulations of countries that have adequately adopted these guidelines.

What are the FATF recommendations?

Although the FATF recommendations are not technically legally binding, they hold significant authority in the financial world and are widely adopted and respected internationally.

These 40 recommendations are considered a set of standards and best practices in the prevention and detection of money laundering and terrorist financing.

While there is no legally binding obligation for countries and companies to comply with them literally, the non-implementation of these recommendations can have serious consequences.

Countries that do not take adequate measures to combat money laundering and terrorist financing may be subject to international financial sanctions, which can have a negative impact on their access to international markets and on trade and financial relations with other countries.

Additionally, many jurisdictions have incorporated the FATF recommendations into their national legislation and have established regulations and specific requirements based on these recommendations. Financial institutions and companies operating in these countries are legally obligated to comply with these regulations, which in turn implies the implementation of the FATF recommendations.

Countries and companies wishing to operate in the global market generally have a strong incentive to comply with these recommendations and adapt their practices and policies to the international standards established by the FATF.

Here’s a brief summary of the 40 FATF recommendations:

  • Customer Identification: Financial institutions must know their customers well and verify their identities before providing financial services.
  • Transaction Monitoring: Financial institutions must monitor their customers’ financial activities and alert authorities if they notice suspicious movements.
  • Enhanced Due Diligence: Extra precautions must be taken when dealing with customers who represent a high risk, such as politically exposed persons.
  • Customer Knowledge: Financial institutions must understand who their customers are and how their businesses operate to ensure they are not involved in illegal activities.
  • Reporting Suspicious Activities: Financial institutions must report any activity that seems unusual or suspicious to authorities.
  • International Cooperation: Member countries must collaborate with each other and with other authorities worldwide to address the problem of money laundering and terrorist financing on a global scale.

Are FAFT Recommendations mandatory?

Yes, compliance with FATF recommendations is a fundamental legal requirement. If your business operates in any of the 39 countries that follow FATF standards, you are legally obligated to comply with the 40 recommendations, as these regulations have been incorporated into national laws, and their implementation is required.

However, it’s not limited to just those 39 countries, as over 200 jurisdictions worldwide have implemented measures against companies that fail to comply with anti-money laundering regulations. This means that regardless of where your company operates, it’s essential to be aware of and comply with AML (Anti-Money Laundering) regulations in every market you are present in.

Examples of countries that enforce strict AML regulations include Mexico, Andorra, Monaco, and the Czech Republic, among others. Compliance with FATF recommendations is not only a matter of legal compliance but also of adopting a robust risk management and fraud prevention strategy. This contributes to the growth and smooth operation of any business, making it essential to consider them as an integral part of business operations in all cases. Ignoring these regulations can have serious legal and financial consequences for companies.

How to comply with FATF recommendations

FATF recommendations have a global reach, affecting individuals and legal entities in various jurisdictions. However, certain industries and types of activities are more directly impacted by these recommendations due to their specific operations and dynamics. Business areas most affected by FATF regulations include:

  • Investment and financial management services.
  • Banking institutions and fintech companies.
  • Insurance and savings sectors.
  • Cryptocurrency platforms and trading.
  • Real estate and the property market.
  • Audit and consulting firms.
  • Gaming and online betting industry.

FATF has developed a comprehensive methodology for analyzing and evaluating compliance with its standards by companies and states. This assessment process can be carried out both by the organization itself and voluntarily by companies, allowing them to identify areas for improvement and adapt their operations to comply with the recommendations.

Why does this matter? Well, Silt presents itself as a strategic ally providing innovative and efficient technological solutions for compliance with FATF recommendations, helping companies successfully navigate the current regulatory environment and stay compliant with international standards.

If you want more information on how Silt can assist you in this process, and about our KYC and KYB products, feel free to contact us.