Published, October 2023

by M. CASSAGNE

Introduction

The recent Financial Action Task Force (FATF) Plenary meeting, held from 25th to 27th October 2023, brought together delegates from over 200 jurisdictions and international organizations to discuss key issues related to money laundering, terrorism financing, and proliferation financing. The meeting, presided over by T. Raja Kumar of Singapore, resulted in significant decisions and agreements on various aspects of financial integrity and security. In this article, we will delve into the outcomes of this pivotal gathering, covering multiple topics of global importance.

Crowdfunding for Terrorism Financing

One of the primary concerns addressed during the FATF Plenary was the emerging threat of crowdfunding being exploited for terrorism financing. While crowdfunding is generally used for legitimate purposes, terrorist groups such as ISIL and Al-Qaeda have leveraged this platform to fund their activities. The FATF finalized a report detailing how these groups misuse fundraising platforms on social media to solicit funds globally. This report identifies four key methods terrorists employ for crowdfunding.

The link between crowdfunding and other financial sectors was highlighted, emphasizing the need for countries to fully implement FATF standards relevant to virtual assets, non-profit organizations (NPOs), and money or value transfer services. It was stressed that crowdfunding should not be considered in isolation but should be viewed as part of the broader financial landscape.

The report also suggests risk indicators to help public and private entities detect potential terrorist financing activities through crowdfunding. This comprehensive analysis underlines the importance of global cooperation and awareness to combat this evolving threat effectively.

Illicit Financial Flows from Cyber-Enabled Fraud

In an increasingly digital world, cyber-enabled fraud has become a major transnational organized crime. It poses significant risks to individuals, organizations, and economies worldwide. Such crimes can lead to massive financial losses and erode trust in digital systems. The FATF, in collaboration with the Egmont Group and INTERPOL, examined the methods employed in cyber-enabled fraud, its connections to other criminal activities, and the exploitation of vulnerabilities in new technologies.

The report highlights successful national responses and strategies for combating cyber-enabled fraud, which often involves transferring proceeds to various jurisdictions. It emphasizes the importance of breaking down silos and enhancing collaboration across different sectors, domestically and internationally.

The report also identifies risk indicators and anti-fraud requirements and controls that can help entities detect and prevent cyber-enabled fraud and associated money laundering. It underscores the need for enhanced cooperation, both domestically and internationally, to effectively tackle this growing threat.

Misuse of Citizenship and Residency by Investment Programs

Citizenship and residency by investment (CBI/RBI) programs offer foreign investors expedited citizenship or residency in return for investments. While these programs can stimulate economic growth, they also pose significant risks of money laundering, fraud, and other forms of misuse. Criminals and corrupt officials can use CBI/RBI programs to evade justice and launder ill-gotten gains.

The FATF, in partnership with the OECD, conducted a comprehensive study on the money laundering and financial crime risks associated with CBI/RBI programs and their impact on public integrity, taxation, and migration. The report highlights vulnerabilities, such as the frequent involvement of intermediaries and lack of proper governance in these complex, international investment migration programs.

The report recommends measures to address these risks, including in-depth analysis, risk mitigation, and the clarification of roles and responsibilities of parties involved in CBI/RBI programs. This report underscores the need for enhanced transparency and oversight to detect fraudulent activities effectively.

Beneficial Ownership and Transparency

The FATF has strengthened its beneficial ownership standards, and the Plenary meeting discussed amendments to the Methodology for the next round of mutual evaluations. These evaluations are crucial for ensuring that countries take effective action to close regulatory loopholes that allow for the use of shell companies in criminal activities.

The revised Methodology, to be published in November, will guide assessment teams in determining the effective implementation of the FATF's updated beneficial ownership requirements. These revisions aim to enhance transparency and accountability, making it more challenging for criminals to hide behind shell companies.

Collaboration with Asset Recovery Networks (ARINs)

Asset Recovery Networks (ARINs) play a crucial role in improving international asset recovery efforts. The FATF completed a report analyzing the ARIN model, including recommendations for strengthening collaboration between ARINs and the FATF Global Network. Effective collaboration can help investigators and prosecutors trace and recover assets across borders in transnational crime cases.

This report, to be published in November, underscores the importance of international cooperation and information sharing to enhance the effectiveness of asset recovery efforts.

Protecting Non-Profit Organizations (NPOs) from Terrorist Financing Abuse

Non-profit organizations (NPOs) often carry out essential humanitarian work, but they can be vulnerable to abuse for terrorist financing. The FATF agreed on amendments to its Recommendations to protect NPOs from potential abuse. These amendments clarify that the risk-based approach does not apply to the entire non-profit sector but only to specific organizations within the FATF definition of an NPO.

The revised Recommendation requires countries to identify these organizations, assess their risks for terrorist financing, and establish focused, proportionate, and risk-based measures to mitigate these risks. It emphasizes the need to prevent undue disruption to legitimate charitable activities.

Membership of the FATF

During the Plenary, Indonesia was granted full membership in the FATF. The country had undergone a mutual evaluation in February 2023, and its strong commitment to addressing identified issues led to its inclusion. This brings the total number of FATF members to 40, including all G20 countries.

Compliance with the FATF Standards

Brazil's joint FATF-GAFILAT mutual evaluation was discussed, highlighting areas of strength and areas needing improvement. Brazil demonstrated a commitment to improving its anti-money laundering, counter-terrorist financing, and counter-proliferation financing measures. The report will be published by December, following quality and consistency reviews.

The FATF also recognized Albania, the Cayman Islands, Jordan, and Panama for their progress in addressing strategic deficiencies. Following successful on-site visits, these jurisdictions are no longer subject to increased monitoring.

Conclusion

The outcomes of the October 2023 FATF Plenary meeting emphasize the international community's commitment to combat money laundering, terrorist financing, and proliferation financing. The discussed topics, from crowdfunding for terrorism financing to combating cyber-enabled fraud and improving the transparency of CBI/RBI programs, underscore the need for global cooperation and proactive measures to safeguard financial integrity and security. As these reports and amendments are implemented, they will contribute to a safer and more transparent global financial system. The FATF continues to play a pivotal role in shaping international efforts against financial crime and ensuring that its members adhere to rigorous standards in this regard.