A clarion call: fighting illicit finance
The global community has its work cut out when it comes to tackling financial crime, and the G20 must continue to introduce more effective measures to prevent illicit assets from moving so easily around the world
Inclusive, stable, resilient growth is underpinned by the integrity of the international financial system. During these turbulent times, the G20 leads by example by ensuring robust safeguards are in place against the illicit financial flows that hinder sustainable economic growth.
Countries must stand together in the fight against crime and terrorism. It is a global problem that requires a global response. The Financial Action Task Force, together with the nine FATF-Style Regional Bodies, leads global efforts to tackle illicit financial flows. They work closely with more than 200 jurisdictions that are committed to implement the FATF’s global anti-money laundering and counter terrorist financing standards.
Under its Singapore presidency, the FATF has focused its efforts on key areas, including asset recovery, beneficial ownership transparency, crypto-asset regulation and cross-border payments. All are common denominators in the fight against money laundering, tax evasion and corruption.
Recovering assets
Recovering assets from criminals is central to combatting all forms of economic crime. Effective asset tracing and recovery removes the incentives for criminal activity, reduces the resources of criminals and debilitates their ability to fund new capabilities and capacity, and supports victims of crime to recover at least some of their losses. The FATF is currently strengthening its standards to allow authorities to freeze ill-gotten gains quickly, coordinate closely at both national and international levels, and enhance asset recovery outcomes globally. Given the speed at which criminals move, it is crucial for countries to be able to quickly interdict the proceeds of crime before these are spirited out of jurisdictions.
Increasing the transparency of beneficial ownership of legal persons and legal arrangements is crucial to fighting financial crime. For too long, criminals have exploited regulatory weaknesses to hide their assets and activities behind shell companies or trusts. The FATF significantly strengthened the global response to tackling concealment of beneficial ownership – through revising the standards on transparency of legal persons in March 2022, and on trusts and similar legal arrangements in February 2023.
Strengthening the FATF Standards is an important first step. The FATF is now working on ensuring effective implementation, including through a global review of how countries supervise ‘gatekeeper professions’, such as accountants, lawyers, and trusts and company service providers who have been implicated in enabling or facilitating criminal misuse of companies and trusts. Through these efforts, FATF aims to close the loopholes exploited by criminals, allowing law enforcement to better tackle cross-border crime, link criminals to their assets and, ultimately, recover these assets.
Crime and terrorism know no borders. Nowhere is this clearer than in the growing incidence of misuse of crypto assets. The speed, global reach and anonymity of crypto assets – and the fact that they remain a largely unregulated space – have created significant opportunities for criminals and terrorists. These are very much pressing present problems. The FATF has observed increased risks of crypto assets being used for terrorism financing, sanctions evasion, ransomware attacks and proliferation financing.
Since 2019 – when the FATF introduced binding global rules to prevent money laundering, terrorist financing and proliferation financing through crypto assets – the goal has been to promote and monitor their implementation, for all 205 jurisdictions of the FATF’s Global Network. As of June 2023, 70% of the advanced economies are now largely compliant, but overall global implementation remains low, with 73% non-compliant or partially compliant.
For example, the implementation of the travel rule – which mandates that virtual asset service providers obtain and disclose information on the sender and recipient of a virtual asset transfer – remains a challenge, despite being a key FATF requirement.
A regulated sector
Regulating the sector for AML/CFT can prevent the crypto sphere from becoming a virtual safe haven for illicit money. Recognising the urgent need to accelerate implementation, the FATF adopted a roadmap in February 2023 that focuses on countries with materially important crypto assets activity. It also facilitates technical assistance and support from more experienced countries to countries in need of expertise and experience. In addition, it allows the application of escalating measures for countries that have materially important crypto assets activity but fail to take timely actions to regulate it.
The FATF is also reviewing its standards on cross-border payments to take into account new technologies and the new messaging standard, as well as to enhance financial inclusion. It too shares an interest in making payments faster, cheaper, more inclusive and more transparent. The expected interoperability of Fast Payment Systems will likely contribute to reducing the incentive for using parallel informal channels of value transfer and their potential associated illicit flows. The revised standard will provide an enabling environment to facilitate responsible innovation, by ensuring that payments are safe and preserving trust in cross-border payments.
Finally, the FATF is focused on promoting a coherent and consistent approach, both in global standards making and in implementation at the national level. This approach should be risk based, as citizens should not be unfairly excluded from the financial system due to an incorrect or overly cautious approach in implementing FATF Standards. At the same time, criminals must be prevented from exploiting potential loopholes.
The global community has its work cut out when it comes to tackling financial crime. The G20 should continue to lead by example and close the vulnerabilities that allow illicit assets to move easily around the world. Together, we can foster a more effective global AML/CFT system that is inclusive and sustainable for the safety and security, economic and social benefit of all.
