What is the FATF and why does it exist?
The Financial Action Task Force (FATF) is an intergovernmental organisation formed in 1989 by the Group of Seven (G7) countries (USA, Japan, Germany, France, England, Italy, and Canada) to establish international standards in the fight against money laundering, financing of terrorism, and the financing of the proliferation of weapons of mass destruction, and to encourage legal and institutional measures in line with these standards as well as to encourage the effective operational implementation of these measures
How does the FATF achieve compliance by countries with its standards?
The FATF, or FATF-style regional bodies (FSRBs) e.g., the Caribbean Financial Action Task Force (CFATF), conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system. Based on the outcome of a peer review, a jurisdiction may be placed on the FATF’s list of non-cooperative jurisdictions “the FATF Blacklist” or list of jurisdictions under increased monitoring “the FATF Grey List”.
The FATF periodically issues public statements identifying countries on these two lists as they potentially pose a risk to the global financial system because of deficiencies in their anti-money laundering and combatting the financing of terrorism and proliferation (AML/CFT/CFP) frameworks. Countries with significant strategic deficiencies, which the FATF judges to be non-cooperative in the global fight against money laundering and terrorist financing, are called “Non-Cooperative Countries or Territories” (NCCTs) and are placed on the blacklist. Countries the FATF regards as having strategic AML/CFT deficiencies, and which have explicitly committed to working with the FATF to produce action plans to rectify their AML/CFT inadequacies, are placed on the grey list.
Consequences for countries on the FATF lists
The blacklist is intended as a warning of the high money laundering, terrorism, and proliferation financing risk that countries on the list present. The FATF calls upon jurisdictions to, at a minimum, apply enhanced due diligence to these countries and in the most serious cases, calls for countries to apply countermeasures. FATF member countries and other international bodies are quite likely to impose economic sanctions and other restrictive measures against blacklisted countries. The public, including financial businesses and non-profit organisations, must exercise extreme caution when doing business with persons based in these countries.
The grey list also serves to warn other countries of the money laundering, terrorism and proliferation financing risk posed by countries on the list. The countries on the grey list are subject to increased monitoring by the FATF, which either assesses them directly or uses FSRBs to report on the progress they are making towards their AML/CFT goals. While grey list classification is not as punitive as the blacklist, countries on the list may still face enhanced or restrictive measures from countries and institutions.
What does this mean for the public of the Turks and Caicos Islands?
The Commission provides the public with an update of countries on the blacklist and grey list in March, July and November each year by way of an AML News Alert. Financial Businesses and non-profit organisations must regularly review these alerts, particularly as there is a legal obligation pursuant to the Anti-Money Laundering and Prevention of Terrorist Financing Regulations 2010 (as amended) in regulation 17 (2) (c) (ii) and (iii) which requires them to establish and maintain policies, systems and controls to prevent and detect money laundering and Terrorist financing which includes aspects to determine whether “a business relationship or transaction, is with a person connected with a country that does not comply, or insufficiently applies, the FATF Recommendations.” This obligation further requires financial businesses to also determine whether “a business relationship or transaction, or proposed business relationship or transaction, is with a person subject to measures for purposes connected with the prevention and detection of money laundering or terrorist financing, imposed by one or more countries or sanctioned by the European Union or the United Nations.”
Therefore, Financial Businesses must take into account the FATF, CFATF, UN, UK and EU advisories and sanctions lists when considering establishing business relationships with individuals or businesses, or transacting business emanating from or destined to, these jurisdictions.
The Anti-Money Laundering and Prevention of Terrorist Financing Code 2011 also stipulate similar requirements to consider the country risk when preparing the risk assessment with respect to a customer. In section 28, Financial Businesses are also required to consider transactions and activity connected with countries which do not or insufficiently apply the FATF Recommendations or are subject to UN or EU countermeasures. A similar obligation exists in relation to persons or entities that are subject to EU or UN sanctions or measures.
Financial Businesses should apply appropriate or enhanced due diligence measures when conducting business with jurisdictions which has been identified by FATF, regardless of whether the FATF has issued a call for action, having regard to the risk involved. This requirement is embedded in regulation 13 of the Anti-Money Laundering and Prevention of Terrorist Financing Regulations 2010 (as amended).
Financial Businesses are also advised to consider these advisories and lists in determining whether particular transactions are suspect and should be reported to the Financial Intelligence Agency. Financial Businesses must further keep, for the required record retention period, records concerning reviews and conclusions reached (regardless of whether an SAR/STR is filed with the FIU) in respect of customers and transactions connected with countries which do not, or do not sufficiently apply the FATF Recommendations or are the subject of UN or EU Countermeasures.
Subscribing to the Commission’s AML News Alerts
Any member of the public can subscribe to receive the Commission’s AML News Alerts. If you wish to become a subscriber, please email the AML Supervision Department at firstname.lastname@example.org providing your full name and the email address you would like us to send the alerts.
Financial Action Task Force (FATF)
Caribbean Financial Action Task Force (CFATF)
TCI Attorney General’s Chambers