The Financial Action Task Force (FATF) held its second Plenary meeting under President T. Raja Kumar in February 2023, with delegates from 206 jurisdictions and observer organisations attending in Paris. Following a turbulent 2022, the FATF Plenary involved the discussion of the world’s most significant financial crime issues, FATF membership changes, and the consequences of the Russian invasion of Ukraine.
FATF anti-money laundering (AML) and counter-financing of terrorism (CFT) standards must be implemented in the domestic legislation of member states. In order to help your firm remain compliant with the new rules and regulations, let’s take a closer look at the key outcomes and points of interest from the FATF Plenary.
Russia FATF Membership
Following the Plenary, the FATF released a statement on the Russian Federation’s “illegal, unprovoked and unjustified full-scale military invasion of Ukraine”. In addition to expressing sympathy for the Ukrainian people following the “huge loss of lives and malicious destruction”, the FATF noted that the actions of President Vladimir Putin’s regime posed a threat to the “security, safety, and integrity of the global financial system”.
Accordingly, the FATF noted that it was suspending the Russian Federation’s FATF membership. With the suspension in place, the FATF added that Russia would be expected to continue to meet its AML/CFT obligations and that it would remain a member of the Eurasian Group on Combating Money Laundering (EAG). The FATF suggested that it would monitor the ongoing situation in Ukraine with a view to lifting or modifying Russia’s suspension at subsequent Plenary meetings.
Changes to the FATF Black List and Grey List
The FATF’s list of High Risk Jurisdictions subject to a Call for Action, also known as the FATF black list, designates countries that have serious deficiencies in their AML/CFT regulatory frameworks. Black list countries pose an extremely high risk of financial crime and the FATF calls for the deployment of “counter-measures” when dealing with them.
As of the Plenary session in February 2023, there were three countries on the FATF black list:
Democratic People’s Republic of Korea (unchanged since February 2020)
Iran (unchanged since February 2020)
Myanmar (added October 2022)
The FATF’s Jurisdictions Under Increased Monitoring, also known as the grey list, is a list of high risk countries that have “strategic deficiencies” in their AML/CFT infrastructure but that have committed to an action plan in order to resolve them.
The following countries were added to the grey list at the Plenary:
South Africa: South Africa was added to the grey list as a result of its failure to address concerns raised in its 2021 Mutual Evaluation Report (MER). These included inadequate customer due diligence measures, and a lack of AML/CFT resources for compliance employees and law enforcement agencies.
Nigeria: Nigeria’s grey list action plan sets out a series of regulatory requirements, including improvements to the country’s national AML/CFT strategy, improvements to risk-based AML/CFT supervision, and more effective investigations of money laundering and terrorism financing activities.
The FATF also announced that two countries, Cambodia and Morocco, would be removed from the grey list, following their progress in addressing “technical deficiencies” outlined in their individual action plans.
Beneficial Ownership Revisions
The FATF emphasised beneficial ownership as a priority in 2023 and beyond, building on details set out in its 2021-22 Annual Report. The report outlined the need for greater transparency around the “ultimate ownership and control of legal persons” in order to prevent criminals using corporate structures “to hide their identity and launder their illicit profits from criminal activities”. Accordingly, in March 2022, the FATF implemented amendments to its Recommendation 24, with a requirement for a “multi-pronged approach” to collecting beneficial ownership information.
The 2023 Plenary clarified the guidance set out in the Annual Report, with the publication of a document to help countries implement the amended Recommendation 24. The guidance sets out a requirement for countries to establish a domestic beneficial ownership registry, along with a public body to provide supervision. The Plenary also agreed to enhance Recommendation 25 in order to bring legal arrangements into alignment with the beneficial ownership standards set out in Recommendation 24. The FATF will prepare a new guidance document on the revised Recommendation 25.
Ransomware Research
The Plenary recognised the significant increase in “the scale and number of ransomware attacks” in recent years, and the “crippling impact” that they have on businesses around the world. Given the nature of the global ransomware threat, the Plenary emphasised the need to “build on and leverage existing international cooperation mechanisms”, and for authorities to develop the necessary skillets to identify and trace virtual assets involved in ransomware attacks.
The FATF has conducted research into the methodology of ransomware attacks and how criminals launder their financial proceeds, with a report on the research published in March 2023.
Virtual Asset Regulations Implementation
The FATF has noted that “the lack of regulation of virtual assets” in jurisdictions around the world has created opportunities for both money launderers and terrorist financiers. In 2018, the FATF strengthened Recommendation 15, also known as the Travel Rule, to include virtual assets and virtual asset service providers. The Travel Rule requires firms to obtain identifying information about the originators and beneficiaries of virtual asset transactions, and to retain that data for AML/CFT purposes.
The 2023 Plenary agreed to strengthen AML/CFT provisions for virtual assets and virtual asset service providers, with the introduction of a roadmap for the implementation of regulations. The roadmap steps include a review of current regulatory implementations across the FATF global network, and a progress report to be published in 2024 on members’ progress in implementing new regulations.
How Technology Can Help FATF Compliance
FATF members are required to implement FATF Recommendations in domestic legislation, which means that firms must be agile in their AML/CFT response to recent amendments. The changes announced at the Plenary, for example, require firms to conduct enhanced due diligence for customers from South Africa, Nigeria, and Russia (which is also subject to a range of international economic sanctions), and review their beneficial ownership and virtual asset AML/CFT screening capabilities.
The global scope of FATF Plenary guidance means that firms must adjust their data collection and analysis process to capture new risks, and be able to remediate AML/CFT alerts quickly and efficiently. Ripjar’s Labyrinth Screening platform enables exactly this kind of compliance response, with real time risk screening across thousands of international data sources, including adverse media, sanctions lists, and watchlists. Blending structured and unstructured data seamlessly, in over 20 foreign languages, Labyrinth Screening brings enterprise-wide coherence to the screening process, and ensures your organisation reacts as swiftly as possible following the emergence of new regulatory standards or criminal threats.
Following widespread legislative reforms, the Asia-Pacific (APAC) region has seen an increase in financial crime investigations in recent years. While geopolitical events such as the Covid-19 pandemic and the global supply chain crisis slowed anti-money laundering (AML) and counter-financing of terrorism (CFT) efforts in 2021 and 2022, APAC AML regulations will continue to evolve in 2023, and compliance teams should prepare for change.
From the emerging risks of cryptocurrency and digital assets, to new global economic sanctions, the Asia-Pacific region’s financial risk landscape is diverse. To help your organisation stay ahead of its obligations, and address criminal threats, let’s explore some of the most notable AML changes from key APAC regulators.
Singapore
The Monetary Authority of Singapore (MAS) is a regional leader in financial crime enforcement, and regularly announces initiatives to combat financial crime in Singapore and beyond. In October 2022, MAS announced its National Strategy for Countering the Financing of Terrorism, a five-pronged plan for addressing the misuse of Singapore’s financial system for terrorism financing. The plan calls for greater coordination between law enforcement agencies and international counterparts, and sets out the following key priorities:
Coordinated, comprehensive risk identification, emphasising cooperation between government agencies.
Strong legal and sanctions enforcement frameworks, matched to international AML/CFT standards.
Risk-based supervision, matched to international standards and best practices.
Greater inter-agency law enforcement cooperation to ensure decisive action against terrorism financiers.
In support of its inter-agency cooperation objectives, MAS announced the roll-out of its Collaborative Sharing of ML/TF Information & Cases (COSMIC) platform, which is scheduled for implementation in 2023. Co-created by 6 major international banks, COSMIC will facilitate information sharing between organisations in Singapore, with a focus on shell company abuse, illicit trade finance, and weapons proliferation.
Hong Kong
Hong Kong’s primary financial regulator, the Hong Kong Monetary Authority (HKMA) has stated that its priorities for 2023 include tackling fraud and the use of mule accounts to launder money. Its 2022 Risk Assessment report set the money laundering risk to the banking sector at “High”, with fraud as the principal threat.
In order to address fraud, and other AML/CFT risks, the HKMA is continuing efforts to promote wider adoption of AML technology. Those efforts include its Fintech 2025 strategy, which includes a range of initiatives to promote information sharing between financial institutions, such as the launch of the Commercial Data Interchange (CDI).
In 2023, the HKMA has identified the following supervisory priorities:
Prudential work: Health checks on non-bank financial institutions.
Technology: Continuing promotion of fintech adoption and a focus on cybersecurity and third-party risk management.
AML risk: Data-driven supervision, regulatory updates, information sharing, and an analytic focus on mule account networks.
Consumer protection: Investor protection for virtual assets, enhanced protection for credit card services, mandatory reference checking.
China
China’s regulatory scrutiny of money laundering activities increased in 2022 following a significant rise in money laundering convictions between 2016 and 2019. The Chinese government launched its three year action plan to crack down on money laundering in 2022. Led by the People’s Bank of China (PBOC) and the Ministry of Public Security, the plan sets out new coordination and consultation requirements between government departments in order to target money laundering, and includes proposals for new risk prevention mechanisms, AML training programmes, and solutions for the analysis of money laundering typologies.
China’s focus on AML/CFT follows its fourth-round Mutual Evaluation Report by the FATF. As part of its efforts to implement FATF requirements, China clarified its customer due diligence (CDD) rules, and extended those rules to non-banking payment institutions, loan companies, financing firms, and other types of financial service providers.
Japan
Following the FATF’s Mutual Evaluation Report of Japan in August 2021, the Japanese government published its action plan for compliance. The FATF’s main criticism of Japan’s AML/CFT framework was a lack of understanding of risk in certain financial institutions. Accordingly, the action plan requires Japanese financial institutions to improve their risk assessment and risk mitigation measures, and to ensure the efficacy of their ongoing CDD measures.
Japan’s Financial Services Agency (FSA) also identified fintech advances as a source of AML/CFT risk, suggesting that regulatory action will be forthcoming in 2023. The FSA highlighted the risks of crypto-assets, artificial intelligence algorithms, and even “deepfake” videos as potential risk factors and suggested that Japan’s financial institutions should leverage digital tools to enhance the effectiveness of their AML/CFT countermeasures.
With that challenge in mind, Japan has been focusing on new cryptocurrency regulations. In September 2022, the government announced that it would be amending the Act on Prevention and Transfer of Criminal Proceeds in order to extend the FATF’s Travel Rule reporting requirement to cryptocurrency and stablecoin transactions.
Australia
In 2021, the Australian government launched an inquiry into the adequacy and efficacy of Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime. The inquiry identified an ongoing financial crime risk from Designated Non-Financial Businesses & Professions (DNFBPs) such as real estate agents, casinos, gambling companies and lawyers, which had not been brought into the scope of certain AML/CFT reforms. As a result of that failure, criminals had used Australian DNFBPs to launder billions of dollars, enabling criminal activities and networks across APAC.
The inquiry recommends that the Australian Transaction Reports and Analysis Centre (AUSTRAC) extend its AML/CFT reporting rules to DNFBPs, encourage financial institutions to integrate technology as part of their risk-based AML/CFT frameworks, and better align its AML/CFT regulations with international standards. As part of that effort, Australia announced plans for the introduction of a new beneficial ownership registry in November 2022: the registry will aid law enforcement efforts in tracking down foreign money launderers that exploit the country’s financial system.
APAC AML Regulations: How Technology Can Help
APAC is a complex and challenging AML landscape, and firms that do business across the region must be ready to manage a diversity of regulatory obligations. While certain trends, such as the focus on digital asset regulation, reflect the global financial situation, national concerns, such as Australia’s DNFBP crisis, require a localised response.
To understand risk exposure in this environment and avoid regulatory compliance penalties, firms must be able to collect and analyse data at scale, with speed and accuracy. Ripjar’s Labyrinth Screening platform was designed with that objective in mind, enabling firms to search customer names in real time against thousands of adverse media stories, sanctions lists, and watchlists. Integrating machine learning technology, Labyrinth helps firms extract meaningful data from a spectrum of structured and unstructured sources, and adapt quickly to the changing regulatory requirements of jurisdictions across APAC and the world.
To discuss how Ripjar can help you with AML compliance in APAC, get in touch
