If you haven’t had time to read or download the FATF Annual Report 2020/21, here’s our quick summary loaded with all the information you need to get the very latest guidance for AML compliance.
Adopting new technology
The report opens with a message from FATF president, Dr Marcus Pleyer of Germany, who assumed the position on 1 July 2020. The use of new technologies for combatting money laundering and terrorist financing is a key theme in not only his message, but throughout the 80-page report:
“It is an exciting time for technology with artificial intelligence, machine learning and big data analytics being developed and deployed in many fields. I truly believe new tech has the potential to be a game-changer in the fight against money laundering and terrorist financing.”
Priorities during the German FATF presidency
The priorities during the German presidency, which runs until 30 June 2022, are as follows:
- COVID-19: FATF fully encourages the use of technology. It suggests that the pandemic has created an opportunity to increase the use of technology and the application of a smart, intelligence-led risk-based approach and improve the detection of financial crimes (see digital transformation below.) Read about COVID-19-related Money Laundering and Terrorist Financing.
- Environmental crime: as it works to raise awareness of money laundering from environmental crime and how to stop it, FATF's landmark report states that most countries fail to assess this area as part of national or money laundering risk assessments. It urges countries to act and strengthen financial investigations so they can become more effective in tackling environmental crime.
- Digital transformation: technology offers considerable efficiencies and cost savings. To provide guidance to public and private sectors on harnessing the opportunities that technology can offer to enhance AML/CFT efficiency and effectiveness, FATF published two reports: Opportunities and Challenges of New Technologies for AML/CFT and Stocktake on Data Pooling, Collaborative Analytics and Data Protection.
- Tackling illicit arms trafficking and terrorist financing: building on a number of previous initiatives within the FATF Global Network, FATF completed a confidential report to raise awareness about this criminal activity, particularly in the context of national risk assessments. The report is available for use by relevant government authorities.
- Ethnically or racially motivated terrorism financing: the report, Ethnically or Racially Motivated Terrorist Financing, identifies common structural characteristics and patterns, and notes that most extreme right-wing groups obtain funding from legal sources such as donations, membership fees and commercial activities.
- Unintended consequences of FATF standards: in February 2021, FATF started a new project to study and mitigate unintended consequences. The project will continue during the next Plenary year.
Other priorities covered in the annual report include strengthening the global network, engagement with other international bodies and strategic review.
Upcoming landmark topics during the German presidency
The second year of the German Presidency will include a focus on:
- Beneficial ownership: every year hundreds of billions of dollars are laundered through fake companies to facilitate crime. With current beneficial ownership rules failing, work will focus on improving beneficial ownership transparency.
- Migrant smuggling: FATF has made it a priority to focus on financial flows and money laundering/terrorist financing linked to migrant smuggling networks and their transnational routes. This project, which is expected to be completed in June 2022, will help countries and the private sector to better understand how criminals and terrorists benefit from the migrant smuggling, so t they can align their national and institutional controls and strategies.
- Asset recovery: while asset recovery is at the heart of FATF’s mandate, the current cycle of mutual evaluations shows most countries are not confiscating the proceeds of crime effectively This year, FATF finalised a report for government authorities that analyses the key obstacles to asset recovery and how to overcome them. Work will continue into 2022.
- The use of art and antiquities for money laundering and terrorist financing: FATF started a project to help countries, competent authorities and the private sector to better understand how criminals and terrorists abuse trade in art, antiquities, and cultural property, and to develop best practices and recommendations to mitigate these risks. FATF expects to complete this project in June 2022.
Risks, trends and methods
Research into existing or emerging money laundering and terrorist financing trends and methods will help countries better understand the risks to which they are exposed.
- Trade-based money laundering (TBML): in December 2020, FATF and Egmont Group of Financial Intelligence Units finalised a report to help public and private sector with the challenges of detecting TBML. This was followed by a second report looking at risk indicators.
- Terrorist financing: FATF also issued a confidential report that aims to improve terrorist financing investigations and prosecutions.
Setting the international standards
FATF continuously refines and strengthens its recommendations to respond to the evolving money threats to the financial system.
- Risk-based supervision: In March 2021, FATF published Risk-Based Supervision guidance to help supervisors assess risks in the sectors they oversee and adapt their resources to the areas where the risks are highest.
- Proliferation financing: In June 2021, FATF finalised Guidance on Proliferation Financing Risk Assessment and Mitigation to help countries, financial institutions, designated financial institutions and virtual asset service providers effectively implement the new mandatory FATF requirements.
- Virtual assets: In September 2020, FATF reported on Virtual Assets: Red flag indicators of Money Laundering and Terrorist Financing that will help the private sector detect and report suspicious transactions using virtual assets. This year, FATF also initiated work to revise its guidance on the implementation of the risk-based approach to virtual assets and virtual asset service providers (VASPs). FATF emphasises the gaps that currently exist in the implementation of its revised standards leave loopholes for regulatory arbitrage that criminals can exploit. Without a global response by all jurisdictions, VASPs can move quickly between jurisdictions.
The Annual Report also summaries FATF work in other ongoing areas, including mutual evaluations, high risk and other monitored jurisdictions, the Global Network, training and engagement with the private sector and civil society.
Download a copy of the FATF Annual Report 2020/21
You can download a copy of the FATF Annual Report here.