Use of the FATF Recommendations to support the fight against corruption

8/13/2019 Use of the FATF Recommendations to support the fight against corruption

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Corrup on

A Reference Guide and Informa on Note

on the use of the FATF Recommenda ons

to support the ght against Corrup on

Safeguarding public sector integrity

Protec ng the private sector

Increasing transparency in the nancial

system

Detec ng, inves ga ng and prosecu ngcorrup on and money laundering, andrecovering stolen assets


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IntroductionLeaders throughout the international community recognise that anti-money laundering(AML) and counter-terrorist inancing (CFT) measures are powerful tools that areeffective in the ight against corruption. The FATF has developed this informationnote to raise public awareness of how the FATF Recommendations, when effectively

implemented, help to combat corruption.

The link between corruption andmoney launderingCorruption and money laundering are linked.Similar to other serious crimes, corruptionoffences, such as bribery and theft of public

funds, are generally committed for the purposeof obtaining private gain. Money laundering isthe process of concealing illicit gains that weregenerated from criminal activity. By successfullylaundering the proceeds of a corruption offence,the illicit gains may be enjoyed without fear ofbeing con iscated.

Combating money laundering is a cornerstoneof the broader agenda to ight organised andserious crime by depriving criminals of ill-gotten gains and by prosecuting those whoassist in the laundering of such ill-gottengains. The FATF recognises the link betweencorruption and money laundering, includinghow AML/CFT measures help combatcorruption. This is why corruption issues weretaken into account during the FATF third roundmutual evaluation process which assessedcountries compliance with the 2003 versionof the FATF Recommendations. For example, inthe third round of mutual evaluations, the FATFconsidered how effectively AML/CFT measureswere implemented in a country by consideringthe number of investigations, prosecutionsand convictions for money laundering, andthe amount of property con iscated in relationto money laundering or underlying predicateoffences, including corruption and bribery.As well, the FATF considered whether thecountry could demonstrate that it has a solidframework of measures to prevent and combatcorruption through respect for transparency,good governance principles, high ethical andprofessional requirements, and established a

reasonably ef icient court system to ensure thatjudicial decisions are properly enforced. Theseelements are important because signi icant

weaknesses or shortcomings in these areasmay impede the effective implementation of theFATF Recommendations. The FATF approved arevised set of Recommendations in February2012 (see Annex) and countries, in the nextround of mutual evaluations (the fourth round),will be assessed for compliance against thesenew Recommendations, using a revisedassessment methodology.

By effectively implementing the FATFRecommendations, countries can:

better safeguard the integrity of the publicsector

protect designated private sector institutionsfrom abuse

increase transparency of the inancial system

facilitate the detection, investigation and

prosecution of corruption and moneylaundering, and the recovery of stolen assets.

A proper culture of compliance with AML/CFTstandards creates an environment in whichit is more dif icult for corruption to thriveundetected and unpunished.


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Safeguarding theintegrity of the publicsector

Protec ng designatedprivate sector ins tu onsfrom abuse

Corruption lourishes in an environment wherestate of icials and public sector employeesmisuse their positions for personal gain. Effectiveimplementation of the FATF Recommendationshelps to safeguard the integrity of the publicsector by ensuring that key governmentagencies involved in anti-money launderingand combating terrorist inancing (such as the

inancial intelligence unit, law enforcement,prosecutorial authorities, supervisors andothers) are adequately resourced and mannedby staff of high integrity.

What do the FATF Recommenda onsrequire and how do theserequirements ght corrup on?

Key government agencies must have suf icientoperational independence and autonomy to ensure freedom from undue in luence orinterference. This reduces the likelihood ofthem falling under the in luence or control ofcorrupt persons (Recommendations 26 and 29) .

Key government agencies must be providedwith adequate budgetary resources to fullyand effectively perform their functions. Ade -quate compensation can reduce the incentive toengage in corrupt activities (Recommendations1, 8, 26, 28, 29, 30, 32, 37 and 39) .

Staff of key government agencies must haveappropriate skills , receive adequate training ,and maintain high professional standards .Such measures help to foster a culture ofhonesty, integrity and professionalism(Recommendations 8, 26, 28, 29, 30, 32, 37 and39) .

Private sector institutions are an attractivevenue for laundering the proceeds of corruption,particularly if they are owned or in iltrated bycorrupt persons or have implemented weakAML/CFT measures. Effective implementationof the FATF Recommendations helps to protectdesignated inancial institutions (such as banks,securities irms, insurance companies, foreign

exchange dealers, and money remitters) andother designated businesses and professions(such as casinos, lawyers, accountants, realestate agents, dealers in precious metalsand stones, and trust and company serviceproviders) by requiring that their owners,controllers and employees are properly vetted,and that they have adequate systems in place tocomply with AML/CFT requirements.


Persons holding a signi icant controlling interestor management function in a designated privatesector institution must be vetted . Such vettingshould use it and proper criteria. This helpsto prevent corrupt persons and other criminalsfrom gaining control over institutions, such asbanks, or casinos, that can be used to facilitate

illicit activities (Recommendations 26 and 28) .

Designated private sector institutions mustscreen employees to ensure high standards.This helps to prevent corrupt persons from in -iltrating or otherwise criminally abusing a i -nancial service provider (Recommendations 18and 23) .

Designated private sector institutions mustimplement internal control systems and audit

functions to ensure compliance with AML/CFTmeasures. This helps such institutions to detect

con nued on next page


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Increasing transparencyin the nancial sector

Corruption is more likely to go unpunishedin opaque circumstances where the proceedsof such crimes are laundered and cannotbe traced back to the underlying corruptactivity, as is the case when the ownershipof assets is obscured, and transactionsand transfers leave incomplete (or no)audit trail. Effective implementation of

the FATF Recommendations increases thetransparency of the inancial system bycreating a reliable paper trail of businessrelationships, transactions, and discloses thetrue ownership and movement of assets.


When establishing business relationshipsor conducting transactions on behalf ofcustomers, designated private sectorinstitutions must verify the identity ofthe customer, any natural person onwhose behalf a customer is acting, and anyindividuals who ultimately own or controlcustomers that are legal persons (such ascompanies) or legal arrangements (such astrusts). Additional precautions must be takenwhen transactions are conducted througha third party, are not done face-to-face orwhen new technologies are used. Theseprecautions increase transparency by makingit dif icult for corrupt persons to conductbusiness anonymously, or hide their businessrelationships and transactions behind otherpeople, corporate structures, or complexlegal arrangements (Recommendations 10,12, 15, 17 and 22).

All customer identi ication, transactionand account records, and businesscorrespondence must be kept, so that theycan be made available to the authorities on atimely basis. Such record keeping measures

when they are being abused by criminals andcorrupt persons (Recommendations 18 and 23) .

Designated private sector institutions mustbe subject to adequate supervision andmonitoring by supervisory authorities (orself-regulatory bodies, in the case of lawyers,accountants, real estate agents, dealers in

precious metals and stones, and trust andcompany service providers) with suf icientsupervisory, inspection and sanctioningpowers to ensure compliance with AML/CFTmeasures. Robust supervision and monitoringof the inancial sector deters and facilitatesthe detection of corruption and other criminalactivity (Recommendations 1, 8, 17, 18, 26, 27and 28).

Protec ng designated private sector ins -

tu ons from abuse (con nued)


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ensure that there is a reliable paper trail theauthorities can use to trace the proceeds ofcorruption, and use as evidence to prosecutecorruption and other crimes (Recommendations11 and 22).

Financial institutions must put in placeappropriate risk management systems to

determine whether a customer or the bene icialowner is a foreign politically exposed person (PEP) or a family member or close associate ofa foreign PEP. Financial institutions must obtainsenior management approval for establishingor continuing such business relationships, takereasonable measures to determine the PEPssource of wealth and source of fund and conductenhanced on-going monitoring of the businessrelationship.

In the case of domestic PEPs and membersof senior management of internationalorganisations, inancial institutions shouldtake reasonable measures to determinewhether a customer or bene icial owner isa domestic PEP or a person who has beenentrusted with a prominent function by aninternational organisation. For higher riskbusiness relationships with such PEPs, inancialinstitutions should obtain senior managementapproval for establishing or continuing such

business relationships, take reasonablemeasures to determine the PEPs source ofwealth and source of funds, and conductenhanced on-going monitoring of the businessrelationship.

Measures for PEPs increase the possibilityof detecting instances where public of icialsand other persons who are (or have been)entrusted with prominent public functions such as Heads of State, senior politicians, senior

government judicial or military of icials, seniorexecutives of state-owned corporations andimportant political party of icials, or members

Increasing transparency in the nancial sector (con nued)

of senior management of internationalorganisations - are abusing their positions forprivate gain (Recommendation 12) .

The authorities must have timely access toadequate and accurate information whichidenti ies the individual(s) who own or controllegal persons (such as companies) and legal

arrangements (such as trusts). This increasesthe transparency of ownership , and makes itmore dif icult to hide the proceeds of corruptionwithin a company or trust (Recommendation 24and 25).

Wire transfers can be used to quickly movethe proceeds of corruption and obscure theirsource. To mitigate this risk, wire transfersmust be accompanied by accurate and allrequired information that identi ies the person

who sent the transaction and to whom thetransaction is being sent. In addition, inancialinstitutions should monitor wire transfers andtake appropriate measures in cases wherewire transfers are not accompanied by therequired information. Likewise, cash or bearernegotiable instruments that are being movedacross national borders either on ones person,through the mail, or in containerised cargowould also leave no paper trail and must bedeclared or disclosed to authorities, to mitigate

the risk of the proceeds of corruption to moveundetected. Transparent movement of assets makes it possible to trace the movement ofcorruption proceeds (Recommendations 16 and32).

Financial secrecy laws must not inhibit theimplementation of the AML/CFT measures,including those aimed at increasing thetransparency of the inancial system therebyfacilitating the prevention, detection and

prosecution of corruption (Recommendation 9).


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tablishing funds into which con iscated assetsmay be deposited for law enforcement, health,education or other appropriate purposes. Theserequirements facilitate the protection andcompensation of the victims of corruption andbribery, and the recovery of stolen assets, evenif such assets have been concealed abroad (Rec-ommendations 4 and 38).

To ight cross-border corruption, countries needto implement effective laws and mechanismswhich enable them to provide a wide range ofmutual legal assistance, execute extradition re -quests and otherwise facilitate internationalco-operation. It is also important for countriesto have mechanisms that facilitate domestic co-operation and co-ordination for all authorities(policy makers, the FIU, law enforcement, su -pervisors and other competent authorities) at

the policy and operational levels (Recommenda-tions 2, 36 40).

Detec on, inves ga on, prosecu on andrecovery of stolen assets (con nued) FATF Recommenda ons

A AML/CFT POLICIES AND COORDINATION1 Assessing risks & applying a risk-based

approach2 National cooperation and coordination

B MONEY LAUNDERING AND CONFISCATION3 Money laundering offence4 Con iscation and provisional measures

C TERRORIST FINANCING AND FINANCING OF PROLIFERATION5 SRII Terrorist inancing offence6 SRIII Targeted inancial sanctions related to

terrorism & terrorist inancing7 Targeted inancial sanctions related to proliferation8 Non-pro it organisations

D PREVENTIVE MEASURES9 Financial institution secrecy laws10 Customer due diligence11 Record keeping12 Politically exposed persons13 Correspondent banking14 Money or value transfer services15 New technologies16 Wire transfers17 Reliance on third parties18 Internal controls and foreign branches and

subsidiaries19 Higher-risk countries20 Reporting of suspicious transactions21 Tipping-off and con identiality22 DNFBPs: Customer due diligence23 DNFBPs: Other measures

E TRANSPARENCY AND BENEFICIAL OWNERSHIP OFLEGAL PERSONS AND ARRANGEMENTS24 Transparency and bene icial ownership of

legal persons25 Transparency and bene icial ownership of

legal arrangementsF POWERS AND RESPONSIBILITIES OF COMPETENT

AUTHORITIES AND OTHER INSTITUTIONAL MEASURES26 Regulation and supervision of inancial institutions27 Powers of supervisors28 Regulation and supervision of DNFBPs29 Financial intelligence units30 Responsibilities of law enforcement and

investigative authorities31 Powers of law enforcement and investigative

authorities32 Cash couriers33 Statistics34 Guidance and feedback 35 Sanctions

G INTERNATIONAL COOPERATION36 International instruments37 Mutual legal assistance

38 Mutual legal assistance: freezing and con iscation39 Extradition40 Other forms of international cooperation


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Further reading on:

www.fa -ga .org/topics/corrup onwww.fa -ga .org/topics/fa recommenda ons

Since its creation the FATF has spearheadedthe effort to adopt and implement measuresdesigned to counter the use of the inancialsystem by criminals. It established40Recommendations that set out the basic frameworkfor AML/CFT efforts and are of universal application.

Members of the FATF and of FATF-style regionalbodies (FSRBs) are strongly committed to thediscipline of multilateral peer review. The mutualevaluation programme is the primary instrumentby which the FATF and FSRBs monitor progressmade by member governments in implementingthe FATF Recommendations. Through this process,the FATF monitors the implementation of the FATFRecommendations, assesses the effectiveness of theAML/CFT systems in FATF member jurisdictions, and

publishes these assessments.

The FATF also has procedures for identifying andreviewing non-cooperative and high-risk jurisdictions.Jurisdictions found to be high-risk or non-cooperativeare publicly identi ied and can face multilateralcounter measures.

The Financial Action Task Force (FATF) isthe inter-governmental policy-making bodywith the mandate to develop and promote theeffective implementation of the InternationalStandards on Combating Money Laundering andthe Financing of Terrorism & Proliferation(the FATF Recommendations).

The FATF Recommendations are theinternationally recognised and globallyendorsed standards in this area.

2012 FATF/OECD

Documents

Use of the FATF Recommendations to support the fight against corruption