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FATF Releases Business Bulletin Updates

The Financial Action Task Force (FATF) released its Business Bulletin for July 2020 highlighting priorities for FATF under the German Presidency for the years 2020-2022 and FATF objectives under the Chinese Presidency. The bulleting also highlighted their Covid-19 webinar on the money laundering risk landscape.

FATF’s priorities for the first two-year Plenary period during German Presidency include:

  • Digital Transformation of anti-money laundering and counter terrorist financing (AML/CFT)
  • Financing of ethnically or racially motivated terrorism
  • Money laundering and migrant smuggling
  • Environmental crime
  • Illicit arms trafficking

FATF outlined the following program objectives planned under the Chinese Presidency regarding money laundering and terrorist financing (ML/TF) risks, including:

  • Virtual Assets and Virtual Asset Service Providers (VASPs), Guidance for a Risk-Based Approach,
    12-Month Review of Revised FATF Standards and FATF Report to the G20 on So-called Stablecoins
  • A landmark paper on the use of Digital I D
  • Best Practices Paper on Beneficial Ownership
  • Strategic Review, agreeing on the future direction and framework for FATF mutual evaluations and follow-up processes
  • Supervisors' Forums to improve the effectiveness of supervision
  • A new e-learning platform for the Global Network membership
  • Report on Money Laundering and the Illegal Wildlife Trade
  • Responses to COVI D-19
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FATF

FATF Issues Guidance on COVID-19 AML/CFT Risks

The Financial Action Task Force (FATF) issued a paper identifying challenges, best practices, and policy responses to the unprecedented global challenges emerging as a result of the COVID-19 pandemic.  Increased COVID-19 related crimes, including fraud, cybercrime, misdirection or exploitation of government funds or international financial assistance are all creating new avenues of illicit crimes. 

Emerging risks and vulnerabilities are identified in the paper that could result in criminals finding ways to:  

  • Bypass customer due diligence measures;
  • Increase misuse of online financial services and virtual assets to move and conceal illicit funds;
  • Exploit economic stimulus measures and insolvency schemes as a means for natural and legal persons to conceal and launder illicit proceeds;
  • Increase use of the unregulated financial sector, creating additional opportunities for criminals to launder illicit funds;
  • Misuse and misappropriation of domestic and international financial aid and emergency funding;
  • Exploit COVID-19 and the associated economic downturn to move into new cash-intensive and high-liquidity lines of business in developing countries.
FATF also conducted its first webinar on this topic that can be viewed here. A copy of the paper can be viewed here.
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FATF

WOCCU Urges Proportionality for Credit Unions in FATF Digital Identity Guidance

In a comment letter to the Financial Action Task Force (FATF) regarding their Draft Guidance on Digital Identity, WOCCU urged (FATF) to implement further guidance to national-level regulators to focus on an effective system that avoids imposing overly burdensome requirements and provide some flexibility for the unique structure of credit unions and cooperative financial institutions. WOCCU responded to four questions posed by FATF regarding the role of digital identity in relation to money laundering and terrorist financing, financial inclusion, due diligence and transaction monitoring, and record keeping requirements. WOCCU concurs with FATFs risk-based approach to digital identify for customer due diligence as well as their endeavors to support financial inclusion, however, WOCCU emphasized the need to implement " guidance directing supervisors to consider some high level principles such as whether an institution has cross-border operations, the asset size, the institutions interconnectedness with the financial system, the degree to which they report to multiple prudential supervisors, the mix of business activities, the average level of transactions that occur in any account and that further corresponds to the size, and the complexity and risk of a financial institution."

WOCCU's comment letter to FATF regarding their draft guidance on digital identity can be found here.  



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FATF, Comment Letter

Financial Action Task Force Issues Guidance on Best Practices on Beneficial Ownership for Legal Persons

The Financial Action Task Force (FATF) has released its guidance on Best Practices on Beneficial Ownership for Legal Persons. It their executive summary, FATF states that: "The results of FATF Mutual Evaluations indicate that jurisdictions find it challenging to achieve a satisfactory level of transparency regarding the beneficial ownership of legal persons." The guidance seeks to provide solutions to the implementation of FATF Recommendations on AML/CFT.  According to the Guidance, "countries should use one or more of mechanisms (the Registry Approach, the Company Approach and the Existing Information Approach) to ensure that information on the beneficial ownership of a company is obtained by that company and available at a specified location in their country; or can be otherwise determined in a timely manner by a competent authority."   

The guidance also seeks to address the favorable use of a multi-pronged approach to Beneficial Ownership; the keys to an effective system; latest developments and case examples; and suggestions for "ensuring authorities can access getting information on beneficial ownership of overseas entities".

The guidance can be found here.

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FATF

The Financial Action Task Force Seeks Consultation on Digital Identity

The Financial Action Task Force (FATF) is seeking public consultation on their draft guidance regarding digital identity and its benefit to customer due diligence (CDD). FATF hopes that their guidance will "...help governments, financial institutions and other relevant entities apply a risk-based approach to the use of digital ID for CDD." In the guidance, FATF explains that the growth of digital financial transactions is an impetus for clarification of what digital identity technologies are currently utilized to identify and verify individuals in digital financial services. Effective authentication of consumer identity is critical for anti-money laundering and counter financing of terrorism (AML/CFT) efforts. 

The areas of focus for the consultation are: 

  • Specific money laundering / terrorist financing risks that arise from the use of digital identity systems for CDD, other than those already mentioned in Section IV of the guidance;
  • The role of digital ID systems in ongoing due diligence or transaction monitoring; 
  • How digital ID systems can support financial inclusion;
  • The use of digital ID systems for CDD and whether it raises distinct issues for implementing FATF record-keeping requirements.
FATF's request for public consultation on digital identity can be found here.
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FATF

FATF Issues Business Bulletin Noting Several AML/CFT Developments

The November edition of the FATF Business Bulletin provides a brief update on outcomes from the October 2018 FATF plenary meeting.

Of note are the following:

  • Amendments to the FATF Recommendations and Glossary to respond to the increasing use of virtual assets for Money Laundering and Terrorist Financing;
  • The start of a project that will consider the feasibility of expanding the FATF Recommendations applicable to proliferation financing;
  • Future work on Digital Identity to develop guidance for acceptability of digital ID focusing on the reliability and independence features of digital IDs;
  • Developing reports addressing how large internanational financial institutions identify suspicious activity and the other describing the practical considerations in setting up public-private partnerships.

The complete summary of outcomes from the Plenary is available here and the November Business Bulletin can be viewed here.

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FATF

WOCCU Applauds Efforts to Reduce De-Risking

The Basel Committee on Banking Supervision (Basel Committee), the Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force (FATF) and the Financial Stability Board (FSB) announced their endorsement of the Wolfsberg Group’s publication of the Correspondent Banking Due Diligence Questionnaire to help address the decline in the number of correspondent banking relationships. The questionnaire aims to standardize the collection of information that correspondent banks ask from other banks when opening and maintaining these relationships which should alleviate the need for correspondent banks to “de-risk” otherwise viable financial institutions from their customer base.  This “de-risking” has been a source of concern for credit unions and can impact their ability to send and receive international payments or connect to various payment flows. 

WOCCU is pleased to see this development as it has long advocated for measures to reduce de-risking including supporting using the Wolfsberg Group Questionnaire (See letter to the Basel Committee from February 2017).  Additionally, WOCCU engaged with FATF (See July 2017 letter, April 2017 letter, and August 2016 letter) for measures to address the issue.  This endorsement is welcome news and should assist credit unions with their correspondent banking relationships.

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FATF, Basel, CPMI

Financial Inclusion and Information Sharing among Topics at FATF Meeting

The Financial Action Task Force (FATF) and the Financial Action Task Force of Latin America (GAFILAT) are concluding the first Plenary meeting under the Argentinean FATF Presidency (Nov. 1-3) in Buenos Aires, Argentina. The FATF is the international standard setting body for anti-money laundering/countering the financing of terrorism (AML/CFT) rules.  The purpose of the FATF Plenary meeting is to discuss proposed and final standards for international AML/CFT rules.

Those topics pertinent to credit unions being discussed are as follows:

  • Counter terrorist financing: Discussions on a project that identifies how terrorist organizations fund the recruitment of new members, including reviewing progress in the implementation of the FATF operational plan to tackle all sources, techniques and channels of terrorist financing, including updating the knowledge base on ISIL/Da’ech’ financing strategy;
  • Financial inclusion: Reviewing the results of a project aimed at encouraging countries to implement the FATF Recommendations that will allow financially excluded access to the regulated financial sector, while at the same time maintaining effective safeguards against money laundering and terrorist financing. A proposed supplement to the FATF 2013 guidance on financial inclusion will identify customer due diligence models that are compatible with the goal of making financial services accessible and available to all; and
  • Information sharing: Discussions on the draft guidance for private sector information sharing, which will cover information-sharing at group wide level and between financial institutions not belonging to the same group. Better private sector information sharing will improve transparency and access to beneficial ownership and contribute to detecting financial flows in support of terrorism.
WOCCU engaged the FATF regarding information sharing and financial inclusion AML/CFT issues at a FATF Private Sector Participation Group meeting in March of this year at the UN Office on Drugs and Crime in Vienna, Austria, and also filed written comments with the FATF on these issues in April and July.  We urged the FATF to reduce regulatory burdens on credit unions by clarifying how and when different financial institutions can share information about electronic payments transactions, such as to resolve AML/CFT red flags.  We expect the FATF to issue new guidance on AML/CFT information sharing in the near future.

WOCCU’s recent comments to the FATF include:: 

  • July, 2017, Comments on the FATF Draft Information Sharing Guidance Paper.  View the comment letter here.
  • April, 2017 on Information Sharing, Correspondent Banking and Financial Inclusion-related Customer Due Diligence:  View the comment letter here.
  • March, 2017 at the FATF meeting in Vienna hosted by the UN Office on Drugs and Crime. See the press release here.
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FATF

World Council Urges AML/CFT Reg Burden Relief

World Council of Credit Unions on July 31st urged the  Financial Action Task Force to reduce anti-money laundering/countering the financing of terrorism (AML/CFT) compliance burdens in our comment letter on the FATF’s Draft Guidance for Private Sector Information Sharing.  The Task Force, which is based at the headquarters of the Organization for Economic Co-operation and Development in Paris, France, is the international standard setting body for AML/CFT rules.

We argued that the Task Force should focus on reducing paperwork burdens on cooperative financial institutions as well as establish safe harbors, eliminate legal barriers to information sharing between unaffiliated financial institutions, and increase opportunities for compliance efficiencies.  “Information sharing can play a vital role in allowing financial institutions, supervisors and law enforcement to combat money laundering, but regulators need to focus on finding efficiencies and reducing costs on credit unions” said Andrew Price, regulatory counsel for World Council.

Our comments also urged the Task Force to incorporate its “Request for Information” framework established by its recent guidance on Correspondent Banking Services into its information sharing rules.  Referencing the “Request for Information” framework will help credit unions more easily establish and maintain correspondent bank accounts by reducing the perceived compliance, examination and enforcement risks associated with correspondent banking activities. 

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FATF, Comment Letter