THE INTERNATIONAL AML/CFT STANDARDS
The 2012 FATF recommendations require APG member jurisdictions to:
Criminalise money laundering, terrorist financing and proliferation financing in accordance with international conventions;
Confiscate the proceeds of crime;
Freeze terrorist assets;
Establish a financial intelligence unit to collect, analyse, evaluate and disseminate suspicious transaction reports from financial institutions and other reporting entities;
Supervise financial institutions and other reporting entities to ensure compliance with customer due diligence and other requirements;
Implement measures relating to politically exposed persons (both domestic and foreign);
Cooperate effectively with other countries given the transnational dimension to money laundering, terrorist financing and proliferation financing;
Identify, assess and understand (usually through a national risk assessment) their own money laundering and terrorist financing risks;
Implement measures relating to proliferation financing.
These standards have been endorsed by the United Nations, International Monetary Fund, World Bank, Asian Development Bank and many other international organisations and bodies.
DEFINING MONEY LAUNDERING
"Money laundering" is the act by which the proceeds of crime are made to appear legitimate. The UN Convention Against Transnational Organized Crime defines money laundering at Article 6 as:
The conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action; or the concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime.
The act of conversion and concealment amounts to the "laundering” of criminal proceeds but those funds only ever have the “appearance” of legitimacy, not the reality, even though the so-called money trail may be complicated and obscure the original criminal source of the funds. National strategies to combat money laundering must include not only effective criminal laws prohibiting money laundering and persuasive penalties for those convicted, but also efficient and effective confiscation or forfeiture mechanisms as well as effective laws to permit international cooperation around information sharing, extradition and mutual legal assistance.
DEFINING TERRORIST FINANCING
“Terrorist financing” is defined in the UN Convention for the Suppression of the Financing of Terrorism at Article 2 as follows:
Any person commits an offence within the meaning of this Convention if that person by any means, directly or indirectly, unlawfully and wilfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out: (a) An act which constitutes an offence within the scope of and as defined in one of the treaties listed in the annex; or (b) Any other act intended to cause death or serious bodily injury to a civilian, or to any other person not taking an active part in the hostilities in a situation of armed conflict, when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act.
FATF recommendation 6 expands the scope of the offence:
Terrorist financing offences should extend to any person who wilfully provides or collects funds by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used, in full or in part: (a) to carry out a terrorist act(s); or (b) by a terrorist organisation or by an individual terrorist (even in the absence of a link to a specific terrorist act or acts).
EFFECTIVE AML/CFT SYSTEMS
11 Immediate Outcomes
A key component of the FATF's 2013 assessment methodology relates to what are referred to as “11 Immediate Outcomes.” These outcomes are the benchmark against which a country is judged to have effectively implemented the FATF technical standards.
Effectiveness is the extent to which financial systems and economies mitigate the risks and threats of money laundering, and financing of terrorism and proliferation. This could be in relation to the intended result of a given (a) policy, law, or enforceable means; (b) programme of law enforcement, supervision, or intelligence activity; or (c) implementation of a specific set of measures to mitigate the money laundering and financing of terrorism risks, and combat the financing of proliferation.
The goal of an assessment of effectiveness is to provide an appreciation of the whole of the country’s AML/CFT system and how well it works. Assessing effectiveness is based on a fundamentally different approach to assessing technical compliance with the FATF standards. It does not involve checking whether specific requirements are met, or that all elements of a given FATF recommendation are in place. Instead, it requires a judgement as to whether, or to what extent defined outcomes are being achieved, i.e. whether the key objectives of an AML/CFT system, in line with the FATF standards, are being effectively met in practice.