BREAKING: Shock as EU member Bulgaria ‘greylisted’ by FATF; Panama, Caymans, Albania cleared; Brazil panned; way now appears certain for UAE green light

By AML Intelligence Correspondents

EU MEMBER Bulgaria was unexpectedly added to FATF’s watchlist today (Friday).

It came as the global fincrime watchdog took Panama, the Cayman Islands, Albania Jordan and Panama were taken off the “grey list.”

FATF “congratulated Albania, the Cayman Islands, Jordan and Panama for their significant progress in addressing the strategic AML/CFT deficiencies previously identified during their mutual evaluations,” it said in a statement this evening – long after the countries trumpeted the news.

Panama and the Cayman Islands have been notorious for their lack of transparency up to now. The moves also appeared to pave the way for the United Arab Emirates to come off the ‘grey list’ in the next round.

UAE has been running a high profile PR campaign to have the Emirates taken off the grey list, despite continued claims it is now the centre of Russian dirty money.

The Middle Eastern financial hub has spending huge amounts on consultants to smooth its way off the grey list,

Last week the former ceo of Julius Baer bank said the UAE and the Middle East had replaced Switzerland as the dirty money centre of the globe.

Simultaneously, FATF president Raja Kumar confirmed his organisation would conduct an on-site visit to the UAE before February 2024.

Ahmed Ali Al Sayegh, UAE Minister of State welcomed the FATF’s president’s announcement. “The UAE looks forward to welcoming the FATF assessment team to the UAE, and further demonstrating the enhanced and sustained effectiveness of our AML/ CFT framework. Cooperation with strategic international partners is critical to contributing to the global effort to detect and disrupt all forms of financial crime.” he said.

Khaled Mohammed Balama, Governor of the Central Bank of the UAE (CBUAE) and Chairman of the UAE National Anti Money Laundering and Combatting Financing of Terrorism and Financing of Illegal Organisations Committee said: “The UAE takes its role in protecting the integrity of the global financial system extremely seriously. The increased resources and expertise we have put in place underpin the UAE’s continued commitment to combatting economic crime and disrupting illicit networks, both at home and abroad.”

Hamid AlZaabi, Director General of Executive Office of Anti-Money Laundering and Counter Terrorism Financing, added: “The FATF announcement today recognizes the efforts made by various UAE authorities to satisfy the Action Plan. We will continue to work with our partners and stakeholders to fulfil our long-term sustainable AML/CFT plan.”

Meanwhile, the Paris-based organisation welcomed Indonesia as its 40th Member.

Brazil

FATF adopted the joint FATF/GAFILAT mutual evaluation report of Brazil which assessed the effectiveness of Brazil’s measures to combat money laundering, terrorist financing and proliferation financing, and their compliance with the FATF Recommendations.

Brazil has improved its AML/CFT/CPF regime since its last assessment in 2010 and is achieving some positive results.

Brazil demonstrated strong international cooperation, risk assessment and policy coordination. However, the country needs to strengthen cooperation and coordination between certain authorities and improve prosecution of money laundering.

Brazil demonstrated strong supervision of most of the financial sector, but the country should address the gaps in supervision of its non-financial sector which is currently leaving sectors such as lawyers and company service providers completely unregulated for AML/CFT/CPF.

Brazil should focus more on the recovery of assets linked to crime and terrorism. With the exception of corruption-related assets, its confiscation results are not entirely in line wit the risks the country faces from crimes such as drug trafficking and environmental crime, and criminal organisations.

Brazil’s measures to combat the financing of terrorism have improved in recent years but require major improvements to be effective.

Asset Recovery

Separately, FATF said today said it had made asset recovery is a key pillar of every country’s approach to tackling money laundering and terrorist financing.

“Globally, countries are only recovering a dismal fraction of the assets generated by criminal activity. This leaves criminals free to enjoy their ill-gotten gains, fuels further criminal activity and distorts the legitimate economy,” the organisation said.

In what was flagged as “a major milestone,” delegates agreed “on a significant set of amendments to the FATF Recommendations that will provide countries with a much stronger toolbox of measures to deprive criminals of the proceeds of crime, a priority of the FATF under the Singapore Presidency.”

To improve asset recovery efforts, FATF released a report that sets out recommendations to strengthen the roles and use of asset recovery networks (ARINs) in pursuing transnational money laundering cases.

The watchdog adopted reports on Illicit Financial Flows from Cyber-Enabled Fraud and the Misuse of Citizenship and Residency by Investment Programmes.

Indonesia

The FATF also updated the statements identifying high-risk and other monitored jurisdictions and removed four countries from its increased monitoring following successful on-site visits.

“Indonesia has worked to deliver on an action plan to address the key technical and effectiveness issues identified during the evaluation. Based on the country’s strong political commitment to complete the remaining items on its action plan and the continuing progress to improve its national AML/CFT/CPF programme, the Plenary agreed to grant Indonesia membership in the FATF, effective at the end of this Plenary. Indonesia will benefit from full membership rights and will be expected to meet the obligations of FATF membership. With Indonesia’s accession to membership, there are now 40 members in FATF, including all G20 countries,” the body said.

Russia

The suspension of Russia continues to stand. “Following the statements issued since March 2022, the FATF reiterates that all jurisdictions should be vigilant to current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system,” the body said.

Asset Recovery

FATF said today it agreed new features, such as the power to suspend transactions related to money laundering, terrorist financing and serious crime. “This will allow relevant national authorities to secure criminal assets more swiftly, increasing the chances of successful confiscation and potential recovery for victims,” it said.

“The revised Standards are a major milestone that will help bring about the necessary cultural shift to ensure that asset recovery becomes a core component of an effective crime prevention and mitigation strategy,” the body claimed.

“It is now up to each country to effectively implement these revised requirements in their national frameworks, and use these tools to deprive criminals of their illicit assets and contribute to a safer society,” it added.

Abuse of NPOs for Terrorist Financing

FATF agreed on amendments to the FATF Recommendations that aim to protect NPOs from potential terrorist financing abuse through the effective implementation of risk-based measures. These amendments are the result of intense discussions and active consultations with public and private sector stakeholders, including through a public consultation that ended in August 2023.

“The non-profit sector carries out essential work, often in very challenging circumstances and regions, but a misapplication of the FATF Recommendations has had a chilling effect on legitimate and much-needed charitable and humanitarian activities. The FATF’s work to identify and analyse these unintended consequences highlighted that countries often poorly apply the FATF’s risk-based approach,” it said.

FATF clarified its requirements in close consultation with the non-profit sector. The revisions make it clear that Recommendation 8 does not apply to the entire not-for-profit sector, but only to the sub-set that falls within the FATF definition of an NPO. The revised Standard requires countries to identify the types of organisations that fall within the FATF definition, to assess their risks of abuse for terrorist financing and to have in place focused, proportionate and risk-based measures to mitigate these risks.

“It clarifies the approach for low-risk NPOs and the need for countries to ensure oversight or monitoring, but not go as far as supervising the sector in the same way they would for the financial or non-financial sectors. The revised Recommendation also aims to prevent the undue disruption or discouragement of legitimate charitable activities through the implementation of risk-based measures. It underlines that countries may also consider, where they exist, self-regulatory measures and related internal control measures in place within the NPOs,” it said.

FATF said it will now work to revise relevant parts of its Methodology for the next round of mutual evaluations. In the next round, each country in the Global Network will be assessed against these revised Standards and will need to demonstrate that they are taking a risk-based approach to preventing misuse of the non-profit sector, without disrupting or discouraging legitimate charitable activities.

The updated Recommendations will be published in November.
Updated Best Practices Paper on Combating the Abuse of Non-Profit Organisations

Crowdfunding for Terrorism Financing

Crowdfunding is an innovative fundraising solution to finance ideas, projects or business ventures.

While the vast majority of crowdfunding activity is legitimate, research by the FATF shows that the Islamic State of Iraq and the Levant (ISIL), Al-Qaeda and other ethnically or racially motivated terrorist individuals and groups have exploited it to fund their terrorist activities.

In order to address this emerging terrorist financing risk, the FATF finalised a report that analyses how terrorists have exploited fundraising platforms and crowdfunding activities on social media to seek funding for their terrorist cause from a global audience.

It identifies and explores the four main ways in which terrorists misuse crowdfunding platforms. Given the link between crowdfunding and other financial and non-financial sectors, countries should fully implement the FATF Standards relevant to virtual assets, NPOs and money or value transfer services, and avoid treating crowdfunding as a siloed sector.

The report, which draws on experiences from the FATF Global Network, industry experts, academia and civil society examines the challenges faced in detecting and preventing terrorist financing through the crowdfunding ecosphere, including the complexity of crowdfunding operations, the use of anonymising techniques, and lack of training and terrorist financing expertise within the crowdfunding industry to detect suspicious activity.

It also highlights good practices, starting with including crowdfunding in national terrorist financing risk assessments, outreach to the crowdfunding sector, and strong domestic and international information sharing mechanisms. A list of risk indicators aims to help public and private sector entities, and the general public, identify potential attempts at terrorist financing activity using crowdfunding.

Illicit Financial Flows from Cyber Fraud

Effective measures to combat money laundering and terrorist financing rely on an in-depth understanding of the evolving financial crime landscape. Cyber-enabled fraud is a major transnational organised crime that has grown exponentially in recent years, both in volume of frauds reported and their global spread.

The transnational nature of this crime, with proceeds of cyber-enabled fraud often rapidly transferred to different jurisdictions, makes this a global concern.

Golden Visas

Citizenship and residency by investment (CBI/RBI) programmes are government-administered programmes that grant citizenship or residency to foreign investors by expediting or bypassing normal migration processes.

These programmes can help spur economic growth through foreign direct investment, but they are also attractive to criminals and corrupt officials seeking to evade justice and launder the proceeds of crime amounting to billions of dollars.

In response to the FATF Ministers’ call in April 2022 for greater focus on corruption, the FATF completed a joint project with the Organisation for Economic Co-operation and Development (OECD) that explores the money laundering and financial crime risks associated with CBI/RBI programmes and their impact on public integrity, tax and migration.

Properly managed, CBI or RBI programmes can benefit both host countries and individuals, but in practice, such programmes bring significant risks of money laundering, fraud, and other forms of misuse. The report highlights how CBI programmes can allow criminals more global mobility and help them hide their identity and criminal activities behind shell companies in other jurisdictions.

It highlights the vulnerabilities of these complex and international investment migration programmes, including the frequent use of intermediaries, involvement of multiple government agencies, abuse by professional enablers and lack of proper governance of the CBI/RBI programmes.

The report proposes measures and cites examples of good practice that can help policy makers and those responsible for managing the investment migration programmes to address these risks.

These include an in-depth analysis and understanding of how criminals can exploit CBI or RBI programmes and how Governments can incorporate risk mitigation measures, such as multi-layered due diligence, in the design of their investment migration programmes. The report emphasises that the elevated risks of money laundering and financial crime in these investment migration programmes relates not only to the applicant, but also the professional enablers and intermediaries involved in the process. It is therefore essential to ensure clarity around the respective roles and responsibilities of the various parties involved in RBI/CBI programmes to be able to detect fraudulent activity.

Beneficial Ownership

The Plenary agreed on amendments to the Methodology for the next round of mutual evaluations that sets out how assessment teams will determine the effective implementation of the FATF’s updated beneficial ownership and transparency requirements.

In March 2022 and February 2023 respectively, the FATF strengthened its beneficial ownership Standards. The FATF’s mutual evaluation process plays a crucial role in ensuring that countries are taking effective action to close the loopholes and regulatory weaknesses that allow shell companies or other legal persons and arrangements to be used as a cover for criminal activity. In the next round of mutual evaluations, all countries will be assessed against the FATF’s strengthened beneficial ownership requirements.

FATF is developing updated risk-based guidance on Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements. The updated guidance reflects the February 2023 revisions to Recommendation 25 and complements the existing guidance on Recommendation 24 on legal persons.

The guidance aims to help stakeholders from the public and private sectors that are involved in trusts or similar legal arrangements to assess and mitigate money laundering and terrorist financing risks.

The Caymans

Cayman Finance CEO Steve McIntosh welcomed “the FATF’s recognition of the Cayman Islands’ anti-money laundering regime as compliant and effective.”

“Our proven regulatory and legal framework is one of the key reasons why asset managers, investors and other clients have full confidence in doing business in the Cayman Islands.”

“The FATF process recognises that the Cayman Islands not only has one of the highest levels of technical compliance with global anti-money laundering standards, but also that they are effectively applied in practice,” he said 

“Standard setters such as the FATF and the European Union have meticulously reviewed Cayman’s regulatory capacity and practices and confirmed they meet global standards for transparency, anti-money laundering, and tax good governance at least on par with, if not better, than most major economies.” 

“To maintain this status, a lot of work has gone into further strengthening Cayman’s financial services legislation and the implementation of new regulations.” 

“Cayman’s consistent adherence to global standards is a testament to the strong collaborative relationship between the Cayman Islands government and the financial services industry.”

“On behalf of the board and members of Cayman Finance, we congratulate the entire government delegation and all those in the many departments and agencies that contributed to bringing this FATF review to a successful conclusion.”

The next FATF Plenary will be held in February 2024.