Gauging the effectiveness of the Financial Action Task Force’s policy and assessment mechanisms for laws to prevent terrorist financing and money laundering was the central question of a speech delivered by the organization’s president on March 15, 2013. Speaking before a European conference on money laundering and terrorist financing, FATF President Bjørn S. Aamo asked, “Does the system work?” As part of the FATF’s answer, it produced risk assessment guidance (February 2013) and also updated its methodology (February 2013) for evaluating the level of individual country’s compliance with its 2012 recommendations (and interpretive notes) on anti-money laundering (AML) and counter-terrorist financing (CTF) controls.
The National Money Laundering and Terrorist Financing Risk Assessment
According to the FATF president, the focus of the updated assessment criteria is on “the areas of higher risk,” such as places where illicit arms trafficking and corruption and bribery are present. However, it also draws unsupported links between the nonprofit sector and increased levels of risk.
The risk assessment guidance lists the “presence of NPOs active in overseas conflict zones” in its Annex II (page 39-42) as something that should be flagged by evaluators as a risk. It also considers nonprofits that “disburse large sums for unspecified projects” (page 43) as another trigger to be flagged, but does not define how much money is considered “large.” This could open the door for restrictive governments to disproportionally target the legitimate activities of charities that send money overseas for aid and development operations.
The procedures and practices described in the risk assessment guidance are not intended to “designate specific actions necessary to meet obligations” under FATF recommendations. However, it does say that they are to “serve as examples that may facilitate implementation of these obligations in a manner compatible with the FATF standards.”
After the FATF’s 2004 Methodology’s approach to measure the effectiveness of its policy was criticized in a June 2012 report by Global Witness the updated methodology document was issued in February. According to the FATF, the 2013 methodology has two major components:
The technical compliance assessment: This part evaluates “the specific requirements of each of the FATF Recommendations, principally as they relate to the relevant legal and institutional framework of the country, and the powers and procedures of competent authorities.” The level of compliance with each Recommendation will be indicated with one of the following ratings: “compliant, largely compliant, partially compliant or non-compliant.”
The effectiveness assessment: This part evaluates “the extent to which a country achieves a defined set of outcomes that are central to a robust AML/CFT system.” Each country will be graded and will be given one of the following ratings: “high-level of effectiveness, substantial level of effectiveness, moderate level of effectiveness and low level of effectiveness.”
While complaints about the inadequate ratings system were addressed, it is too early to know whether these updated procedures adequately respond to the other major issues concerning their effectiveness.