In Short:

The Ministers of the Financial Action Task Force (FATF), the inter-governmental body responsible for developing standards against illegal financial activity, have renewed the mandate for the organization through 2020.  The focus of the FATF is to develop standards and make recommendations to its member countries on ways to combat money laundering and the financing of terrorist activity and proliferation of weapons.  The FATF released its most recent set of recommendations in February and in 2013 will be issuing an updated report card on how each country has fared in implementing past recommendations.  Worldwide ERC© is monitoring the implementation of the recent recommendations as well as the development of future recommendations to ensure that the FATF policies do not place any unnecessary additional burden on employee mobility.

The Full Story:

The Financial Action Task Force (FATF) was established at the G7 Summit in 1989 as an inter-governmental body to address legal, regulatory and operational measures to combat money laundering.  In 2001, the mandate of the FATF was expanded to include thwarting the financing of terrorist activity. The FATF is comprised of 34 countries and 2 regional organizations including the United States, European Union, Brazil, Canada, China, India, Russia and South Africa.  The 36 members of the FATF must agree to renew the overall mandate for the organization every several years which they did in April in Washington, DC.

In addition to the 36 members of the FATF, the organization relies on a network of eight FATF-Style Regional Bodies (FSRBs) which encompass another approximately 160 countries.  Each of the members of the FATF and the FSRBs has committed to adhere to the standards established by the FATF, although the FATF acknowledges that not every country will have the capacity and ability to implement all of the recommendations.  For a complete list of countries involved with the FATF, please go to:http://www.fatf-gafi.org/countries/.

The recommendations of the FATF are recognized as the global standard to combat illegal or terrorist activity involving the world financial system.  The FATF first issued recommendations in 1990 with revised recommendations made in 1996, 2001, 2003 and then in February of this year.  There are 40 recommendations on combating money laundering that are reviewed and revised periodically as well as nine special recommendations on thwarting the financing of terrorist activity.  After the FATF issues recommendations, it then monitors the progress of the implementation by each country and issues a report card which includes an update on a handful of countries each year.  The FATF does not have enforcement authority of illegal activity within the financial system which is the role of Interpol or the law enforcement or financial oversight agency of that country.

The FATF recommendations are for the most part broad and just intended as a roadmap so that countries can put into place measures to:

• identify the risks, and develop policies and domestic coordination;
• pursue money laundering, terrorist financing and the financing of proliferation;
• apply preventive measures for the financial sector and other designated sectors;
• establish powers and responsibilities for the competent authorities (e.g., investigative, law enforcement and supervisory authorities) and other institutional measures;
• enhance the transparency and availability of beneficial ownership information of legal persons and arrangements; and
• facilitate international cooperation.

There are instances where the recommendations are very explicit but it is up to each country to determine the details of the measures and what specific action it will take to implement the recommendations.  For a list of the February 2012 recommendations, please go to: http://www.fatf-gafi.org/topics/fatfrecommendations/documents/fatfrecommendations2012.html.

While the recommendations of the FATF have the most impact on financial institutions, there are implications for real estate agents as well as non-financial institution businesses that have an international presence or dealings.  For instance, when dealing with a foreign financial institution as part of the process to transfer an employee, the institution may require additional information about your organization or employee in order to satisfy reporting requirements for that country.  The FATF recommends that transactions involving $15,000 or more warrant special due diligence on the part of the financial institution.

For many of the reporting and recordkeeping requirements under the recommendations, the FATF applies the same standards to real estate agents involved in domestic or international real estate transactions.  These requirements are not new and are typical practice in the United States.  For instance, the FATF recommends that real estate agents maintain all transaction records dealing with the sale or purchase of a property for five years so that they can comply quickly with requests from law enforcement authorities.  The FATF issues guidance periodically on specific pieces of its recommendations which it did in 2008 for real estate agents.  To access a copy of the “FATF Guidance on the Risk-Based Approach for Real Estate Agents”, please go to: http://www.fatf-gafi.org/topics/fatfrecommendations/documents/fatfguidanceontherbaforrealestateagents.html.

Companies relocating employees to countries on the FATF “High Risk and Non-Cooperative Jurisdictions” List may encounter additional reporting requirements or face pushback from U.S. banks in dealing with financial institutions based in countries on the list.  The list includes Bolivia, Cuba, Ethiopia, Ghana, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, Sao Tome and Principe, Sri Lanka, Syria, Tanzania, Thailand and Turkey with the TAFT identifying North Korea and Iran as being substantial risks for money laundering and terrorist financing.  The TAFT recommends that companies and financial institutions exercise special care when dealing with parties in those countries.  This could complicate matters for oversees employees who have an account or credit card with a financial institution in one of these countries.

We will continue to monitor the implementation and development of recommendations by the TAFT as well as the impact of TAFT policy and reports on employee mobility.

Posted by Tristan North