Financial Action Task Force needs to focus on banks in its new money laundering crackdown

April 25th, 2012

flickr / Images_Of_Money

Last weekend the international body that sets global anti-money laundering rules, the Financial Action Task Force (FATF), announced its new 8 year mandate. This document sets the international framework for the fight to tackle financial crime.

In it, FATF made explicit reference to its work combating the laundering of the proceeds of corruption.

This, believe it or not, represents a big step forward from its last mandate renewal when the “c-word” was deemed too politically sensitive to include. Pressure from the G20 is partly behind this development and it’s a sign of how fast the corruption question has risen up the international political and economic agenda.

However, FATF still has not had the courage to specifically include tackling the laundering of corrupt money as an objective in and of itself, citing it merely as an example of the kind of work they do. So the G20 and civil society still have work to ensure that FATF pays as much attention to corruption as it does to curbing the financing of nuclear proliferation, which is stated as a full objective.

The new mandate also emphasises a crucial point: the need to ensure “full and effective implementation of the FATF recommendations by all countries”.

FATF has been very good at getting countries around the world to pass anti-money laundering laws, thanks to peer pressure and the threat of blacklisting if countries fail to meet its standards. As a result, lots of countries now have anti-money laundering laws on their books.

But in requiring banks to identify their customers and how they got their money, FATF has largely failed to ensure that these rules are actually implemented effectively in practice.

The most recent illustration of this was the Arab spring. This showed how easy it is for corrupt dictators and their cronies to bring their illicit assets into the western financial system. Hopefully this commitment to ensure effectiveness will be followed through in how FATF assesses national anti-money laundering systems. Countries should be named and shamed if they try to use the presence of a ‘perfect’ anti-money laundering system as a smokescreen for inaction.

Finally, FATF has, for the first time, formally acknowledged the importance of consulting with civil society groups, such as Global Witness and subsequently the Task Force on Financial Integrity and Economic Development. Over the last three years there has been huge progress in this area: FATF no longer only consults the bankers and lawyers. Civil society groups with expertise in the fight against corruption are now regularly invited to consultation meetings, recognising that financial crime is not just a concern for governments and the financial industry.

This is all good progress from where we were in 2008 when FATF last examined its mandate. However, there is still a huge amount of work needed to ensure that countries are effectively tackling financial crime and that banks actually identify and turn down corrupt funds. NGOs, and other groups, need to keep up the pressure on the international community to tackle this problem.

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Written by Robert Palmer

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