How the CCO Should Respond to a Weak FATF Mutual Evaluation Report (MER)

D

The Chief Compliance Officer (CCO) of a financial institution is asked by a manufacturing customer whether their business will face any repercussions following a weak assessment of the recent publicly issued Financial Action Task Force (FATF) Mutual Evaluation Report (MER). In order to respond to this inquiry appropriately, the CCO should consider several factors.

First, it is important to understand the significance of the FATF's Mutual Evaluation Report. The FATF is an intergovernmental organization that develops and promotes policies to combat money laundering and terrorist financing. The Mutual Evaluation Report is a key tool used by the FATF to assess countries' compliance with these policies. The report evaluates a country's legal and institutional framework, as well as its implementation of measures to prevent money laundering and terrorist financing.

Next, the CCO should carefully review the findings of the specific Mutual Evaluation Report in question, paying particular attention to any weaknesses identified in the report. If there are weaknesses identified that relate to the manufacturing customer's business, the CCO should determine whether these weaknesses pose a significant risk to the financial institution's compliance program.

Option A, which suggests citing inaccurate content of the MER, is not an appropriate response, as it is not based on the facts of the report. Additionally, the president of a country cannot unilaterally call for the withdrawal of a FATF report, and the CCO should not make claims that cannot be substantiated.

Option B, which suggests that negative consequences will not occur because the manufacturing customer has been trading with reputable countries and suppliers for many years without incident, is not an appropriate response. This response does not take into account the findings of the MER or the potential risks to the financial institution's compliance program.

Option C, which suggests mandating termination of all cross-border trading until evidence can be provided to show an improved position of compliance for the weaknesses stated in the MER, may be appropriate depending on the nature of the weaknesses identified in the report. If the weaknesses are significant and pose a high risk to the financial institution's compliance program, suspending cross-border trading may be necessary. However, this option may not be necessary if the weaknesses do not pose a significant risk.

Option D, which suggests that delayed processing of cross-border transfer of funds between countries may occur due to increased scrutiny to determine the legitimacy of each transfer, is a reasonable response. The financial institution may need to conduct additional due diligence and risk assessments on cross-border transfers in light of the weaknesses identified in the MER. This may result in delays in processing transfers, but it is a reasonable response to address potential risks.

In summary, the appropriate response to the manufacturing customer's inquiry will depend on the specific findings of the FATF Mutual Evaluation Report and the potential risks posed to the financial institution's compliance program. The CCO should carefully review the report and consider the potential impacts on the financial institution before providing a response. Option D, which suggests increased scrutiny and delayed processing of cross-border transfers, is a reasonable response in many cases.