Financial Action Task Force (FATF) Guidelines

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The Financial Action Task Force (FATF) is an international intergovernmental organization that sets standards and promotes effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system.

When a jurisdiction is identified as having lax anti-money laundering (AML) or counter-financing of terrorism (CFT) controls, the FATF urges its members and all other jurisdictions to take certain actions. The specific actions recommended by the FATF are as follows:

A. Apply counter-measures to that jurisdiction: This option refers to the application of enhanced due diligence measures and increased scrutiny on financial transactions involving the identified jurisdiction. It may involve additional reporting requirements, stricter customer identification procedures, and intensified monitoring of transactions to ensure that they are not linked to money laundering or terrorist financing activities.

B. Consider customers from that jurisdiction as high risk: This option emphasizes that financial institutions and other businesses should treat customers from the identified jurisdiction as high-risk entities. It means implementing stricter customer due diligence measures, conducting enhanced monitoring of their transactions, and applying more rigorous risk assessment procedures to mitigate the potential risks associated with these customers.

C. Cease doing business with that jurisdiction immediately: This option suggests a complete cessation of business activities with the identified jurisdiction. It implies that financial institutions and other entities should discontinue any existing relationships or transactions with customers or counterparties from that jurisdiction. This extreme measure is intended to prevent the potential exposure to money laundering or terrorist financing risks associated with the jurisdiction.

D. Apply economic sanctions until otherwise notified by FATF: This option involves the imposition of economic sanctions by member jurisdictions against the identified jurisdiction. Economic sanctions can include restrictions on financial transactions, trade, investments, and other economic activities with the targeted jurisdiction. These sanctions aim to exert pressure on the jurisdiction to strengthen its AML/CFT controls and comply with international standards set by the FATF.

It is important to note that the appropriate action to be taken may vary depending on the specific circumstances and risks associated with the identified jurisdiction. The FATF's recommendations are not binding but serve as guidance to its member jurisdictions and other countries in their efforts to combat money laundering and terrorist financing. Ultimately, each jurisdiction must decide on the appropriate course of action based on its own assessment of the risks involved.