First Post in a Two-Post Series on Recent FATF Activity
Members presumably working from home, the Financial Action Task Force (“FATF”) was active last week, first issuing its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures and, later, a statement from its President on COVID-19 and measures to combat illicit financing (the “Statement”).
In this post, we will discuss FATF’s Statement on the Coronavirus. In our next post, we will address FATF’s United States Report.
The Statement, issued on April 1, 2020, functions as both a high-level reminder to financial institutions of methods for continuing to carry-out know-your-customer (“KYC”) and other AML obligations while “facing confinement or strict social-distancing measures” and a warning to financial institutions to remain vigilant to increases in fraudulent activity – and resulting money laundering – so often associated with crises like the current Coronavirus pandemic.
The thrust of the Statement is an acknowledgement that the Coronavirus pandemic has created a perfect storm for money laundering where rapid and high-volume financial transactions from myriad sources for myriad purposes are occurring simultaneously with the almost spontaneous and enormous downsizing in personnel to monitor those transactions as many AML professionals shelter from home. Indeed, we recently blogged on this very threat posed by COVID-19 to financial institutions’ AML and anti-fraud systems (that is, the combination of increased fraud and a reduced capacity to guard against it) when discussing FinCEN’s latest pronouncement on COVID-19 issues.
The Statement cautions financial institutions that “[c]riminals are taking advantage of the COVID-19 pandemic to carry out financial fraud and exploitation scams, including advertising and trafficking in counterfeit medicines, offering fraudulent investment opportunities, and engaging in phishing schemes that prey on virus-related fears.” The list goes on: “[m]alicious or fraudulent cybercrimes,” “fundraising or fake charities,” “various medical scams,” “imposter, investment and product scams,” and “insider trading,” to state merely a few.
Following on these crimes, “criminals and terrorists may seek to exploit gaps and weaknesses in national anti-money laundering/counter-financing of terrorism (AML/CFT) systems while they assume resources are focused elsewhere.” But, notwithstanding these risks and recognizing “the vital work of charities and non-profit organizations (“NPOs”) to combat COVID-19 and its effects,” FATF also states that “[n]ational authorities and financial institutions should apply a risk-based approach to ensure that legitimate NPO activity is not unnecessarily delayed, disrupted or discouraged.”
Moreover, FATF notes that financial institutions are not without resources and methods for countering illicit transacting even under the current difficult and unprecedented circumstances. Noting that “in-person banking and access to other financial services is difficult, and unnecessarily exposes people to the risk of infection[, u]se of digital/contactless payments and digital obnboarding reduce the risk of spreading the virus.” Numerous technological capabilities allow financial institutions to continue to rigorously monitor for money laundering and terrorist funding, “including Fintech, Regtech and Suptech” as well as “[t]he FATF recently released guidance on Digital ID, which highlights the benefits of trustworthy digital identity for improving the security, privacy and convenience of identifying people remotely for both onboarding and conducting transactions while also mitigating ML/TF risks.”
Finally, while encouraging financial institutions to continue working closely with “[r]egulators, supervisors, financial intelligence units, law enforcement authorities and other relevant agencies” in carrying-out their AML/CTF duties, FATF advises of its own continuing efforts “working with the Committee on Payment and Market Infrastructures and the World Bank to help ensure coordinated policy responses for the continued provision of critical payment services against the backdrop of the COVID-19 crisis.”
In our next post, we will discuss FATF’s more traditional report – the United States Report, which was the third follow-up on a mutual evaluation report of the United States that was adopted in October 2016. Although perhaps not as attention-grabbing as the COVID-19 Statement, the United States Report is nonetheless important and likely will have long-term implications.