FATF: A USA Lackey?
What is, and who are, the FATF?
The Financial Action Task Force is part of the Organisation for Economic Co-operation and Development. Based in Paris, the OECD is made up of 26 members and two official bodies. The FATF was set up in 1989, arising out of a G7 meeting.
The FATF is a self-selecting sub-group of the OECD that tries to set international standards for money laundering laws and publishes a set of recommendations. Called “The Forty Recommendations” after the number in the original set, the name has remained but there are now more than forty. However, in order to maintain the slogan that there are forty, the additional recommendations have been supplemented by sub-clauses.
The FATF has no bite but it is fond of baring its teeth. In 1997, the FATF declared itself dissatisfied with the progress being made by Turkey in drawing up laws based on The Forty Recommendations. The FATF issued a “Health Warning” saying that Turkey should be viewed as a high risk area. The nett effect of such a warning is that bankers and others should not regard moneys transferred from financial institutions in Turkey as being safe from suspicion as to its origins. The warning was widely interpreted as saying that any transactions involving financial institutions in Turkey should automatically be regarded as suspicious.
However, the USA has withdrawn proposals to implement “know your customer” provisions that would have brought the USA into compliance, on that point at least, with the FATF Forty Recommendations. There are opinions that the USA already does comply, but these opinions are based on complex reasoning and do not reflect what happens on the ground in US financial services and related businesses.
The question therefore arises as to whether the FATF will sanction the USA. About a month after the USA abandoned the proposed Rules, WMLR asked this simple question: “Has the FATF made any comment about the USA’s failure to implement effective ”Know Your Customer” rules.”
The FATF replied: ”The FATF has not yet reviewed the developments which are occurring in the United States regarding the proposed rules. However, through its processes of self-assessment and mutual evaluation, the Task Force will continue to work with all its members, including the United States, to seek to make their anti-money laundering systems more efficient and effective. The next phase of this work will take place at the FATF June/July meeting in Tokyo, and will be reflected in the FATF’s Annual Report for 1998-99.” The FATF’s 1998-9 annual report says that the USA is “out of compliance.”
The original Forty Recommendations were published in 1990 and the question of identification of customers was a central issue. The USA was a founder member of the FATF and it is therefore a logical assumption that it both had input into those Recommendations and agreed with them.
Yet the FATF, whilst sanctioning undeveloped countries, has failed to make any significant criticism of the USA’s failure, over a period of some years to implement one of the most central planks of international co-operation. Indeed, the Rules proposed in 1998 were the USA’s first serious attempt to require banks to identify their customers but even then the proposed regulations were far narrower in their ambit than the Forty Recommendations envisages.
Why does the FATF accept non-compliance by larger members?
And, why is it that the FATF is so reticent to point out the failings of its largest member? Does it have to do with budget? Does it have to do with trade? Does it have to do with the FATF’s position as a quasi-subsidiary of the OECD?
The truth may well be a combination of all of these. But the simple fact is that the FATF, in failing to make any overt criticism of the USA’s failure to comply with the provisions it forcibly recommends to the rest of the world, and not least to other members of the FATF, leads the FATF into disrepute.
Already, privately, enforcement offices across the world are questioning whether the FATF is actually any use. It is widely considered to be a talking shop. Its reports are seen as recycling of material more promptly - and better - available elsewhere. It also undertakes reviews of countries’ compliance with the Forty Recommendations, but the resulting reports are kept secret amongst the represented organisations. This means that any information that could be truly effective for compliance teams trying to take steps to put in place effective international anti-laundering systems do not have information which may assist them.
There is even criticism of the FATF in the USA where some engaged in counter-money laundering activities see a need for more prompt action and see discussions within FATF as a delaying tactic.
This year it holds meetings in Tokyo and Washington. Representatives will stay for up to a week and will be paid for by the governments they represent.
The FATF enjoys its habit of “going into closed session”. But the reports that come out of it are sanitised to the point of being less use in counter-money laundering than press reports of the cases they claim to be important. By maintaining the in-camera approach, the FATF gives itself airs and graces.
It is difficult to see what the FATF has achieved in 10 years, beyond the agreeing of the Forty Recommendations. Apart from that, it appears to be a cosy club, run at public expense, far removed from the reality of fighting crime. To regain any credibility, the FATF needs to get its hands dirty and start to make a difference. If it wants to do something useful, it can start to use its undoubted contacts to begin to explain to the Americans who argued with such passion, if not hysteria, against the Know Your Customer rules why such things matter.
If it intends to merely replicate investigations and research done elsewhere, and to keep secret any important information it uncovers, it should close its doors now.
