This article summarizes what FATF is and what it stands for. Further, it outlines FATF Recommendations and classifies them into two categories: Recommendations that are applicable to Financial Institutions and Country as a whole.

Why and When?

As international awareness and concern began to raise regarding money laundering, there was a need for serious action. As a result. Group of Seven nations launched the FATF at its annual economic summit in Paris. Then after, this multinational group started working toward a coordinated effort against international money laundering. Today, FATF is an international global standard-setter on money laundering and providing guidance to the governing bodies around the globe to combat money laundering, terrorist financing and other related threats to protect the integrity of the international financial system.

What?

The main goals of FATF is the following:

1. To expand its global network of anti-money laundering and anti-terrorist financing by increasing its membership, through the development of regional bodies like APG and cooperation with an international organization.
2. To monitor the implementation of its FATF recommendations among its members’ countries. Currently, FATF has adopted FATF Methodology 2013 where it evaluates its member or any country on the basis of two methods:1. Technical Compliance and 2. Effectiveness Assessment provides a comprehensive analysis of to what extent a country is compliant with the FATF Recommendations and how successful it is maintaining a robust AML/CFT system.

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How and Whom?

Initially, FATF has introduced 40 Recommendations to combat money laundering and after 9/11, they also targeted anti-terrorism financing, hence the introduction of an additional 9 recommendations. We have classified these recommendations in such a way that there are some recommendations that are applicable to the country and those which are applicable to the financial institutions only. One more thing we added here is that we have compiled suggestions that if financial institutions could follow can comply with those recommendations.

Recommendation applicable to any Financial Institutions:

The following table shows the recommendations that are applicable to all Financial Institutions, requirements of that recommendation. We have also listed suggestions that if any financial institution follows, can easily meet the conditions required by FATF recommendations. Also, the main point to remember is that these recommendations are the basis for a robust AML/CFT program in any organization.

FATF Rec. No	FAFT Recommendations	Particulars	Suggestions to meet these recommendations??
10.	Customer due diligence	Financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names. Financial institutions should be required to undertake customer due diligence (CDD) measures when: (i) establishing business relations; (ii) carrying out occasional transactions:(i) above the applicable designated threshold or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16; (iii) there is a suspicion of money laundering or terrorist financing; or (iv) the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. The CDD measures to be taken are as follows: (a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information. (b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements, this should include financial institutions understanding the ownership and control structure of the customer. (c) Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship. (d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.	Financial Institutions should have explicit AML/CFT Policy and Manual detailing the provisions of CDD including identification of Beneficial owner.
11.	Record-keeping	Financial institutions should be required to maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities	FIs can either include this in AML/CFT policy or guideline or can have separate record retention policy. Anyway, a complete and accurate record of the transaction should be kept so that it may serve as evidence if the situation warrants.
12.	Politically exposed persons	Financial institutions should determine whether a customer or beneficial owner is politically exposed persons (PEPs) and need to perform the following: (a) have appropriate risk-management systems to determine whether the customer or the beneficial owner is a politically exposed person; (b) obtain senior management approval for establishing (or continuing, for existing customers) such as business relationships; (c) take reasonable measures to establish the source of wealth and source of funds; and (d) conduct enhanced ongoing monitoring of the business relationship.	CDD Mechanism in AML/CFT Policy should be risk-based. That is, the Simplified CDD mechanism will be applicable for low and medium risk customers while Enhanced CDD mechanism will be applicable for high-risk customers like PEP, hidden beneficial owners. ECDD mechanism should include the methodology for the identification of high-risk customers and what sort of documents to be collected to perform a higher level of Customer Due Diligence. For e.g., asking for the supporting document for the source of income, citizenships of family members and so on.
13.	Correspondent banking	Financial institutions should be required, in relation to cross-border correspondent banking and other similar relationships, in addition to performing normal customer due diligence measures, to: (a) gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision, including whether it has been subject to a money laundering or terrorist financing investigation or regulatory action; (b) assess the respondent institution’s AML/CFT controls; (c) obtain approval from senior management before establishing new correspondent relationships; (d) clearly, understand the respective responsibilities of each institution; and (e) with respect to “payable-through accounts”, be satisfied that the respondent bank has conducted CDD on the customers having direct access to accounts of the correspondent bank and that it is able to provide relevant CDD information upon request to the correspondent bank.	FIs should develop a proper questionnaire for these corresponding banks for getting information about what is their organization structure, who are beneficiaries, what is their AML/CFT status and so on. Through this questionnaire, they need to require correspondent banks to submit other necessary documents like a copy of their registration documents, license, AML/CFT policy and so on. If any FIs want to avoid doing above, then they can ask the correspondent bank to furnish them with Wolfsberg Questionnaire. This questionnaire is good tool to do comprehensive CDD of any correspondent bank.
15.	New technologies	Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices, including new delivery mechanisms, and (b) the use of new or developing technologies for both new and pre-existing products. In the case of financial institutions, such a risk assessment should take place prior to the launch of the new products, business practices or the use of new or developing technologies.	There should be a clause in the policy that prior to launching and new product, it should be reviewed by AML/CFT Unit to identify any type of AML/CFT issues. Only after their approval, product should be launched.
16.	Wire transfer	Countries should ensure that financial institutions include required and accurate originator information, and required beneficiary information, on wire transfers and related messages, and that the information remains with the wire transfer or related message throughout the payment chain. Countries should ensure that financial institutions monitor wire transfers for the purpose of detecting those which lack the required originator and/or beneficiary information and take appropriate measures.	There should be a mechanism mentioned in the Manual that every SWIFT message should be screened for the availability of this information by the SWIFT Unit, if not that messages should be rejected. As per(Anti-Money Laundering Prevention Act) ALPA, there is a requirement to obtain beneficiary details for the wire transfer from and above NPR.75,000.
18.	Internal controls and foreign branches and subsidiaries	Financial institutions should be required to ensure that their foreign branches and majority-owned subsidiaries apply AML/CFT measures consistent with the home country requirements implementing the FATF Recommendations through the financial groups’ programs against money laundering and terrorist financing	This recommendation requires the implementation of policies and manuals in all of the branches, subsidiaries of FIs. This is a very difficult thing to do, therefore, FIs should conduct massive training at regular intervals. Further, different Standard Operating Procedures relating to Account Opening, Remittance, Transaction Monitoring based on AML/CFT policy should be developed.
19.	Higher-risk countries	Financial institutions should be required to apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries for which this is called for by the FATF. The type of enhanced due diligence measures applied should be effective and proportionate to the risks.	This recommendation can be implemented effectively if the organization used automation for the purpose of name screening. Different software is available in the market that can be used for name screening.
20.	Reporting of suspicious transactions	Financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU)	This is a very important task. The best way is for this is to have good AML Software with a lot of Scenarios created to monitor transactions relating to SWIFT, remittance, Cash, Card that will trigger alerts based on the logic of the scenarios. These alerts when reviewed will help to identify suspicious transactions. Next, is to educate all the staff involved in different areas of FIs to identify the suspicious transactions and report to Compliance.
21.	Tipping-off and confidentiality	Financial institutions, their directors, officers, and employees should be: (a) protected by law from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the FIU, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred; and (b) prohibited by law from disclosing (“tipping-off”) the fact that a suspicious transaction report (STR) or related information is being filed with the FIU. These provisions are not intended to inhibit information sharing under Recommendation 18.	There should be a clear definition of whistleblowing and breach of confidentiality in the policy. Whistleblowing against suspicious transactions should be encouraged while leaking of confidential information to the customer or third party for the personal benefit should be severely reprimanded.
FATF Special Recommendations on Terrorist Financing(Other 9 recommendations)
44.	Reporting suspicious transactions related to terrorism	If financial institutions, or other businesses or entities subject to anti-money laundering obligations, suspect or have reasonable grounds to suspect that funds are linked or related to, or are to be used for terrorism, terrorist acts or by terrorist organizations, they should be required to report their suspicions promptly to the competent authorities.	There should be a proper mechanism of how STR should be reported. It is better to use AML solution with clear workflow for reporting suspicious transaction which ensure anonymous reporting to authorized individual so that proper action can be taken.

(Extracted from FATF Recommendations 2012 Updated)

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Recommendations that are applicable to Country As Whole:

The following tables show the recommendations that are applicable to the whole country. These recommendations are the basis for developing an appropriate institutional framework for AML/CFT regime. The country will be evaluated negatively or positively based on the compliance to these recommendations.

(Extracted from FATF Recommendations 2012 Updated)

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