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FATF steps up the fight against money laundering and terrorist financing
23 February 2012

On 15 February 2012 the Financial Action Taskforce (FATF) issued revised standards on combating money laundering, terrorist financing and the proliferation of weapons of mass destruction.
FATF state that the revisions to the FATF recommendations address new and emerging threats, clarify and strengthen many of the existing obligations, while maintaining the necessary stability and rigour in the recommendations.

Key changes of interest to the legal profession include:

  • Increased clarity in the risk-based approach with specific requirements for both countries and regulated entities. More guidance is provided on the types of clients, countries and transactions which may be higher or lower risk and sets out a range of measures which could be applied either for enhanced or simplified due diligence. Countries are permitted to provide options for simplified due diligence and also complete exemptions from due diligence requirements. Where a client would qualify for simplified due diligence on one basis, but otherwise be subject to enhanced due diligence, the standards now make it clear that the enhanced due diligence is required. However, there is recognition that even where enhanced due diligence is required; the extent to which the enhanced measurers are applied may vary according to the specific levels of risk of the retainer.
  • Regulated entities are now specifically required to have a written risk assessment, their policies and procedures should be compliant with supervisors’ guidance, and include provision for an audit function to test compliance and screening to ensure high standards when hiring employees. Further the money laundering reporting officer should be appointed at management level.
  • For due diligence on companies, there is a new beneficial owner which should be identified in the event that no individual has control of share ownership or other control, namely the person who holds the position of senior managing official. Further simplified due diligence is permitted for listed companies who are either the client or the owner of a controlling interest, meaning that neither the shareholders nor the beneficial owners need to be identified or verified. A listed company is one which is listed on a stock exchange and subject to disclosure requirements either by stock exchange rules or through law or enforceable means, which is wider than currently permitted.
  • For due diligence on trusts, the protector and settlor are now required to be identified.
  • The standards now require a company register to be established in each country, which should at least have information on shareholders or members, directors and basic regulating powers. Trustees are required to hold information on beneficial owners and provide information on beneficial ownership to regulated entities, although this requirement may be applied by common law.
  • Foreign politically exposed persons should be subject to enhanced due diligence, whether they are the client or the beneficial owner and enhanced due diligence should apply to domestic peps on a risk based approach.

The recommendations also provided detailed requirements around implementation of sanctions regimes and the prevention of the use of non-profit organisations for terrorist financing.

The European Commission will be releasing a consultation paper in March on how the FATF recommendations will be implemented within the European Union.

Read the new FATF Recommendations

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