Understanding FATF: The Global Watchdog Against Financial Crimes

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CA Mayur Joshi
CA Mayur Joshihttp://www.mayurjoshi.com
CA Mayur Joshi is a Forensic Accounting evangelist in India. He is the co-founder of Indiaforensic and is author of 7 books on forensic accounting, fraud investigations and money laundering.

In the financial world, safety comes first. That’s where the Financial Action Task Force FATF, often called FATF, steps in. It came into existence in 1989, born out of a meeting of powerful countries known as the G-7. This group includes major well-developed nations. Imagine FATF as the worldwide protector against money laundering and financing for terrorism.

Origins and Objectives of FATF

FATF’s roots trace back to a G-7 meeting held in Paris. Its initial aim was straightforward: to tackle the issue of money laundering. Money laundering involves disguising illegally obtained funds as legitimate money, often through complex financial transactions. However, in the aftermath of the devastating 9/11 attacks on the United States, FATF expanded its scope. In 2001, it broadened its mission to include combating the financing of terrorism—a crucial step in the fight against global terrorism. This commitment was further reinforced in 2012 when FATF took on the responsibility of countering the financing of Weapons of Mass Destruction (WMD), which include nuclear, chemical, and biological weapons.

FATF Recommendations and Sessions

To combat money laundering effectively, FATF developed a set of guidelines known as the “Forty Recommendations.” These comprehensive measures, released in 1990, were aimed at creating a robust plan of action to counter money laundering. AML CTF are the core focus areas of these recommendations. Building on this foundation, the organization released a Ninth Special Recommendations in 2004, further strengthening global standards for battling money laundering and terrorist financing. In 2012, recognizing evolving threats, FATF revised its recommendations to address issues like the financing of WMD proliferation. These recommendations are embraced by over 200 jurisdictions worldwide through the network of FATF-Style Regional Bodies (FSRBs) and FATF memberships.

FATF’s decision-making hub, the Plenary, convenes thrice annually. During these sessions, they analyze “Mutual Evaluation Reports” (MERs) of countries under review.

If a country doesn’t do enough to prevent money-related crimes and stop funding for terrorism, it could end up on the “FATF Grey List.” If the problems continue without the country taking strong action, it might get put on the “black list.” These lists show how worried people are about how the country handles its money.

Members, Observers, and Leadership

FATF boasts 39 member countries, which represent major financial centers across the globe. Among them, two regional organizations—the European Commission and the Gulf Cooperation Council—also participate. Notably, India is part of the FATF family, joining as a full member in 2010. India also engages with its regional partners, the Asia Pacific Group (APG) and the Eurasian Group (EAG).

The FATF presidency involves leading and overseeing important decisions. The president, chosen from its members, guides meetings and chairs discussions. They represent FATF globally and speak on its behalf. Their role is crucial in steering the organization’s actions and ensuring that its mission to combat money laundering and terrorist financing is effective. The president’s term lasts for two years, and during this time, they play a key role in shaping FATF’s strategies and collaborations to make the financial world safer.

At the helm of FATF stands its president, a senior official appointed from within its membership. The president is a pivotal figure, overseeing meetings, chairing sessions, and serving as the organization’s public representative. The current president, T. Raja Kumar from Singapore, took office in July 2022.

Grey and Black Lists: Impact and Consequences

The Plenary sessions also make decisions about grey listing the high-risk countries. If a country has big problems with money laundering or terrorist financing, it goes on the grey list. If the country doesn’t fix these problems, it can end up on the blacklist. Countries on these lists have to deal with big problems like economic punishments, trouble getting loans, less international trading, and even other countries refusing to work with them.

For instance, Iran, North Korea, and Myanmar currently occupy the blacklist. Myanmar’s addition followed the military coup in 2021. On the other hand, Pakistan, which was on the grey list for four years, was recently removed due to its efforts against terrorist financing.

Countries or regions that international organizations like the Financial Action Task Force (FATF) are closely watching are called “monitored jurisdictions.”

Challenges and Strengthening Efforts

Implementation of FATF standards means putting into practice rules to stop bad financial activities like money laundering and terrorism financing. These standards help countries make their financial systems safe and clean. Countries need to make laws that match these rules, set up groups to watch over things and punish those who break the rules.

Putting FATF standards into action comes with its own set of challenges. Countries might struggle with coordinating efforts within their own borders, having enough resources, and dealing with complex evaluations. Introducing new technologies for fighting financial crime also has its difficulties, like understanding new dangers, recognizing risks, and updating tools to assess risks.

To make FATF work better, it’s important to take a risk-focused approach. This means understanding and reducing risks in the right proportion. Also, sharing information among different groups and using modern technologies, like artificial intelligence, can help solve these problems.

Global Initiatives and India’s Role

Apart from FATF, there are other international agreements that also fight against financial crimes. The Vienna Convention of 1988 makes countries create laws against money laundering from drug trafficking. India is involved here, as it signed this agreement. UNODC is a group that works hard to stop money laundering.

When it comes to preventing terrorists from securing money, countries all around the world, including India, are working hard. India suggested a plan called the Comprehensive Convention on International Terrorism (CCIT) to make a clear definition of what terrorism is. This is really important in our world today, where everything is connected because it helps prevent crimes that involve money, which keeps economies safe and helps peace.


FATF’s journey from its G-7 origins to the international powerhouse it is today reflects the world’s commitment to securing financial systems from illicit activities. It safeguards economies, prevents funding for terrorism, and counters the proliferation of deadly weapons. As the global landscape evolves, FATF continues to adapt its recommendations and strategies, aiming for a more secure and prosperous world for everyone.

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