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The Financial Action Task Force (“FATF”) Plenary was held on February 22-24, bringing together delegates from around the world to meet in Paris and discuss a variety of global financial crimes and ongoing risk areas. In a historic move, FATF decided to suspend the Russian Federation from membership in the intergovernmental organization, based upon its actions in Ukraine over the past year. We will discuss that decision, as well as the other major outcomes of the Plenary, which involve beneficial ownership, virtual assets, ransomware, the art and antiquities market, and changes to FATF’s so-called “grey list.”
Suspension of the Russian Federation
FATF is a 39-member international body (with 37 member countries and 2 regional organizations), aimed at setting policies that enable national governments to effectively combat money laundering, terrorist financing, and related crimes like illicit arms trading and cyber fraud. In many ways, FATF reports and recommendations are considered the gold standard for how to combat money laundering at a national level. FATF monitors the efficacy of national governments’ implementation of anti-money laundering and counter terrorist financing efforts through annual evaluations of its members. FATF also works closely with other international organizations like the IMF and World Bank, and places great value on cross-border cooperation to achieve its stated goals. Since its establishment in 1989, FATF has never suspended a member.
Over the past year, FATF has repeatedly condemned the actions of the Russian government in invading and attacking Ukraine, and has expressed sympathy and support for the Ukrainian people. At this recent Plenary session, FATF continued to condemn Russia for disrupting the “international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF Standards.” Perhaps most notably, FATF expressed particular concern over the “reports of arms trade between the Russian Federation and United Nations sanctioned jurisdictions, and malicious cyber-activities emanating from Russia.” As these actions from the Russian government so blatantly run afoul of FATF’s mission to secure and protect the global financial system, FATF concluded that Russia’s membership in the organization should be suspended. In a similar vein, Secretary of the Treasury Janet Yellen issued the following statement supporting FATF’s decision:
“The United States commends the FATF’s historic decision to suspend Russia’s membership in the body,” said Secretary of the Treasury Janet L. Yellen. “Russia’s disregard for the sovereignty and territorial integrity of Ukraine is at odds with the FATF’s foundational values of international cooperation and the rule of law. Further, Russia’s dealings with suppliers of last resort such as Iran and North Korea, its government-driven efforts to evade international sanctions and export controls, and other activities like harboring cybercriminals or the Wagner Group make it a haven for illicit finance – the very thing the FATF works to combat.”
The FATF Plenary stated that Russia is still required to implement FATF Standards and meet its financial obligations. It is not clear whether the Russian government will take those obligations seriously, or to what extent Russia will feel the negative impacts of having its FATF membership suspended.
Certainly, the suspension of Russia from FATF generally will add to the due diligence exercised by financial institutions and other businesses regarding any transaction involving Russia. Indeed, the action by FATF coincides with the February 24 announcement by the U.S. Department of the Treasury (on the anniversary of the invasion of the Ukraine by Russia) that it was imposing a new round of sweeping sanctions against Russia. These new sanctions target the metals and mining sector of the Russian economy, as well as numerous Russian banks and other companies and individuals, including third-country companies and individuals allegedly involved in assisting Russia to evade U.S. sanctions through arms trafficking and illicit finance.
Recommendations on Beneficial Ownership
Another hot button issue for FATF (and something we have blogged on extensively) has been an effort to improve transparency of beneficial ownership to prevent shell companies from being used as a safe haven for illicit proceeds. While solutions to this problem can take many forms, FATF has focused on the need for governmental authorities to be able to access up-to-date beneficial ownership information in a singular database. Last year, FATF set a new recommendation that would “require[] countries to ensure that beneficial ownership information is held by a public authority or body functioning as a beneficial ownership registry, or an alternative mechanism they will use to enable efficient access.” In March 2023, FATF will issue guidance aimed at helping countries implement this recommendation.
Virtual Assets and Ransomware
As we’ve blogged, ransomware attacks have been steadily increasing over the past few years. These attacks can be nearly impossible to prevent and criminals are able to divert large amounts of money, often in the form of virtual assets. FATF noted, and we have blogged, that criminals’ access to virtual asset service providers is of particular concern. Specifically, FATF identified ongoing deficiencies with respect to countries abiding by the Travel Rule as it applies to virtual assets, which essentially requires the private sector to obtain and exchange beneficiary information for virtual asset transfers valued at $1,000 or more. FATF has focused its current research on the methods that criminals use to carry out their ransomware attacks and how they launder ransom payments, and will publish its ransomware report in March 2023 to help identify and prevent suspicious activities.
The Art and Antiquities Market
FATF finalized a report that explores the link between money laundering and art and antiquities. According to FATF, “[t]he trade in high value works of art and antiquities can attract criminals who seek to exploit the sector’s history of privacy and the use of third-party intermediaries to launder the proceeds from drug trafficking, corruption and other crimes.” The report also explores the problem of lack of investigative resources and expertise, the difficulties inherent in cross-border investigations, and “risk indicators that can help public and private sector entities identify suspicious activities in the art and antiquities markets[.]”
Jurisdictions Subject to Increased Monitoring
FATF made adjustments to what is commonly referred to as its “grey list,” and what FATF formally labels as “jurisdictions under increased monitoring.” As FATF explains, “[j]urisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring.” New jurisdictions subject to increased monitoring are South Africa and Nigeria. However, FATF has removed Cambodia and Morocco from the list.
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