For one week, from the 13th to the 18th October, representatives of 205 countries and jurisdictions, the IMF, UN, World Bank and other organizations (OECD, OSCE, Europol, Egmont Group of Financial Intelligence Units, ...) met in Paris for the Financial Action Task Force (FATF) week.

This week chaired by the FATF President Xiangmin Liu of the People's Republic of China is the first meeting under the Chinese presidency. Several AML topics were on the table and these included money laundering risks associated to "stablecoins" and other emerging virtual assets together with the understanding and leveraging of the use of digital identity.

Pakistan grey list FATF
There was also the question if Pakistan should remain in the grey list of countries with AML/CTF deficiencies or be placed in the blacklist along with North Korea and Iran. The Pakistani delegation, headed by Economic Affairs Minister Hammad Azhar, was there to defend the corrective measures that had been taken his country during the year.

Other topics included the assessment of Russia and Turkey’s measure to combat money laundering and terrorist financing, the discussion on the fight against financial flows from illegal wildlife trafficking, the adoption of best practises on the beneficial ownership of legal persons, and the latest developments in the financing of ISIL, Al-Qaeda and affiliates.

Money Laundering risk from "stablecoins" and other emerging assets

The FATF has reached an agreement on how to determine whether countries have taken the necessary steps to implement the new requirements. Given the global nature of the virtual asset sector, countries and their governments need to comprehend the importance of implementing these requirements quickly by understanding risks and ensuring effective oversight of the sector.

The FATF is responsive to developments and will actively engage with the private sector to clarify FATF requirements. The emerging assets like stablecoins, together with their global offering networks and platforms, could potentially change the ecosystem of virtual assets and have consequences for money laundering and terrorist financing risks.
FATF stablecoins

Stablecoins are cryptocurrencies designed to minimize the volatility of the price of the stablecoin, relative to some stable asset or basket of assets.

Stablecoins and their service providers will be subject to FATF standards either as virtual assets and virtual asset service providers or as traditional financial assets and their service providers. Increased FATF surveillance of emerging assets will continue to be a focus. It will be up to the national authorities to implement rules through laws and regulations. FATF will continue to promote the implementation of its standards around the world and ensure the relevance and responsiveness of these standards.

Understanding and leveraging the use of digital identity

FATF digital identity
Digital payments are growing strongly. Client identification is important to prevent criminals/terrorists from collecting and moving funds. But in the digital world, the methods of identifying customers are multiple. A document outlining the guidelines proposed by the FATF on the use of digital identity is being formalized. This document will tend to help governments, financial institutions and others to apply a risk-based approach while using digital ID systems.

FATF is not against financial innovations but desires safe spaces. Companies must be responsible and help to ensure the financial market 'security.

Other topics discussed at the FATF plenary week

During this week, various assessments were made for certain countries such as Turkey, Norway and Brazil. The case of Pakistan was stressed under its deficiencies with AML / CTF system and whether Pakistan would remain on the FATF scrutiny list or not. It has been decided that Pakistan will remain on the grey list until February 2020, so to give it time to meet all the recommendations entirely. Pakistan did not complete all its obligations before the deadlines and FATF is worried about the country’s lack of progress on the AML/CFT risks.

Regarding Iran, the FATF has set a deadline (February 2020) to comply with international standards on the fight against money laundering and the financing of terrorism. If Iran does not take action, the FATF will take countermeasures.

FATF also reviewed its list of jurisdictions with strategic deficiencies. The list identifies the jurisdictions with the most strategic AML/CTF lacks. The FATF is aware that each jurisdiction deals with its situation and accepts the commitments and deadlines that each jurisdiction presents. If the deadlines are not respected, the jurisdictions remain in the list. During the coming year, the FATF will proceed with other countries assessments as all jurisdictions have not been reviewed yet.

FATF GAFI blacklist countries

Other strategic initiatives have been taken. One of them is "Best Practices on Beneficial Ownership for Legal Persons". The FATF recognised the paper about this topic and published on its website. In this document, key elements for an effective system can be found and the challenges that are forecast including relevant examples.

Aftermath of the plenary

The FATF went on to further analyse the implications of stablecoins in relation to money laundering and terrorist financing, resulting in a report published in June 2020 titled “FATF Report to the G20 Finance Ministers and Central Bank Governors on So-called Stablecoins.” In the report, the FATF give an in-depth analysis on the risks of stablecoins and money laundering, the global AML/CTF framework for virtual assets, and the application of revised FATF standards to stablecoins.
FATF analysis stablecoins money laundering terrorist financing

In March 2020, they also published a guidance on digital identity. The document is aimed at governments and regulated entities on the relevant background for digital ID service providers. It outlines common examples of digital identities, their benefits, and how they support financial inclusion.

Pakistan, on the other hand, was kept in the grey list. In the plenary that took place in October 2020, it was decided that the Asian country would remain in the grey list until February 2021 for its failure to fulfil 6 out of the 27 AML/CTF obligations set by the FATF. The deadline was later extended to June 2021.

FATF counries ranking consolidated assessment
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Michel Cliquet - Pideeco Network Partner
Michel Cliquet Senior Consultant
  • Pideeco country: PK
    Monday 26th of October 2020, 09:49

    This is very improval FATF in pakistan to improve points 27 out of 21 that the good sign for Pakistan hopefully Aml solution to also provide for this improve.

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