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