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The Financial Action Task Force sets the global anti-money laundering and counter-terrorism financing standards that national laws must implement, backed by a mutual evaluation process and a public grey and black list that carries real economic consequences.
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When French President Mitterrand and the G7 leaders met in Paris in 1989, drug money was flooding through the global banking system with almost no legal barrier to stop it. The Financial Action Task Force on Money Laundering, or FATF, was created at that summit as a short-term study group. It was given two years. More than three decades later, FATF has grown into the central architect of the global anti-money laundering architecture, with 39 member jurisdictions, two regional bodies, and a public watch-list whose appearance can cut a country's access to international finance.
FATF works through standards and peer pressure rather than binding law. Its 40 Recommendations set out what a country's AML and counter-terrorism financing (CTF) system must achieve. Compliance is tested through mutual evaluations, detailed peer reviews that examine both what the law says and whether it actually works in practice. Countries that fail the review face a public naming that sends an immediate signal to correspondent banks and foreign investors.
This topic covers FATF's history, the structure and logic of the 40 Recommendations, how mutual evaluations work, the grey and black list mechanism and its real-world consequences, the Egmont Group of Financial Intelligence Units, and how major national AML laws, including the USA PATRIOT Act, the EU's successive Anti-Money Laundering Directives, and India's Prevention of Money Laundering Act, implement the FATF framework.
From a two-year G7 study group to the gatekeeper of global finance.
FATF was created in 1989 with a mandate to examine money laundering techniques and recommend responses. Its first 40 Recommendations appeared in 1990, focused on drug money. By 1996 they had been revised to cover all serious crimes. The September 2001 attacks produced Eight Special Recommendations on terrorism financing, incorporated into a revised single set of 40 Recommendations in 2012 that also added proliferation financing as a third pillar alongside AML and CTF.
FATF has 39 members: 37 countries and two regional organizations, the European Commission and the Gulf Co-operation Council. Nine FATF-Style Regional Bodies (FSRBs), including MONEYVAL for Council of Europe members, GIABA for West Africa, and the Asia/Pacific Group on Money Laundering (APG), extend the framework to more than 200 jurisdictions as associate or observer members. The FATF Secretariat is housed at the OECD in Paris.
A country's AML law must cover five structural areas or the mutual evaluation will say so.
The 40 Recommendations are grouped into seven thematic sections. They do not prescribe exactly how a country must implement them, only the outcome that must be achieved, which is why national laws can take quite different forms while all claiming FATF compliance.
| Section | Key requirements |
|---|---|
| AML and CFT policies (R.1-2) | National risk assessment, risk-based approach, AML and CFT coordination |
| Money laundering and confiscation (R.3-4) | Criminalise ML as a standalone offence for all serious predicate crimes; provisional measures and confiscation powers |
| Terrorist financing and proliferation (R.5-8) | Criminalise TF; targeted financial sanctions under UNSCR 1267 and 1373; non-profit organisation oversight |
| Preventive measures (R.9-23) | Customer due diligence, enhanced due diligence for PEPs, correspondent banking, STR reporting, DNFBPs |
| Transparency and beneficial ownership (R.24-25) | Registers of legal persons and arrangements; timely access to beneficial ownership information |
| FIU and law enforcement (R.26-35) | Operational FIU; AML investigation powers; law enforcement use of special techniques |
| International cooperation (R.36-40) | Mutual legal assistance; extradition; asset recovery; FIU cooperation |
Recommendation 10, on customer due diligence (CDD), is the most operationally significant for financial institutions. It requires identifying and verifying customers and beneficial owners, understanding the nature of the business relationship, and conducting ongoing monitoring of transactions. The risk-based extension in Recommendations 1 and 10 means higher-risk customers must receive enhanced CDD, while lower-risk relationships can receive simplified measures.
What happens when your country's AML system is examined by its peers.
Mutual evaluations are the enforcement mechanism of the FATF system. Each member country is assessed on a rolling four-to-seven-year cycle. An evaluation team of eight to twelve experts, drawn from other FATF member institutions, spends roughly two weeks on-site reviewing laws, interviewing supervisors, financial institutions, and prosecutors, and testing whether the system produces results: convictions, confiscations, and financial intelligence that leads to cases.
The evaluation produces two sets of ratings. Technical compliance ratings (Compliant, Largely Compliant, Partially Compliant, Non-Compliant) assess whether the legal framework meets each Recommendation. Effectiveness ratings assess eleven Immediate Outcomes covering results such as the use of financial intelligence by law enforcement, the quality of supervision, and the prosecution of money laundering. A country can have technically sound laws yet receive low effectiveness ratings if convictions and confiscations are rare.
A name on a list in Paris can close a bank account in New York.
FATF publishes two public lists at each of its three plenary sessions per year. The Jurisdictions Under Increased Monitoring list, universally called the grey list, currently contains around twenty jurisdictions that have committed to addressing strategic deficiencies within an agreed timeline. The High-Risk Jurisdictions Subject to a Call for Action, the black list, currently names only a handful of countries including North Korea and Iran, to which FATF calls on members to apply counter-measures.
The same FATF standard produces different statutes in Washington, Brussels, and New Delhi.
FATF standards become operational through domestic legislation. Three major legislative frameworks illustrate how different jurisdictions have implemented the same international baseline.
FATF was founded in which year and by which body?
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