Financial Action Task Force
Like a global watchdog over the financial system
The FATF observes, analyzes, and intervenes when countries or institutions allow loopholes that could be used to support money laundering, terrorist financing, or the proliferation of weapons of mass destruction.
Definition
What is the FATF?
The Financial Action Task Force (FATF) is an intergovernmental organisation founded in 1989 at the behest of the G7. It is headquartered in Paris. The FATF develops international standards designed to preserve the integrity of the financial system. The aim is to create a uniform framework for the detection, prevention and prosecution of illegal cash flows.
The FATF is the global standard-setter for combating financial crime. Its recommendations act as a safety net that protects countries and financial markets from being misused for illegal purposes.
Risk determines measures
FATF recommendations
The framework conditions focus on the FATF recommendations. These form a globally recognized set of rules for combating money laundering, terrorist financing, and proliferation financing.
A key guideline here is the risk-based approach: measures must always be proportionate to the risks identified. In concrete terms, this means that financial institutions must assign their customers and business relationships to specific risk classes and fulfill appropriate audit requirements depending on the classification. Classification is based on institution-specific criteria, i.e., tailored to the respective business model and customer structure.
Peer-Reviews
FATF membership and consequences of deficiencies
The member states of the FATF review each other’s implementation of the FATF standards. This process is also known as the peer review process (“mutual evaluation”). Countries with significant deficiencies can be placed on the so-called ‘gray’ or “black list.” This has immediate consequences, as international business relations with such countries become more difficult or too risky.
Today, the FATF has over 40 members, including the most important economic nations and international organizations. In Germany, the Federal Financial Supervisory Authority (BaFin), the Federal Ministry of Finance, and other authorities work closely with the FATF.
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