Financial Action Task Force Recommendations Research Articles

FIU operational effectiveness – findings and observations from the Asian Development Bank perspective

PurposeThis paper aims to examine the specific findings on the level of technical compliance and operational effectiveness of the national financial intelligence units (FIUs) in 55 members of the Asian Development Bank (ADB) under the mutual evaluations carried out by the Financial Action Task Force (FATF) and its regional bodies (also referred to as FATF-style regional bodies) in connection with the current international standard for combating money laundering and terrorism financing (i.e. the FATF recommendations). It also provides three observations for enhancing the use of financial information and intelligence.Design/methodology/approachReview of published reports on country mutual evaluations from the FATF and its regional bodies.FindingsA majority of the FIUs from these 55 members of the ADB were rated around the “mid-range” under the FATF methodology used for the mutual evaluations (i.e. “compliant and substantially effective”, “largely compliant and substantially effective”, “compliant and moderately effective” and “largely compliant and moderately effective”). Observations were also provided on cross-cutting areas for enhancing the use of financial information and intelligence.Originality/valueFIU operations are key to combating money laundering and terrorism financing, and this examination of the level of technical compliance with the international standard and related operational effectiveness provides an useful account of current developments in this space and suggestions for further actions by relevant national authorities and provision of country technical assistance and support by donor partners.

A comparative analysis of the FIUs and FATF compliance of Canada, Australia, The Netherlands and India

Purpose This paper aims to analyse the Financial Intelligence Units (FIUs) of Canada, Australia, The Netherlands and India, focussing on key internal and external processes, such as the exchange of information, operations and compliance with Financial Action Task Force (FATF) recommendations. The paper relies on secondary sources to compare and assess the practices and strategies employed by FIUs within these jurisdictions. Design/methodology/approach The paper relies on secondary sources to compare and assess the practices and strategies used by FIUs within these jurisdictions. Findings The ability to combat money laundering and the financing of terrorism (AML/CFT) in countries is influenced by several internal and external factors, including the efficiency of their FIUs’ and compliance with FATF recommendations. The analysis of FIUs across the countries demonstrates a raft of multifaceted challenges and concerns. Yet, when it comes to compliance with FATF’s recommendations, shared concerns emerge, hinting at the complex interplay between country-specific operations and global compliance standards. The paper recommends enhancements to the FIUs’ operational efficiency and overall effectiveness in combating financial crimes. Research limitations/implications The paper’s findings are limited to openly available data (such as annual reports and internet sources) for the respective countries. The paper relies on the transparency of FIUs through public media, focusing on comparing and analysing the FIUs of only four specific countries, which limits the generalisations of the findings. Practical implications This paper is significant for policymakers and FIU authorities, as they strive to improve the effectiveness of their units and assess their performance in alignment with international standards. The comparative analysis of the FIUs of India, Australia, Canada and The Netherlands provides valuable insights and recommendations that can inform policymakers and operational strategies towards enhancing how FIUs function globally. Originality/value This paper offers a unique comparative analysis of the FIUs of India, Australia, Canada and The Netherlands. Its findings have practical implications for policymakers and FIU authorities towards enhancing performance against international AML/CFT standards and promoting global cooperation.

The legal-criminal aspects of Iran’s anti-money laundering law in light of the FATF recommendations

PurposeThe purpose of this study is to examine Iran’s anti-money laundering (AML) system from a legal and criminal perspective and to understand the obstacles for international cooperation and the extent to which it aligns with financial action task force (FATF) standards. In this regard, three aspects are examined, namely, enforcement and guarantees of preventive measures, penalty for ML offences and the burden of proof.Design/methodology/approachThis subject is examined through the legal–criminal perspective, which concentrates on the effectiveness of legal measures in tackling criminal issues by focusing on criminal law. The legal–criminal viewpoint considers criminal behaviour as a breach of societal norms and strives to combat it through legal channels.FindingsIran’s AML laws and regulations are partially compliant with the financial action task force (FATF) recommendations. However, the main obstacle is not the lack of sufficient laws, rather the lack of proper implementation of these laws. In addition, there are foundational shortages, such as the absence of a national risk document to guide an action based on current risks.Originality/valueNo comprehensive study has analysed Iran’s AML laws, referring to the three main aspects of enforcement and guarantees of preventive measures, penalties for ML offenses and the burden of proof. In general, there are few research papers on Iran’s AML laws owing to Iran’s high ranking in ML/TF. However, analysing Iran’s regulations can be helpful in taking a step towards effective international AML practices.

Historical aspects of customer due diligence and related anti-money laundering measures in South Africa

PurposeThis paper explores the historical aspects of customer due diligence and related anti-money laundering measures in South Africa. Customer due diligence measures are usually employed to ensure that financial institutions know their customers well by assessing them against the possible risks they might pose such as fraud, money laundering, Ponzi schemes and terrorist financing. Accordingly, customer due diligence measures enable banks and other financial institutions to assess their customers before they conclude any transactions with them. Customer due diligence measures that are utilised in South Africa include identification and verification of customer identity, keeping records of transactions concluded between customers and financial institutions, ongoing monitoring of customer account activities, reporting unusual and suspicious transactions and risk assessment programmes. The Financial Intelligence Centre Act 38 of 2001 (FICA) as amended by the Financial Intelligence Centre Amendment Act 1 of 2017 (Amendment Act) is the primary statute that provides for the adoption and use of customer due diligence measures to detect and combat money laundering in South Africa. Prior to the enactment of the FICA, several other statutes were enacted in a bid to prohibit money laundering in South Africa. Against this background, the article provides a historical overview analysis of these statutes to, inter alia, explore their adequacy and examine whether they consistently complied with the Financial Action Task Force Recommendations on the regulation of money laundering.Design/methodology/approachThe paper provides an overview analysis of the historical aspects of the regulation and use of customer due diligence to combat money laundering in South Africa. In this regard, a qualitative research method as well as the doctrinal research method are used.FindingsIt is hoped that policymakers and other relevant persons will adopt the recommendations provided in the paper to enhance the curbing of money laundering in South Africa.Research limitations/implicationsThe paper does not provide empirical research.Practical implicationsThe paper is useful to all policymakers, lawyers, law students and regulatory bodies, especially, in South Africa.Social implicationsThe paper advocates for the use of customer due diligence measures to curb money laundering in the South African financial markets and financial institutions.Originality/valueThe paper is original research on the South African anti-money laundering regime and the use of customer due diligence measures to curb money laundering in South Africa.

Tax evasion on lawful income: is it a form of money laundering?

PurposeThe purpose of this study is to determine whether income tax evasion also constitutes money laundering if Financial Action Task Force (FATF) Recommendations are strictly applied, including cases where an offender evades tax on lawful income.Design/methodology/approachApply FATF conditions for money laundering to the tax evasion facts in United States v. Walter Anderson. In this case, the USA alleges that Anderson attempted to evade $200m of taxes on lawful income.FindingsAnderson’s tax evasion actions met all the FATF’s conditions for money laundering. FATF Recommendations imply that tax evasion, even on lawful income, is a form of money laundering. Tax evasion produces criminal tax savings and simultaneously launders those criminal proceeds.Practical implicationsThe FATF effectively classified all tax evasion as money laundering when it designated tax evasion among predicate offenses thereto. The FATF stopped short of explicitly stating this result. The FATF should seriously consider taking the next step: formally recognize tax evasion as one form of money laundering, and thus codify a single crime that covers both offenses. A single-crime approach may be unfamiliar to prosecutors, but it could enable a more effective multiagency approach to fighting financial crime. It could simplify prosecution, eliminate overlapping statutes and reduce concerns over double jeopardy.Originality/valueTo the best of the authors’ knowledge, this is the first tax case analysis to indicate that tax evasion completely incorporates money laundering within the FATF framework.

Implementation Vienna Convention As International Standard of Money Laundering And The Efforts Of Prevention And Eradication Money Laundering Crime In Indonesia

This article has an analytical approach towards internasionalization of anti- money laundering and implementation Vienna Convention as international standard of anti-money laundering in Indonesia. Further, it eximes compliance of Indonesia government to Financial Action Task Force (FATF) Eecommendations as derivation of Vienna Convention. The 40 FATF Recommendations are a set of recommendations used as a global standard in building anti-money laundering and counter-terrorism financing regime. The findings indicate that Indonesia have majority compliant to Vienna Convention as derived 40 FATF Recommendation. Overall, Imdonesia has a high level of technical compliance with relevant recommendation. But until year 2021, to 40 FATF Recommendations, Indonesia has no compliance to Recommendation number 7 (Target financing of proliferation sanction) that is Indonesia has not stated and regulated the sanction of proliferation funding. To improve implementation Recommendation 7 Target Financing Proliferation in Indonesia, we take data and information from FATF APG Group of Japan, Singapore dan Austraia in developing legal system of financing proliferation, in order to compare the legal framework of proliferation financing in those countris with situation in Indonesia. Further, we suggest solution of legal policy to improve legal framework of proliferation financing sanction in Indonesia, in line with implementation targeted financial sanctions of proliferation without delay to comply with United Nations Security Council Resolutions.

Prevalence of money laundering and terrorism financing through stock market: a comprehensive conceptual review paper

PurposeThis paper aims to provide a comprehensive conceptual framework and strong arguments with an intent to examine the stock market variables (predictors) indicating the money laundering (ML) and terrorism financing (FT) proceeds.Design/methodology/approachThis paper provides a comprehensive review of ML/FT through the stock market across developed, developing and emerging jurisdictions, sheds light on the existing literature and critically evaluates the gap in the relevant studies. Moving forward, this paper develops the conceptual framework and formulates hypotheses to explore the empirical relationship.FindingsThis paper advocates and finds a basis to carry out much-needed empirical research between the ML/FT and stock market keeping in view the growing criminal cases in the developing countries. This paper suggests mining proxies from the publically available stock market data and the results of existing seminal research as variables of the study. These data and results carry information about the ML determinants. After developing hypothetical research providing concepts, this paper also finds that using a suitable methodology, preferable Bayesian logistic and linear regression models, it is possible to find the typologies and factors that can indicate and endorse the use of the stock market for ML/FT. Broadly, it is found that the significance of this study will be two-pronged: empirical development and policy implications.Research limitations/implicationsThis paper mainly focuses on the developing region, a newly emerging market and, peculiarly, a grey-listed region by the Financial Action Task Force (FATF).Practical implicationsIn light of the existing literature and to the best of the researchers’ knowledge, this study will bring into focus the new age of the action research on the ML regime in the securities markets of the developing countries, hence, the emerging markets. Moreover, this research shall have a sheer significance for the policy measures on FATF recommendations on ML and FT, especially for the countries listed as “grey”.Social implicationsThe research based on comprehensive review will help in controlling the social behaviours aiding the proceeds of ML.Originality/valueThis research is extremely novel to the best of the researcher's knowledge.

Policy success or policy failure? Narrative analysis of the Islamic parliament of Iran’s debates on the FATF recommendations bill

ABSTRACT The problem of becoming a member of the Financial Action Task Force (FATF) has been an ongoing issue in the Iranian policymaking environment since 2009. One significant aspect of this issue is the FATF-related success or failure narratives from the perspective of policymaking. The current study uses the narrative method to analyse the stories defending and refuting the FATF Recommendations Bill in the Islamic Parliament of Iran (IPI). Two major competing narratives have been presented in the IPI by the two main Iranian political factions: the Principlists and the Reformists. The Principlists see the passage of the Bill as a failure, whereas the Reformists consider it to be a policy success. To gain a better position, both narratives have employed specific settings, characterisation, and emplotment. The findings demonstrate that the ‘failure narrative’ constructed by the Principlists is dominant as it has a better setting and characterisation than the ‘success narrative’ advocated by the Reformists. Although the ‘success narrative’ frames a better emplotment structure compared to the ‘failure narrative’, the ‘failure narrative’ is more forethoughtful and prudent as it uses conditional propositions in its emplotment, paving the way for the approval of the Bill in the future based on revolutionary rationality or expediency.

Regulated sector professionals and reporting suspicion of money laundering: is it a disproportionate burden?

PurposeThe purpose of the research paper is to determine the efficiency of all crimes approach, their relationship with a risk-based approach and the consequences on regulated sector professionals. And, therefore, what is meant by suspicion, how employees follow the requirements and how it affects the quality and quantity of suspicious activity reports. It also considers the economic and legal challenges the regulated sector faces while dealing with customers or clients. All in all, this paper investigates what does the anti-money laundering (AML) regime means for legal practice and how lawyers’ responsibility is affected.Design/methodology/approachAs the research is being conducted through the analytical methodology, the specific topic of “regulated sector professionals and reporting suspicion of money laundering” is analyzed. It evaluates the fact that the risk-based approach followed in Financial Action Task Force (FATF) recommendations and its adaptation in the UK with all crimes approach caused discrepancy in the judicial system and influenced regulated sector professionals negatively.FindingsThe paper points out that in spite of protective amendments in terms of jurisdictional immunity, UK legislation has caused problems for regulated sector professionals, such as the potential of breaching a client confidentiality agreement and avoiding tipping-off, thus remaining under pressure by clients and facing the risk of losing their clients or obligation to record suspicions in case of court investigation.Originality/valueThe question of money laundering and the FATF recommendations has had a considerable scholarship. However, the proposed study intends to precisely look at the efficiency of all crime approaches, their relationship with a risk-based approach and the consequences on regulated sector professionals. The proposed research will further determine the regulated sector’s economic and legal challenges while dealing with customers or clients. Unlike the existing scholarship, the proposed thesis will focus on what the AML regime means for legal practice and how lawyers’ responsibility is affected.

New Financial Action Task Force Recommendations to Fight Corruption and Money Laundering

A model Anticorruption Protocol to the United Nations Convention against Corruption (APUNCAC) would implement international requirements to report the beneficial ownership of funds involved in certain financial transactions. The purpose is to discourage laundering of illicit funds by attaching legal consequences to each failure to obtain and submit a required report of beneficial ownership, and each failure by a front man who poses as a beneficial owner to supply true information regarding the identity of the actual beneficial owner. This article is the fourth in a series of articles describing APUNCAC’s anti-money laundering (AML) provisions and focus on beneficial owner transparency. The companion articles focused on issues regarding international jurisdiction and enforcement of APUNCAC regarding distant offshore personnel and illustrated the application of APUNCAC to specific money laundering channels. This article translates APUNCAC’s key provisions into proposed Financial Action Task Force (FATF) recommendations, provides guidance regarding the necessary domestic conforming legislation, responds to frequently asked questions, and discusses the rationale for expansion of existing FATF recommendations.

Improving the detection and reporting of suspicious financial transactions: the Spanish case

PurposeThe purpose of this paper is to analyze the obligation of regulated entities to detect unusual and suspicious transactions and to report them to external control bodies, as established by the Financial Action Task Force (FATF) recommendations, the European Community Directive and also the Spanish regulations for the Prevention of Money Laundering. This research paper also aims to create a model to identify and report suspicious transactions to improve financial institutions’ current procedures.Design/methodology/approachAccording to the Spanish regulations which comply with the FATF recommendations and the European Community Directive on the Prevention of Money Laundering, regulated entities must detect unusual and suspicious transactions. Within this framework, the present research work analyzes both criteria and procedures used by the regulated entities to report suspicious operations. It also assesses the efficiency of the reports sent to an external control body. For this purpose, both analytical and interpretative methods are used in this research paper.FindingsIn Spain, the current procedures followed by regulated entities to analyze unusual transactions are complex. This results in difficulties to report suspicious transactions involving money laundering. As a consequence, the cases of suspicious transactions reported to the external control body are often unclear and the related process is inefficient.Originality/valueThe creation of a harmonized model with the aim of detecting suspicious operations and analyzing them will improve the detection and the effectiveness of the suspicious operations procedure which are reported to the external control body. However, such unified model should take into account the currently used activities proposed by each financial institution.

Регулювання ринку віртуальних активів: глобальний та національний рівні імплементації міжнародних стандартів ПВК/ФТ

The article is devoted to the implementation of international standards of the Financial Action Task Force (FATF) in the field of new technologies (Recommendation 15) and related risks of money laundering, terrorist financing (AML/CFT). The issues of risk assessment and management are considered from the perspective of the development of the virtual assets (VA) market, its infrastructure, new instruments, and from the perspective of interaction with the banking and payment systems. The article also discusses the current problems of the development and functioning of the global cryptomarket and strategic planning of international cooperation in solving these issues, as well as an action plan at the national level. In addition, virtual asset service providers (VASPs) are trying to determine a cost-effective way to comply with this rule due to the lack of any standardized protocol in the VASP for exchanging such information. The authors disclose methodological approaches to assessing AML/CFT risks (1 Recommendation), mechanisms for conducting a sectoral risk assessment, and specifics of AML procedures, such as identification and verification of customers, determination of beneficial ownership, transfer of such information when performing transactions with virtual assets. The directions of the development of interaction between the central government authorities, the law enforcement system, and participants in the virtual asset market at the national and global level, the need to implement the "Travel Rule" (16 FATF Recommendations), using the latest fintech and blockchain (DLT) technologies to increase the speed and security of transmitted information are also analyzed. In addition, the rule requires VASP beneficiaries to obtain and retain the necessary information about the initiator and beneficiary. Particular attention is paid to the measures of the Ministry of Digital Transformation of Ukraine regarding the reduction of threats to the use of virtual assets in the shadow economy, the development of fraud in cyberspace, cybercrime in order to develop a transparent civilized crypto market and digital technologies in general.

Fair value accounting practices in the banking industry: a possible opportunity to launder money through manipulated performance

PurposeThe purpose of this paper is to discuss the possible money laundering threats in fair value accounting practices giving particular attention to the list of predicate offences under recommendations of Financial Action Task Force (FATF).Design/methodology/approachThis paper discusses case studies related to global accounting scandals and link outcomes of those scandals with the list of predicate offences given in FATF recommendations to build propositions.FindingsThe analysis reveals that legal proceedings on major accounting scandals show that legal proceedings have been restricted owing to a lack of evidence because of the technicality of frauds. Often the authorities have failed to prove cases under the list of current predicate offences which can be linked to accounting malpractices, i.e. fraud. Therefore, policymakers are required to revisit the list of predicate offences and the feasibility of considering accounting malpractices as a predicate offence to strengthen the corporate governance practices in regulated institutions. The adoption of fair value accounting practices provides opportunities to managers to adopt earnings management practices under a fair value accounting regime to maintain stable performance. The fair value practice recognizes unrealized gains which are not based on transactions giving bank managers an opportunity to repeat the outcomes of the discussed accounting scandals. Therefore, it is essential to criminalize accounting malpractices to strengthen the corporate governance practices in the banking industry and prevent possible accounting scandals.Research limitations/implicationsThis study was designed to discuss the implications of fair value accounting practices on possible opportunities of money laundering. This paper provides only a viewpoint based on the analysis. Therefore, an empirical analysis is required to establish the authors’ views in a fair value accounting regime.Originality/valueThis paper is an original work done by the authors which discuss the implications of fair value accounting practices on possible money laundering. The views are original ideas of the authors in this context.

Factors influencing anti-money laundering regulatory approaches towards casinos and cryptocurrencies in Bangladesh

PurposeThis paper aims to critically explore the factors influencing the regulation of gambling and cryptocurrencies as part of anti-money laundering (AML) initiatives in Bangladesh. As a member of the Asia/Pacific Group on money laundering, Bangladesh must adopt a risk-based approach to regulate these entities.Design/methodology/approachThis study applied an exploratory design and investigated the real nature of the challenge Bangladesh facing in adopting a risk-based approach to regulate gambling and cryptocurrencies.FindingsThis study demonstrates that current regulatory responses towards gambling and cryptocurrencies in Bangladesh are largely influenced by passive wait-and-see policy instead of a proactive risk-based approach, a measure mandated by the Financial Action Task Force (FATF). It demonstrates that these financial entities, which are poorly regulated because of their unclear legal status in Bangladesh and the regulator’s apparent lack of understanding of the type of threats they pose, may facilitate money laundering. Effective risk-based regulation is required to control potential risks.Research limitations/implicationsThis paper focuses on two specific areas –gambling and cryptocurrencies – which are linked to two specific FATF Recommendations: designated non-financial businesses and professions (DNFBPs) and new technologies. Further research is required to investigate the concern from the perspective of other entities.Practical implicationsThe results of this study will help inform policymakers about ways in which current regulatory approaches may need to be modified to better combat money laundering and financing of terrorism.Originality/valueAccording to the authors’ knowledge, this is the first study aiming to explore challenges Bangladesh confronts in implementing a risk-based approach for DNFBPs and new technologies. Therefore, it provides important insights into the dilemma regulators facing in implementing global AML standards within their traditional legislative and regulatory framework.

Analysing India’s KYC Framework: Can We Do Things Better?

International norms mandate customer identification as an essential step in accessing the formal finance. However, poor design of identification processes can lead to unwanted outcomes such as promoting exclusions from financial markets. In this context, this paper examines the ``know your customer'' (KYC) processes established under the Prevention of Money Laundering Act and allied laws, to understand if the Indian framework goes beyond the obligations imposed by the Financial Action Task Force (FATF). The paper compares the implementation of FATF recommendations in India with various foreign jurisdictions, and finds that Indian KYC norms are excessively prescriptive in nature. Requirements to verify address and the penalty provisions in Indian law go beyond the obligations under the FATF framework. This imposes high costs on financial entities and promotes conservative behavior, which can lead to exclusions of various sections of society from the formal financial sector. Accordingly, the paper recommends liberalizing and standardizing norms pertaining to address proof. It also points to the need to re-evaluate the design and range of enforcement actions.

Challenges of identifying and monitoring politically exposed persons (PEPs) in Latin America

PurposeThe purpose of this paper is to analyze politically exposed persons (PEPs) according to Financial Action Task Force (FATF) Recommendations and assess the identification process followed by financial institutions to create a harmonized regional model for PEPs identification in Latin America.Design/methodology/approachFATF Recommendation No.12 states that financial institutions should identify PEPs. To do so, the latter uses either an internal identification system or an external database. Within this framework, the purpose of the research work is to determine whether the procedure adopted by the regulated entities complies with the requirements of the regulations. Both analytical and interpretative methods have been used for this purpose.FindingsIn accordance with FATF Recommendation No.12, national and foreign PEPs, as well as officials of relevant international organizations, close relatives and closest associates must be identified. This wide range of people forms an hybrid type of PEPs. Because of the lack of a harmonized identification policy, it is likely that some people who meet these conditions may not be spotted.Originality/valuePEPs control success relies on accurate and prompt identification. Therefore, it is crucial to create an inter-state model of harmonized identification at a regional level in Latin America. It includes not only the participation of the obligated subjects but also the sector entities associated to the concerned economic activity.

Is there a commendable regime for combatting money laundering in international business transactions?

Purpose Money laundering and grand business corruption continue to plague the global economy, accounting for 2%-5% of the global gross domestic product. Illicit funds, produced through grand corruption, are laundered using complex layering schemes that cloak them in legitimacy by concealing their origins. Lamentably, weak anti-money laundering (AML) frameworks promote economic instability, unjust commercial advantages and organized crimes. This study aims to highlight the need for comprehensive anti-corruption and AML frameworks by critiquing the exploitable gaps in the global AML regime created by heterogeneous state-level AML regimes to date. Design/methodology/approach This study welcomes the United Nations Convention against Corruption (UNCAC) and the financial action task force (FATF) recommendations but underscores the limitations of their effectiveness by investigating state-level enforcement mechanisms to determine these instruments’ true impact or lack thereof. The mutual evaluation reports (MERs) and state-level AML regimes in the UK, the USA and Canada are analyzed to illustrate the distinct implementation of international soft law in domestic legislation. Findings This study finds that UNCAC and the FATF recommendations are pivotal steps towards the establishment of a global AML regime for international business, albeit, one that remains imperfect because of the inconsistency of state-level AML frameworks. Consequently, international cooperation is needed to navigate and improve the discrepancies in varied AML legislation. Originality/value The author provides an in-depth and balanced analysis of current state-level AML developments and relies upon the recent 2016-2018 MERs to indicate the successes and flaws of various AML legislation. Therefore, this critique may guide stakeholders to construct robust AML frameworks and contributes to academic research in AML.

International regulation of virtual assets under FATF’s new standards

PurposeTo critically examine two significant developments for the regulation and supervision of virtual assets and virtual assets services providers: the amendment of the Financial Action Task Force (FATF) Recommendation No 15 in October 2018 and the adoption of an Interpretative Note in June 2019. We argue that new FATF standards constitute an appropriate response to money laundering and terrorist financing risks associated with virtual assets, but that they must be followed by firm, consistent and effective implementation at the national level.Design/methodology/approachThis paper draws on reports, legislation, legal scholarship and other open source data in order to examine the new FATF standards on virtual assets.FindingsThe amendment of the FATF Recommendation No 15 in October 2018 and the adoption of an Interpretative Note in June 2019 have been necessary and opportune to forge a global approach to mitigate money laundering risks associated with crypto-assets. The new FATF standards on crypto-asset activities need to be implemented firmly, effectively and consistency to reduce the risk of jurisdiction-shopping by money launderers and terrorism financiers.Originality/valueThis is one of the first studies examining two important and recent FATF initiatives, the amendment of the FATF Recommendation No 15 in October 2018 and the adoption of an Interpretative Note in June 2019.

Investigating the relationships between FATF recommendation compliance, regulatory affiliations and the Basel Anti-Money Laundering Index

Money laundering (ML) is harmful as it provides an opportunity for criminals to launder (or legitimise) criminal proceeds and reinvest laundered funds into their activities. ML also creates economic distortions, erosion of financial sectors, reduced government revenue and other socioeconomic effects. To reduce potential ML, governments use security intelligence and financial regulation. To enhance financial security and reduce the illicit ML opportunities, countries will benefit from understanding how the adoption of the Financial Action Task Force (FATF) Recommendations and their regulatory affiliations affect the risk of ML. Our findings reveal irregularity in the guidelines used by countries to develop AML regulatory policy, which undermines AML security. Further, highly FATF-compliant countries tend to enjoy lower ML risk and are often affiliated with well-established regulatory groups. This suggests the need to maintain ongoing and consistent compliance standards across all affiliation groups and further facilitate cross-jurisdictional cooperation among financial intelligence agencies to maximise the spillover effect from highly compliant and low ML-risk jurisdictions.

Toward a Public-Key Management Framework for Virtual Assets and Virtual Asset Service Providers

The recent Financial Action Task Force (FATF) Recommendations define virtual assets and virtual asset service providers (VASPs), and require under the Travel Rule that originating VASPs obtain and hold the required and accurate originator information and the required beneficiary information on virtual asset transfers. In this paper, we discuss the notion of key ownership evidence as a core part of originator and beneficiary information required by the FATF Recommendations. We discuss the approaches to securely communicate the originator and beneficiary information between VASPs, and review the existing standards for public-key certificates as applied to VASPs and virtual asset transfers. We propose the notion of a trust network of VASPs in which originator and beneficiary information, including key ownership information, can be exchanged securely off-chain while observing the individual privacy requirements.