Financial Action Task Force: Overview of Relevant KYC/CDD Recommendations

Financial Action Task Force

Financial Action Task Force or FATF is an intergovernmental body whose purpose is to establish international standards and develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism.  

The most important and influential of the international bodies is FATF. FATF is an intergovernmental body whose purpose is to establish international standards and develop and promote policies, both at national and international levels, to combat money laundering and the financing of terrorism. The objectives of FATF are to set global standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system.

Financial Action Task Force

The Financial Action Task Force

In 1990, FATF first issued its 40 Recommendations, which set out a basic framework for fighting money laundering. In 1996, in response to the identification of emerging risks, the 40 Recommendations were revised to strengthen the AML measures in place. In October 2001, in response to the September 11 attacks in the US, FATF’s mandate was expanded to include measures to combat terrorist financing and FATF immediately issued eight special recommendations on terrorist financing. These were expanded in 2004 to cover a ninth recommendation on managing cross-border currency movements. 

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The Recommendations 10 of FATF, is related to customer due diligence which broadly require institutions to perform the due diligence of customers appropriately, where the objective is to ensure that all customers are properly identified and verified before onboarding. The risks of money laundering and terrorist financing are to be avoided and for this purpose the performance of appropriate KYC and CDD measures are crucial.

FATF recommendation 10 requires that financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names. Financial institutions should be required to undertake customer due diligence (CDD) measures when:

(i) Establishing business relations

(ii) Carrying out occasional transactions: (i) above the applicable designated threshold; or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16

(iii) There is a suspicion of money laundering or terrorist financing

(iv) The financial institution has doubts about the veracity or adequacy of previously obtained customer identification data

Financial Action Task Force

Final Thoughts

The Financial Action Task Force (FATF) is an intergovernmental organization that develops and promotes financial crime policies and standards. The Financial Action Task Force makes recommendations to combat money laundering, terrorist financing, and other threats to the global financial system. The FATF was established in 1989 at the request of the G7 and is based in Paris.

Money laundering has grown in popularity as the global economy and international trade have expanded. The Financial Action Task Force makes recommendations to combat financial crime, reviews member policies and procedures, and works to increase global acceptance of anti-money laundering regulations. Because money launderers and others alter their techniques to avoid apprehension, the FATF must update its recommendations every few years.