On June 21-23, 2023 FATF had its third plenary meeting in Paris, France. The discussions in the plenary mainly focused on the measures for the anti-money laundering (AML) and the countering of terrorist financing (CFT) in Luxembourg, the additions to the Grey List (Vietnam, Croatia, and Cameroon), the situation and progress of the jurisdictions that are noted as high-risk for the financial system, the level of progress of the countries on the virtual asset requirements of the FATF in the last year, and  how to prevent the misuse of the nonprofit organizations for terrorist financing purposes. It is possible to summarize the outcomes of the plenary in three main spotlights:

1. Luxembourg’s Mutual Evaluation Report (MER)
2. Additions to Grey List: Vietnam Croatia and Cameroon
3. Updates of FATF Guidance on Addressing Terrorist Financing Risks

1. Luxembourg’s Mutual Evaluation Report (MER)

The FATF applies regular evaluations of its member countries to ensure that they remain compliant with anti-money laundering (AML) and counter-terrorist financing (CFT) standards and these assessments are reported as Mutual Evaluation Reports (MER).  In June 2023, it was Luxembourg that was assessed for that purpose which provided an in-depth analysis of the country’s AML/CFT framework and its implementation.

The MER of Luxembourg highlighted that the country has a robust legal and regulatory framework for combating money laundering and terrorist financing. The success in understanding the money laundering and terrorist financing risks has led to effective technical compliance with FATF requirements and eventually a solid and strong AML/CFT program in the country. Luxembourg was also found to excel in cooperation at both policy and operational levels by operating the financial intelligence unit perfectly and achieving constructive international cooperation.

The FATF recommended Luxembourg to focus its improvement efforts on risk-based supervision of the non-financial sector and focusing on fortifying the identification, evaluation and prosecution of more complex ML/TF cases in line with its effective financial sector role.

Luxembourg’s inclusion in the FATF MER process underscores the importance of continuous vigilance in strengthening AML/CFT measures even for well-regulated financial centers. The country is now expected to work on addressing the identified deficiencies and enhancing its AML/CFT regime to safeguard the integrity of its financial system.

2. Additions to Grey List: Vietnam, Croatia, and Cameroon

The Grey List, also known as the “Jurisdictions under Increased Monitoring” by FATF, comprises countries that are considered to have strategic deficiencies in their AML/CFT regimes. In June 2023, FATF added Vietnam, Croatia, and Cameroon to the Grey List due to the deficiencies detected in the AML/CFT programs of those countries.

Vietnam, Croatia, and Cameroon now face greater scrutiny from the international community and will be subject to more stringent monitoring by FATF. Being listed on the Grey List can have serious implications for these countries’ economies. They will need to spare more budget for compliance-related operations, the amount of foreign investments is likely to decrease and their access to global financial markets will be limited. As a result, in order to be able to minimize the negative effects of being in the grey list, these nations must demonstrate their commitment to rectifying the identified deficiencies promptly and effectively.

3. Updates of FATF Guidance on Addressing Terrorist Financing Risks

The ever-changing nature of money laundering and terrorist financing activities requires constant updates to global AML/CFT guidelines to fight new and emerging threats effectively. In its June 2023 Plenary, FATF presented updates to its guidance on addressing terrorist financing risks, focusing on enhancing the capabilities of financial institutions to identify and prevent such activities. Alterations and developments on the virtual assets and non-profit financial sector requirements were among the most eminent ones.

The updated guidance highlights the importance of incorporating risk-based approaches to evaluate and mitigate terrorist financing risks. Financial institutions are encouraged to adopt more sophisticated technological solutions, including artificial intelligence (AI) and machine learning (ML), to detect suspicious transactions and monitor customer behavior effectively.

One of the main updates was targeting virtual asset service providers (VASPs) as there are significant risks created by a lack of necessary regulation in that sector. The particular attention was given to the travel rule which requires VASPs to include originator and beneficiary information in virtual asset transactions. The ultimate purpose of the rule is to prevent the abuse of virtual asset transactions for money laundering and terrorist financing activities. However, it is detected that more than half of the countries the FATF inquired had failed to implement the rule successfully.

Additionally, FATF emphasized the need for enhanced data sharing and cooperation between public and private sectors to combat terrorist financing more powerfully. This collaborative effort is expected to empower authorities and financial institutions to exchange intelligence and respond swiftly to emerging threats.

Conclusion

The FATF Plenary meeting in June 2023 addressed several significant issues concerning the global efforts against money laundering, terrorist financing, and financial crimes. As the financial industry is continuously evolving, the FATF thrives to follow the developments in the sector closely so that it can revolutionize itself both to support the industry and ro prevent the criminal activities at its best.

In this ever-evolving, global financial atmosphere, collaboration and constant vigilance will be crucial in safeguarding the integrity and stability of the international financial system. The FATF’s efforts, along with the active participation of member countries, will play a pivotal role in countering money laundering, terrorist financing, and other financial crimes in the years to come.