Framework for Country Risk Analysis: FATF
Country Risk Analysis has got two perspectives:
1. How another nation looks at a nation; example any International body or country wants to know how good is India for doing business with .This is external evaluation of India by that organisation or country. This kind of analysis is referred in this blog as Country Risk Analysis
2. How national Govt evaluate its own risk ; example India wants to know how best it is expressed to other nations about doing business. This is internal evaluation of India. This type of analysis is referred in this blog as National Risk Analysis
FATF has come up with a standard framework for evaluation that can be understood universally whether it is external or internal evaluation.
A country's
efforts in developing sound laws and regulations and implementing and enforcing
them should focus on one goal, the high-level objective of an effective AML/CFT framework:
Financial
systems and the broader economy are protected from the threats of money
laundering and the financing of terrorism and proliferation, thereby
strengthening financial sector integrity and contributing
to safety and security.
This
objective can only be achieved if the components of a country’s AML/CFT
framework are operating well together. The intermediate outcomes below
represent the thematic goals of an AML/CFT system that is effectively
protecting financial sector integrity and contributing to safety and
security.
Intermediate Outcomes
The FATF has then identified three Intermediate
Outcomes (major thematic goals; broadly Policy, Preventative and Investigative)
and 11 Immediate Outcomes, which feed the Intermediate Outcomes and are the key
goals against which effectiveness will be measured. For each of the Immediate
Outcomes, the FATF has published Characteristics of an Effective System, Core
Issues to be considered and Examples of Information and Specific Factors that
could support the conclusions the assessors will reach. There are four possible
ratings for each Immediate Outcome: High level of effectiveness; Substantial
level of effectiveness; Moderate level of effectiveness; and Low level of
effectiveness.
Immediate Outcomes for each of the three Intermediate Outcomes
|
Policy |
Preventative |
Investigative |
|
Risk, Policy, Coordination |
Supervision |
Financial Intelligence |
|
International Cooperation |
Preventive Measures |
Money Laundering Investigation
& Prosecution |
|
|
Legal Persons and arrangements |
Confiscation |
|
|
|
Terrorist financing investigation
& prosecution |
|
|
|
Terrorist financing preventive
measures & financial sanctions |
|
|
|
Proliferation financial sanction |
Explanations to the 11 Items of Immediate Outcomes
1. Risk, Policy , Coordination
Money Laundering and Terrorist financing Risks are understood and where appropriate actions coordinated domestically to combat money laundering and the financing of terrorism and proliferation
2. International Cooperation
International cooperation delivers appropriate information, financial intelligence and evidence and facilitates action against criminals and their assets
3. Supervision
Supervisors appropriately supervise, monitor and regulate Financial Institutions and DNFPBs for compliance with AML/CFT requirements appropriate to their risks
4. Preventive Measures
Financial Institutions and DNFPBs adequately apply AML/CFT requirements commensurate with their risks and report Suspicious Transactions
5. Legal Persons and Arrangements
Legal Persons and arrangements are prevented from misuse for Money Laundering or Terrorist Financing and information on their beneficial ownership is available to competent authorities without impediments
6. Financial Intelligence
Financial Intelligence and all their information are appropriately used by competent authorities for money laundering and terrorist financing investigations
7. Money Laundering Investigation and Prosecution
Money laundering offences and activities are investigated and offenders are prosecuted and subject to effective, proportionate and dissuasive sanctions
8. Confiscation
Proceeds and Instrumentalities of crime are confiscated
9. Terrorist Financing Investigation & Prosecution
terrorist financing offences and activities are investigated and offenders are prosecuted and subject to effective, proportionate and dissuasive sanctions
10. Terrorist Financing Preventive Measures and Financial Sanctions
Terrorists, Terrorist organisations and their financiers are prevented from raising, moving and using funds and from abusing the NPO sector
11. Proliferation Financial Sanctions
Persons and entities involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using funds consistent with relevant UNSCRs
To
achieve these intermediate outcomes, the FATF has identified 11 key goals as stated above that
an effective AML/CFT framework should achieve. These key goals or
‘immediate outcomes’ are organised by thematic goal. During its mutual
evaluations, the FATF will assess the effectiveness of a country’s efforts
against each of these 11 immediate outcomes.
The
extent to which a country implements the technical requirements of each of the
FATF Recommendations remains important, they are after all the building blocks
for an effective framework to protect the financial system.
But,
adopting compliant laws and regulations is not sufficient. Each country
must enforce these measures, and ensure that the operational, law enforcement
and legal components of an AML/CFT system work together effectively to deliver
results: the 11 immediate outcomes.
During
an assessment, the FATF will look for evidence that demonstrates how well all
these components are working together in the context of the risks that the
country is exposed to.
The FATF
Recommendations set out a comprehensive and consistent framework of measures
which countries should implement in order to combat money laundering and
terrorist financing, as well as the financing of proliferation of weapons of
mass destruction. Countries have diverse legal, administrative and operational
frameworks and different financial systems, and so cannot all take identical
measures to counter these threats.
The FATF
Recommendations, therefore, set an international standard, which countriesshould implement through measures adapted to their particular circumstances.
The FATF Standards comprise the Recommendations themselves and their
Interpretive Notes, together with the applicable definitions in the
Glossary.
Classification of Countries : FATF
During mutual
evaluations, the FATF assesses a country's effectiveness against each IO. The
effectiveness ratings can be high (HE), substantial (SE), moderate (ME), or low
(LE):
·
High: The IO is
achieved to a very large extent, with only minor improvements needed
·
Substantial: The
IO is achieved to a large extent, with moderate improvements needed
·
Moderate: The IO
is achieved to some extent, with major improvements needed
·
Low: The IO is
not achieved or achieved to a negligible extent
The FATF adopted its assessment methodology in 2013 and amended it in 2022. In 2024, the FATF began its fifth round of evaluations using the amended methodology.
The FATF maintains a list of high-risk and other monitored jurisdictions that have strategic deficiencies in their AML/CFT systems. This is a key source of information to assist you meet your obligations relating to countries with “insufficient” AML/CFT systems or measures in place.
To achieve global implementation of the FATF Recommendations,
the FATF relies on a strong global network of FATF-Style Regional
Bodies (FSRBs), in addition to its own 39 members. The nine FSRBs
have an essential role in promoting the effective implementation of the FATF
Recommendations by their membership and in providing expertise and input in
FATF policy-making. Over 200 jurisdictions around the world have commited
to the FATF Recommendations through the global network of FSRBs and FATF
memberships. Since 2007 the ICRG has reviewed 125 countries, and publicly
identified (i.e. "listed") 98 countries. Of these 98 countries, 72
have since made the necessary reforms to address their AML/CFT weaknesses
and have been removed from the process.
Thus broadly, there are three classes of countries:
|
1 |
2 |
3 |
|
FATF Standards Compliant Jurisdictions |
High Risk Jurisdictions subject to call for Action |
Jurisdictions under Increased Monitoring |
Jurisdiction subject to a
FATF call on its members and other jurisdictions to apply enhanced due
diligence measures proportionate to the risks arising from the jurisdiction
The FATF’s process to publicly list countries with weak
AML/CFT regimes has proved effective. As of February 2024, the FATF has
reviewed 131 countries and jurisdictions and publicly identified 106 of them.
Of these, 82 have since made the necessary reforms to address their AML/CFT
weaknesses and have been removed from the process.
§ Consequences of
Being Enlisted in FATF Lists: The
enlisted countries are subjected to:
o Economic sanctions from financial institutions affiliated
with FATF (IMF, World Bank, ADB etc.)
o Problem in getting
loans from such
financial institutions and countries
o Reductions in
international trade
o International
boycott
Happy Reading
Those who read this, also read:
1.Country Risk Assessment Framework: World Bank
3. National Risk Analysis (NRA) Framework
Comments
Post a Comment