1. The Revised FATF Standards and FATF Methodology: Some Highlights and Impact on Global AML/CFT Efforts AMLA’s 3rd Full Day BSA/AML Conference Rosemont, IL October 4, 2013 By
Amit Kumar, Ph.D.
Fellow for Homeland Security and Counterterrorism, Center for National Policy

2. Highlights of New FATF Standards
Combining AML and CFT Standards
Risk Based Approach to AML/CFT
Targeted Sanctions Related to proliferation of WMD
To equip jurisdictions and institutions to adopt preventive measures and systemic controls against ML and TF
Responsibilities of competent authorities and standards dealing with national cooperation and coordination

3. Impact of Combining AML and CFT standards
Similarities between ML and TF
Terrorists using criminal methods more
Harmonize efforts of regulators and examiners
Harmonize compliance with combined AML and CFT standards on part of financial institutions
Harmonize efforts of International assessors tasked with AML/CFT compliance
ML involved in siphoning of funds from licit businesses and charities by terrorist organizations

4. Impact of Risk Based Approach to ML/TF
Threats in jurisdictions different– geographic location, economic development, legal and regulatory apparatus, kind of methods used to raise, launder, store, move, and deploy funds
Vulnerabilities of financial institutions different-customer profile, nature of business, management, environment
Risks assessments by squaring Threats and vulnerabilities
Resource allocation to mitigate risk based on risk assessments lowering compliance costs
One size fits all compliance paradigm costly

5. Risk Based Assessment for Financial Institutions-Categories of Risk Whom, Where, and What
Client Risk– obscuring understanding of ownership, business, nature of transactions; transactions not keeping with understanding of client’s business; client sectors prone to ML/TF
Country or Geographic Risk- Sanctions; weak regulations ; providing TF; corruption or criminal activity
Service Risk- services provided by financial institutions and intermediaries which risk being used to assist ML, like advice on setting up legal arrangements which may be used to obscure ownership or real economic purpose; misuse of introductory services

6. Risk Based Assessment for Financial Institutions-Application of a Risk Based Approach
Customer Due Diligence/Know Your Customer
Monitoring of Client Business and Transactions for Suspicious Activity
Suspicious activity reporting to designated competent authorities
Training and Awareness on AML/CFT compliance requirements

7. Risk Based Assessment for Financial Institutions-Internal Controls
Culture of Compliance
Senior Management Ownership and Support

8. Impact of Targeted sanctions related to WMD proliferation
Targeted sanctions against terrorists and criminals
Terrorists and criminals conduct terrorism and money laundering activities by procuring, deploying, and using WMD and/or their delivery systems
Jurisdictions now have to comply with standards relating to targeted sanctions against nuclear proliferators
Terrorist financing activity accompanying money laundering and WMD proliferation targeted

9. Impact of equipping jurisdictions and institutions to adopt preventive measures and systemic controls against ML and TF
Preventive measures and systemic ML/TF controls and their importance to jurisdictions and financial institutions
Customer due diligence, additional measures for PEPs, correspondent banking, Money transfer, new technologies, wire transfer; internal controls and foreign branches and subsidiaries; SAR Reporting; and DNFBPs
Encourage system wide compliance and boost financial integrity of both jurisdictions and institutions

10. Impact of Responsibilities of competent authorities and standards dealing with national cooperation and coordination
Encourage dovetailing of financial intelligence and criminal/counterterrorism intelligence
Financial intelligence from FIUs through SARs/CTRs
Counterterrorism/AML intelligence from law enforcement
Improve prosecution and conviction of ML and TF offenses
Aid in development of TF/ML typologies
Reduce costly defensive filing of SARs

11. Highlights of the new FATF Methodology
Technical Compliance Assessment
Effectiveness Assessment
Nature of ML/TF risks
Materiality (e.g. make up of the economy and its financial sector)
Structural elements
Other Contextual factors

12. Technical Compliance Assessment
Technical compliance assessment addresses the legal and institutional framework of the country, and the powers and procedures of the competent authorities-in other words testing compliance with each of the FATF Standards
5 point rating scale C (Compliant)– there are no shortcomings; LC (Largely compliant)- there are only minor shortcomings; PC (Partially Compliant)- there are moderate shortcomings; NC (Non-Compliant)- there are major shortcomings; NA (Non Applicable)- A requirement does not apply, due to the structural, legal, or institutional features of a country

13. Effectiveness Assessment
Assesses the adequacy of the implementation of FATF recommendations, and identifies the extent to which a country achieves a defined set of outcomes that are central to robust AML/CFT system
4 point rating scale: High Level of Effectiveness- The Immediate Outcome is achieved to a very large extent--Minor improvements needed; Substantial level of Effectiveness—The Immediate Outcome is achieved to a large extent– Moderate Improvements needed; Moderate level of effectiveness—The Immediate Outcome is achieved to a large extent—Major improvements needed; Low level of effectiveness—The Immediate Outcome is not achieved or achieved to a negligible extent– Fundamental improvements needed

14. Elements of Risk Assessment
Nature and extent of ML/TF risks
Circumstances of a country, which affect the materiality of different recommendations
Structural elements that underpin the AML/CFT system
Other contextual factors which could influence the way AML/CFT measures are implemented and how effective they are

15. Materiality
Relative importance of different parts of the financial sector
Size, integration, and make-up of the financial sector
Relative importance of different types of financial products or institutions
Amount of business which is domestic or cross-border
Extent to which economy is cash-based
Estimates of the size of the informal sector and/or shadow economy
Most important and relevant issues to the country should be given more weight when determining technical compliance ratings, as well as when assessing effectiveness

16. Structural Elements Political stability
High-level commitment to address AML/CFT issues
Stable institutions with accountability, integrity, and transparency
Rule of law
Capable, independent, and efficient judicial system
Deficiencies in structural elements may adversely impact both technical compliance and effectiveness ratings

17. Contextual Factors
Maturity and sophistication of the country’s regulatory and supervisory regime
Level of corruption and the impact of measures to combat corruption
Level of financial inclusion
Contextual factors affect ML/TF risks and increase/decrease effectiveness of AML/CFT measures

18. Links to Documents of Interest
The Revised FATF Standards: A Shot in the Arm for Countering the Financing of Terrorism Efforts. By Amit Kumar, Ph.D. CNP Security Center Blog. April 16, Available at
ABA Publication on Cash Couriers. Available at
International Efforts in CFT. By Amit Kumar, Ph.D. Critical Infrastructure Report., Center for Infrastructure Protection and Homeland Security. George Mason University School of Law. May pages Available at

19. Questions??

20. Contact Information
Amit Kumar, Ph.D. Fellow for Homeland Security and Counterterrorism Center for National Policy Tel: