Russia, Real Estate and Other Things*

For a variety of reasons, the 2022 June FATF Plenary is important to note in the AML community.

Of course, FATF reports, guidance and recommendations are always essential to staying current on how best to respond to the many challenges for combatting terrorism, money laundering and all forms of financial crime. However, June saw some unique actions.

We urge everyone to review the outcomes and here are a few highlights:

As we know, FATF changed its governance structure several years ago by having the FATF President serve for two years instead of the previous one. So, this month Dr. Marcus Pleyer from Germany handed off the presidency to T. Raja Kumar of Singapore and his priorities are covered below. Kumar is Senior Advisor for the Ministry of Home Affairs (MHA) for Singapore. It should also be noted that Elisa de Anda Madrazo of Mexico has been re-appointed for a second term as Vice-President of the FATF, from July 1, 2021 to June 30, 2023.

(Ms. De Anda currently serves as Director General in Mexico’s Ministry of Finance and Public Credit.)

Most importantly, FATF named a new Executive Secretary Violaine Clerc, a French national and the first female in this important role. Clerc started on June 1st in time for the plenary.

At the conclusion of the four day hybrid and in person meetings, FATF issued a statement on the Russia Federation and concluded that the Russian Federation “can no longer hold any leadership or advisory roles or take part in decision-making on standard-setting, FATF peer review processes, governance and membership matters.”

It was also noted that Russia engaged in “a gross violation of the commitment to international cooperation and mutual respect upon which FATF Members have agreed to implement and support the FATF Standards.”

Treasury Secretary Janet Yellen praised FATF for its response to Russia and highlighted the other outcomes including addressing the misuse of legal entities, real estate, and corruption.

The noteworthy addressing of the major gaps in AML oversight—namely, the real estate sector was a major theme from the June plenary.

Specifically, following a public consultation that concluded in April, the FATF finalized guidance for the real estate sector on how to implement risk-based measures to prevent money laundering and terrorist financing. FATF stated that “professionals involved in the real estate sector, from real estate agents to notaries, play an important role in preventing criminals from laundering their illicit assets through the purchase of often high-end real estate” but noted that recent fourth round of mutual evaluations “has demonstrated that the sector generally has a poor understanding of the risks they face.”

Well, there is an understatement.

FATF believes that the guidance will help the sector participants better understand the ML/TF risks and respond with effective measures to mitigate those risks. The report will be published in July.

As noted in early papers, in March 2022, the FATF agreed on tougher global beneficial ownership rules so as to better address how criminals launder funds through complex corporate structures or legal persons. FATF points out that this includes registries (which the US is developing now) “or alternative mechanism, which is as efficient.”

FATF, obviously reflecting the global AML community’s continued focus on shell companies and beneficial ownership documentation, is considering amendments to strengthen Recommendation 25, which applies to trusts and other legal arrangements. 

In addition, the FATF is releasing a white paper for public consultation “on the scope of legal arrangements, risk assessment and foreign trusts; obligations of trustees; definition of beneficial owners; approach in collecting beneficial ownership information; adequate, accurate and up-to-date information; and obstacles to transparency.” Comments are due on August 1.

 Given both the economic uncertainty and law enforcement concerns of virtual assets , the Plenary also discussed a targeted update on implementation of the FATF Standards to prevent the misuse of virtual assets and virtual asset service providers (VASPs) for money laundering, and the financing of terrorism and proliferation.

The report focuses on the implementation of the FATF’s Travel Rule, which requires VASPs to collect or send information on the identities of the originator and beneficiary with virtual asset transfers.  The report stresses the urgent need for jurisdictions to implement and enforce the travel rule.

In addition, the report provides an update on “emerging risks and market developments that FATF continues to monitor, such as Decentralised Finance (DeFi), Non-Fungible Tokens (NFTs), and unhosted wallets.” The report will be published at the end of June. 

 Finally, in keeping with the tradition, the Plenary received the priorities of incoming President T. Raja Kumar which starts July 1.

Among other issues, there will be a focus “on strengthening asset recovery and international cooperation in combating cross-border financial crime, such as cyber-enabled fraud/scams and ransomware”. The FATF also announced that they will work to strengthen the use of data analytics and public-private partnerships to assist in addressing money laundering and terrorism financing.  The FATF will publish the FATF Priorities under its Singapore Presidency on July 1.

 Other issues covered were updates to mutual evaluations (Germany and the Netherlands) with reports due in September, and announcing increased monitoring of Gibraltar and no longer coverage of Malta.

FATF has a long tradition of transparency and the providing of essential information for our community. June, while unique, was no exception.

*The Rain, the Park and Other Things was a 1967 #2 US hit single for the Cowsills written by Artie Kornfeld, the music promoter of Woodstock.