This Week in AML
This week FATF issued a Mutual Evaluation Report for Japan. John and Elliot discuss the findings in the report, the report process, and the focus of the process on assessing the effectiveness of a nation’s measures and their level of compliance with the FATF Recommendations.
FATF: Mutual Evaluation Report – Japan TRANSCRIPT
Elliot Berman: John, how are you this week?
John Byrne: I'm good, Elliot. How are you doing?
Elliot Berman: I'm good too. I noticed this week that FATF, which does a lot of different things as we've talked with our audience in the past [and] one of the things they do is mutual evaluations of member countries about how well they're doing in terms of their overall anti-money laundering and terrorist financing programs. The report for Japan was issued early this week.
Did you see that report?
John Byrne: I did. And, you know, in addition to the mutual evaluation process, a couple of years ago, I don't remember exactly when it was decided that they would evaluate based on effectiveness. So, in the past, you could argue that evaluations were - do you have the laws and regs on the books? Is there some evidence of utility?
But they sort of shifted that in a more robust way. Evaluation reports give you a better sense. As we both know the evaluators, we actually have one of the constant evaluators on our advisory board, Nick Burbidge from Canada. But the evaluators are experts from other jurisdictions that go in [and] assess, like I said, effectiveness. So, it definitely gives the jurisdiction and understanding of where they sit in terms of the FATF recommendations and some of the other guidance that has been given by that organization and also areas where there is potential, needed improvement.
So, I think this is a good example. Whether you're doing business in Japan or not, this is a good example for our audience. Take a look at the report and look at least [at] the executive summary and some of the metrics there. It gives you a good understanding of again, using the same word, how robust the oversight is by the FATF evaluators.
Elliot Berman: Right. I think the other thing that would be valuable for our listeners is to take a look at this report and really see the level of detail and the comprehensive nature of the evaluative process. This is not by any means a fly-by, as you pointed out, world-recognized experts in the field that are the evaluators, and their evaluative process is deep and thoughtful.
The thing that caught me about this report is, again, not that Japan, you know, did terribly by any means, but even you know [a] strong industrial economy with a good general governance process as a country, it's not just green, green, green, green, green, in some of the dashboards. There's a lot of hard work for jurisdictions, and this is, in many ways, probably the most consistent review process that they get.
John Byrne: Yeah. And one of the ratings to your point that received a moderate valuation was in terms of effectiveness is the terrorist organizations, and terrorist's financiers are prevented from raising, moving, and using funds and from abusing the nonprofit sector.
So, they said they were moderately successful there, and it sort of plays into some of the priorities. Going forward, the one area [in] which they received a non-compliant had to do with nonprofits and, you know, that's a big issue for our community because of de-risking, de-marketing, whatever you want to call it.
And in terms of the conclusion of the evaluation is, going forward, what are some of the priorities? And related to that, one of the priorities [is] ensuring that there's a complete understanding of NPOs and risk of abuse of terrorist financing in particularly those in higher-risk regions.
And that there'd be outreach guidance and monitoring supervision, and that's with those risks. All that is to say because we know not-for-profits in the past [were] abused for terrorist finance purposes. That's an area where Japan really needs to step it up. And since we're going into 20 years, since 9/11, it's sort of an important point.
I mean, many other things were mentioned, [but] they got a lot of high marks in some other areas, but that was the one thing that sort of stuck out at me.
Elliot Berman: Yeah, I agree. If you want to, not as a compare and contrast, but if you're one of our listeners and you're in the United States, you know, you can pull up the most recent US report and take a look at it. It too isn't green, green, green, green, green, so, even countries where you feel like there is a robust regime and many players are active, positive participants, there are still always challenges.
John Byrne: Yeah. And to that point, I'm fairly certain without the US evaluation in front of me, one of the areas where we both had gaps had to do with regulation and supervision of not traditional depository institutions, and Japan was considered partially compliant.
And I think we had a similar evaluation. So, you know, even with a robust supervisory oversight, that's another area. That gap that FATF is certainly highlighting.
Elliot Berman: Right. A reminder of the dynamic nature of the world financial system and how different payment streams and payment products, and things outside the traditional are making a difficult job that much more complicated.
John Byrne: I agree.
Elliot Berman: I'll do my commercial first. If you liked this podcast, please join us weekly. We do this one and join us for our other podcasts. You can find them on Spotify, Apple Podcasts, SoundCloud, or wherever you find your podcasts currently.
John Byrne: Yes, and next week, next Thursday, September 9th, we're doing a very special webinar to commemorate and better understand the ramifications of 9/11. It's been 20 years, as we all know, since 9/11, you're going to have three individuals that were engaged, not only on that horrific day but afterward. We're going to do more than talk about the day, which again was terrible, but talk about how it impacted the AML CFT or CTF communities going forward.
So, an opportunity to ask us questions. If you get a chance to register for that, it's on our website. [It's] [at] one o'clock eastern time next Thursday, September 9th.
Elliot Berman: Okay, well, John, I will obviously be watching from the wings of the webinar, but also, I will talk to you for This Week in AML next week.
John Byrne: Great. Take care of yourself, Elliot, [we’ll] talk soon.
Elliot Berman: Yup. Have a good holiday weekend.
John Byrne: You too. Bye.
Elliot Berman: Bye-bye.