Counterterrorism Blog

FATF (The Financial Action Task Force) appears to be poised to take on a greater role in combating illicit international financial activities, adding nuclear proliferation financing to its focus of attention. Meeting in Paris earlier this month, under British chairmanship, the group voted to issue new international warnings concerning Iran’s illicit financial transactions and new measures to support the UN Security Council counter nuclear proliferation resolutions. On 11 October 2007, the FATF Plenary released the following statement on Iran:

The Financial Action Task Force (FATF) is concerned that the Islamic Republic of Iran’s lack of a comprehensive anti-money laundering / combating the financing of terrorism (AML/CFT) regime represents a significant vulnerability within the international financial system. FATF calls upon Iran to address on an urgent basis its AML/CFT deficiencies, including those identified in the 2006 International Monetary Fund Article IV Consultation Report for Iran. FATF members are advising their financial institutions to take the risk arising from the deficiencies in Iran’s AML/CFT regime into account for enhanced due diligence.

FATF also posted new guidance October 15th on its website calling on countries to carry out the measures adopted in UN Security Council Resolution 1737 concerning financial prohibitions to combat the threat of WMD proliferation by Iran. While very general in nature the guidance focuses attention on the need for all financial institutions to implement enhanced due diligence policies with regard to transactions involving Iran. The guidance also calls on financial institutions to “consider additional steps such as terminating the relationship with the relevant customer or account or suspending the relevant transaction pending further investigation.” If such due diligence measures are actually implemented this could have a significant impact on Iran’s financial sector placing increased pressure on the regime to alter course concerning its nuclear weapons ambitions.

FATF was originally established in 1989 by the G7 to act as a forum for cooperation in combating money laundering and corrupt government/business practices. Terrorism financing was added to its mandate following 9/11. The organization grew from its initial 16 country membership to 34 today, grouping together countries whose financial institutions play a key role in the global marketplace. Like many international groups, FATF kicked off with a burst of activity - issuing recommendations, guidelines and best practices, but then faded into the background unable to truly carry out such an activist mandate. In 2000, FATF members agreed to put together a list of so-called non cooperating countries (the NCCT list). Financial institutions were cautioned to exercise special due diligence in handling transactions for, or on behalf of financial institutions in the listed countries. The initial list of about a dozen countries was put together somewhat hastily, and on the basis of specific complaints from FATF member countries. And the practice was quickly and roundly criticized by other international financial institutions that felt that inadequate criteria were being applied in assessing problem institutions. Nevertheless the countries placed on the list each, in turn, enacted new regulatory legislation to gain removal from the NCCT list, and all have now been taken off the list, the last being Myanmar in October 2006. No new countries have been added to the list since 2002.

Some countries, like Liechtenstein and Israel, took the NCCT listing very seriously, and significantly reformed their banking practices. Others did little more than pass new legislation with little actual impact on their banking sectors. FATF simply accepted this new legislation and these quick fixes at face value without any indications that the new measures were actually and effectively being implemented and enforced. With the loss of its NCCT listing threat, FATF lost its clout. And following it’s Stockholm summit in November 2003, where it proved unable to move forward with CTAG’s proposed agenda to help identify countries lacking resources of political will to combat terrorism, FATF was pushed to the sidelines. It will be very interesting to see if FATF will now again occupy its place in the sun.

G7 Finance Ministers meeting in Washington last week praised FATF’s decision to move ahead with the warnings concerning Iranian banking institutions.

We commend the Financial Action Task Force (FATF) for its ongoing work examining the risks of weapons of mass destruction proliferation finance, enhancing its surveillance of global threats, and deepening its dialogue with the private sector. We call upon the IMF and World Bank to continue their close cooperation with the FATF, and we urge the FATF to collaborate intensively with jurisdictions that have failed to recognize international standards.

The Ministers also agreed that they would put forth new measures in the coming months to “refresh” FATF’s mandate and to turn it, once again, into an important player in combating the illicit use of the international financial system by criminals, terrorists, (and now) nuclear proliferators.