Announcement Date: April 1, 2016
A small delegation of the Global NPO coalition on FATF comprising Lia van Broekhoven (HSC) and Hanna Surmatz (EFC) met with David Lewis, new FATF Executive Secretary on April 1, 2016. Mr Lewis was appointed Executive Secretary in October 2015, prior to which he served for several years as head of anti-money landering and terrorism finance at UK Treasury. Here, his team was responsible for the Money Laundering Regulations in the UK, the negotiation of the 4th EU Money Laundering Directive, the UK’s National AML/CFT Risk Assessment, the Financial Action Task Force (FATF) and the FATF-Style Regional Bodies. He was co-chair of the FATF Evaluation and Compliance Group responsible for country evaluations.
Mr. Lewis said that FATF aims to address the changing threats from terrorist financing, including efforts to tackle groups such as ISIL and Boko Haram. FATF has already developed closer ties with other international bodies including the G20, the United Nations and the Egmont Group, as well as with civil society and the private sector. He clearly welcomes the improved dialogue with the NPO sector. This being the first opportunity to meet the new FATF Executive Secretary in person, the delegation used the opportunity to recall its key asks for a revision of Recommendation 8 (R8) and its Interpretive Note (IN) and for engagement between FATF and the NPO sector more generally.
Need to revise both IN and R8
The NPO delegation stressed the point that not only should the R8 Interpretative note be revised but also R8 itself. By stating that the entire NPO sector is ‘particularly vulnerable’ to terrorism financing abuse, the existing wording of Recommendation 8 is not in line with FATF’s risk-based approach. Mr. Lewis confirmed that the revision of R8 was on the agenda for the FATF plenary in June but Member States would still need to agree on whether they wanted smaller amendments (bringing R8 in line with the risk-based approach) or a much more substantial review. A new draft text would not be ready for the April NPO coalition meeting. The NPO delegation emphasised the need for a consultation with the NPO sector on the draft new text.
Formalised dialogue with NPO sector
Mr. Lewis welcomed the more structured dialogue between FATF and the NPO sector, which could work as a model for collaboration with other sectors. The coalition ask for NPOs to be included in the Private Consultative Forum was noted by the Secretary General. Mr. Lewis complimented the Non-Profit Platform on FATF http://fatfplatform.org which he found very informative.
Derisking of banks
The NPO delegation also raised its concern about the increased derisking by banks, which has led to banks refusing to service entire parts of the NPO sector (and certain geographies). Being aware of the issue, Mr. Lewis recalled recent FATF action on the matter with the aim of limiting derisking by banks of NPOs and other sectors. More guidance as to how the FATF Recommendations should be implemented were recently issued: e.g, on the risk-based approach for banks and money value transfer services, as well as on best practice for NPOs.
The NPO delegation stated that the NPO coalition will further analyse how this derisking attitude of banks could potentially be solved by appealing to banks’ corporate social responsibility and highlighting potential reputational issues in not serving the charitable sector, given the important contribution of the sector to development/humanitarian and other public benefit work. Mr Lewis welcomed this initiative.
Another issue around derisking that concerns the FATF is related to the restriction or termination of correspondent banking relationships (CBRs) (i.e., the provision of banking services by one bank to another) and account closures of money transfer operators (MTOs). One of the reasons banks end CBRs is regulatory and risk-related, the other is related to economics (profitability). FATF Recommendations do not require banks to know their customer’s customer as a matter of course. See here.
Since banks, however, remain liable, concerns remain whether this guidance will limit the derisking attitude of banks. The FATF is closely working with the Financial Stability Board to come up with CBR guidance and to ensure that related guidance is consistent with this (e.g., that issued by the Basel Committee on Bank Supervision and the Committee on Payments and Market Infrastructures (CPMI) agreements and procedures) in order to elucidate ways to act on the increased withdrawal from corresponding banking by banks.
FATF evaluations and training of evaluators
Experience with recent FATF evaluations has revealed that FATF evaluations under the new methodology can be a tool against overbroad restrictions on the NPO sector. They can also be used as a tool to train countries in following a risk-based approach. Countries which do not undertake a risk assessment or do not involve the NPO sector in the assessment will not be considered compliant with FATF Recommendations. Mr. Lewis stated that FATF evaluators should look into any potential derisking by banks and raise such concerns in their assessment reports and also that overregulation of the NPO sector in relation to the risk of the sector for abuse/misuse for terrorism financing (support) needed to be addressed by evaluations teams. He emphasised that NPO regulation needs to be context-specific and proportionate to the risk of such abuse/misuse. The NPO delegation stated that under a specific European project efforts have also started to develop guidance for NPOs to engage more actively in national risk assessments and in national evaluation processes.