In a globalized world with high capital mobility, it is essential that, together with properly financial and tax controls, there are those that ensure the transparency of the origin of funds, in order to avoid money laundering, financing of terrorist activities, proliferation of weapons of mass destruction and the financing of other illicit activities.
Javier Edwards Renard
For these purposes, at international level the Financial Action Task Force (FATF) was created, an intergovernmental body created in Paris, France, in 1989, by the G-7 to establish standards and promote the effective application of legal, regulatory and operational measures to combat money laundering (ML), terrorist financing (FT) and other threats related to the integrity of the international financial system.
The FATF issues a series of recommendations, recognized as the international standard for combating money laundering, terrorist financing and the proliferation of weapons of mass destruction. More information at www.fatf-gafi.org
The first 40 Recommendations date from 1990, one year after the FATF was created, to provide a global action plan against money laundering. These Recommendations were revised in 1996, in 2001 (after the attack on the Twin Towers in the United States, 8 Special Recommendations on terrorist financing were added) and in 2003 (a Ninth Special Recommendation against FT was added).
Finally, in February 2012, and after two years of review, the FATF approved and published the 40 Recommendations to combat ML / FT, which replaced the 40 Recommendations issued in 1990, and the 9 Special Recommendations against FT issued in 2001.
To verify the degree of progress in the implementation and fulfillment of the 40 Recommendations, the countries periodically undergo Mutual Evaluations. In the case of Chile, mutual evaluations are carried out within GAFILAT.
The entity that in Chile fulfills the functions of financial control in these matters is the Financial Analysis Unit (“Unidad de Análisis Financiero” – UAF), a decentralized public service, with its own legal personality and assets, which is related to the Presidency of the Republic, through the Ministry of the Treasury. The UAF was created by Law No. 19,913, which was published in the Official Gazette on December 18, 2003.
The objective of the UAF is to prevent and impede the use of the financial system, and of other sectors of Chilean economic activity, for the commission of the crimes of money laundering (ML) and financing of terrorism (FT).
To do this, it performs financial intelligence, issues regulations, monitors compliance, imposes administrative sanctions, trains and disseminates information of a public nature.
The foregoing, following the 40 Recommendations of Financial Action Task Force (FATF), the results of the evaluations to Chile of the Latin American Financial Action Group (GAFILAT), and the guidelines of the Egmont Group of Financial Intelligence Units.
As Chile’s representative before GAFILAT, the UAF coordinates the National Anti-Money Laundering and Terrorism Financing System, whose fundamental pillars are the prevention, detection, prosecution and punishment of both crimes.
The development of these pillars is contained in the Action Plan of the National Strategy for the Prevention and Combat of Money Laundering and Terrorism Financing, a document prepared by 20 public organizations, under the coordination of the UAF.
In addition, and in order to promote transparency and probity, the Financial Analysis Unit is part of the Anti-Corruption Alliance of the United Nations Convention against Corruption (UNCAC), a working group created in May 2012, which brings together representatives from public and private institutions, the Academy, civil society organizations and multilateral organizations.
With regard to the FATF, it currently has 37 members (35 countries plus the European Commission and the Cooperation Council for the Arab States of the Persian Gulf), 2 observers (Israel and Saudi Arabia) and 9 regional groups as associated bodies. These are: Asia / Pacific Group on Money Laundering (APG), Caribbean Financial Action Task Force (CFATF), Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), Eurasian Group (EAG), Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Financial Action Task Force of Latin America (GAFILAT), Inter Governmental Action Group against Money Laundering in West Africa (GIABA), Middle East and North Africa Financial Action Task Force (MENAFATF) and Task Force on Money Laundering in Central Africa (GABAC).
The FATF maintains a list of countries that do not comply or have deficiencies in the control measures of supervised illegal activities, which is updated periodically. The objective of this work is for them to apply measures to protect the international financial system.
In the most recent update of the list, Haiti, Malta, the Philippines and South Sudan, countries that need to implement improvements in their prevention systems, have been included and Ghana has been excluded. These countries must implement improvements in their systems for the prevention of money laundering and terrorist financing.
To date, the updated list of high-risk countries that present strategic deficiencies in PBCyFT, according to the FATF, is as follows:
Albania, Barbados, Burma, Botswana, Burkina Faso, Cambodia, North Korea (call for action), Philippines, Haiti, Iran (call for action), Cayman Islands, Jamaica, Malta, Morocco, Mauritius, Nicaragua, Pakistan, Panama, Senegal, South Sudan, Syria, Uganda, Yemen, Zimbabwe.
That a country is included in the FATF list implies a series of adverse effects, both for the operations of the State and those of its private agents, higher levels of supervision in relation therewith. A country listed by the FATF has a poor rating in the evaluation of its preventive system against money laundering, terrorist financing, financing of the proliferation of weapons of mass destruction, which will involve measures ranging from follow-ups or monitoring by groups regional to more drastic measures, such as inclusion in the lists of high-risk jurisdictions, divided by color (white, gray and black).
In this way, those countries that do not pass the FATF assessment or do so poorly, are considered risky jurisdictions and associated with a lack of transparency and, automatically, the risk rating is raised.
One of the main affected by an eventual entry to the FATF list is the financial system. Immediately, the country would be classified as higher risk and by a criteria established in international standards, called “risk approach”, entities (public and private) that want to work with said country should increase their levels of control and face higher costs, for this purpose, which would be transferred to the market and to the consumer.
Likewise, it is highly probable that bank correspondents limit operations and/or services, resulting in the closing of accounts to remittance operators, limitations on currency exchange, restrictions on commercial relationships, among others.
Likewise, the adverse effects will impact the businesses of the importing, exporting and transnational companies sectors. Finally, a bad result in the mutual evaluation reduces the sovereign risk rating and hinders the objectives of achieving investment grade and admission or permanence in the OECD (Organization for Economic Cooperation and Development).
Chile is not listed by the FATF and the UAF is in charge of ensuring that this does not happen. Being aware of these recommendations and their proper implementation is relevant both at the country level and at the level of those with whom private agents operate. Therefore, it is important for companies that carry out commercial activities with international capital transfers, to comply with local regulations (in this case supervised by the UAF), be aware of the FATF recommendations and be clear about the potential impact that this implies, carrying out operations with entities located in listed countries.