FATF Stops Short Of Action Over Russian Invasion

March 10, 2022
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The Financial Action Task Force (FATF) expresses “deep sorrow” over Ukraine, but Russia’s largely compliant status makes it unlikely for FATF to pursue any meaningful action towards Russia in the short term.

The Financial Action Task Force (FATF) expresses “deep sorrow” over Ukraine, but Russia’s largely compliant status makes it unlikely for FATF to pursue any meaningful action towards Russia in the short term.

FATF, the international anti-money laundering (AML) body, has condemned the invasion of Ukraine by Russia, with the unprecedented levels of sanctions expected to raise the risk of money laundering violations, as well as the broader integrity of the financial system itself.

In a statement, the body said: “The actions of the Government of the Russian Federation run counter to the FATF core principles and represent a gross violation of the commitment upon which FATF ministers agree to implement and support the FATF standards.”

FATF is also considering what steps to take to uphold the group’s values, calling on all jurisdictions to provide “advice and facilitate information sharing with their private sectors on assessing and mitigating any emerging ML/TF/PF (money laundering/terrorist financing/proliferation financing) identified”, as well as warning about the risk of malicious cyber activity from Russia.

FATF has also reiterated the “upmost importance” of ensuring non-profit organisations (NPOs) and other relief agencies are able to provide the vital humanitarian assistance without delay, disruption or discouragement.

“The FATF reminds all jurisdictions that the requirements of FATF standards applicable to NPOs cannot be used to justify intimidation or repression of legitimate humanitarian activities.”

FATF has said it will continue to monitor the situation closely and will respond to any significant threats and risks to the integrity of the financial system.

More compliant than the US

Although some FATF member countries may want to use the group to punish Russia in some way, it is not clear how it would justify doing this.

An analysis of compliance scores from FATF’s own fourth round consolidated assessment ratings shows Russia as the 22nd most compliant country out of the 125 assessed jurisdictions. This is higher than the United States at 26th place, as well as many European countries, including greylisted Malta.

Additionally, Russia has more than 80 percent of all FATF recommendations listed as largely or fully compliant, with no current record of non-compliance, unlike the US, which has 8 percent.

These rankings reflect a deeper analysis of Russia’s money laundering regime from FATF’s Mutual Evaluation Report in December 2019, which largely gives Russia a clean bill of anti-money laundering health.

The report states that “Russian authorities have an in-depth understanding of the country’s ML and TF risk”, a wealth of available data for the country’s financial intelligence unit to use, as well as robust investigative and prosecution systems in place.

Although there is a “widespread and persistent trend of non-compliance with preventive AML/CFT obligations”, this is mostly internal control breaches by microfinance companies and credit cooperatives, as well as a lack of compliance training in estate agents and credit institutions. This trend has also been improving for several years.

These findings will make it difficult for FATF member organisations to use the AML body in the same way it was used for Iran when it was put on the blacklist. On this basis, FATF is therefore likely to stick to cautionary measures, such as warning about the use of cyber attacks or cryptocurrencies by the Russian government to attempt to launder money. Anything more than that is unlikely to stick.

However, FATF may also look to challenge Russia based on other criteria that traditionally have not been in its remit. According to the organisation: “The FATF is reviewing Russia’s role at the FATF and will consider what future steps are necessary to uphold these core values.”

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