New barriers to cross-border crime

For far too long, criminals have been able to take advantage of weak transparency and other legal arrangements to hide or launder their illegal profits, but the Financial Action Task Force has recently completed its work on tougher global beneficial ownership rules, making fundamental changes that will have an immense impact on cross-border crime

The pace of technological advance in the financial sector creates new challenges to the integrity of the financial system and its vulnerability to exploitation by criminals. Advances in technology have created many benefits, but criminals, corrupt officials and terrorists are quick to exploit opportunities to move proceeds of crime across different jurisdictions to avoid law enforcement actions.

The Financial Action Task Force strengthened its standards on crypto assets four years ago, but implementation remains too slow. Virtual assets are inherently international and borderless, meaning a failure to regulate in one jurisdiction can have serious global implications. Ransomware incidents have jumped recently, and ransomware payments are almost exclusively demanded in virtual assets. Terrorist groups, including ISIL, al-Qaeda and their affiliates, as well as ethnically or racially motivated terrorist entities, are also increasingly using virtual assets to raise and move funds globally.

The FATF has adopted a roadmap to speed up the adoption and implementation of its standards and support countries with material virtual asset activities to do so. G7 members are key in leading by example and supporting other countries to put in place the adequate framework at the domestic level.

Cross-border payment is another current FATF focus. We all see the benefit of faster, cheaper and more inclusive payment systems. Financial inclusion ensures that people are served by the regulated financial system, with its accompanying controls, transparency and security, and reduces the space for the underground grey and black markets. Our ongoing work to revise Recommendation 16 seeks to promote sharing structured and enriched data in payment messages to facilitate automated checks and make payments, faster, cheaper, more inclusive and transparent, and also safer and more secure.

Responsible innovation

The FATF encourages responsible innovation that is fit for purpose and complies with applicable regulatory requirements, including anti-money laundering and the fight against terrorist financing, consumer protection, cybersecurity, and privacy protections. In this fast-evolving context, public-private partnerships are essential to engage with experts and stakeholders to leverage expertise to keep ahead of the curve and reduce the loopholes criminals can exploit.

At our plenary in February this year, we completed our work on tougher global beneficial ownership rules to decisively stop criminals from laundering their money through shell companies and other corporate structures, with the publication of guidance on transparency for legal arrangements.

This was an important achievement of the FATF. For too long criminals have been able to take advantage of a lack of transparency around trusts and other legal arrangements to hide or launder their criminal proceeds. Anonymous shell companies are also often used by corrupt officials, sanctions evaders, money launderers and tax evaders to hide their illicit profits. The lack of transparency across different jurisdictions also means law enforcement often cannot track down individuals behind companies suspected of financial crime or go after the proceeds of crime.

The new rules

The new rules require all companies to collect beneficial ownership information and for countries to have a registry or another system that provides efficient access to this information. This will make it easier for investigators to know who really owns and controls a company, and more rapidly link criminals to their money. These changes are fundamental to global efforts to tackle cross-border crime, including corruption. I look forward to continuing G7 support in this critical area.

Under Singapore’s presidency, the FATF has also stepped up its focus on supporting national authorities to ramp up the seizure, confiscation and return of criminal property. Less than one percent of global illicit financial flows are seized or confiscated. This is partly because many countries take a tick-box approach, rather than prioritise tangible and impactful results. This means they remain as vessels and hubs for money laundering.

The G7 can lead in this area by promoting policies that prioritise asset recovery and ensuring law enforcement and other agencies have the capabilities and training necessary to ‘follow the money’ that fuels crime and terrorism.

The FATF Global Network, comprising more than 200 jurisdictions, is at the centre of this international effort to take decisive, coordinated and effective action against these threats to the safety and security of our societies.

There is clearly much work to do. Every dollar of criminal proceeds that is not seized can fuel more crime. Every dollar that is recovered can be returned to victims, including governments to be reinvested in our communities. This ought to be our common goal.