The fight against financial crime is ponderous and politicised, lacking imagination and ambition.
Last week in Orlando, Florida, home of Tom, Jerry and friends, there was a celebration (with cake) marking 30 years of the Financial Action Task Force (FATF), global standard-setter on anti-money laundering and financial crime. For those present at the founding of the FATF in Paris in 1989, its longevity was far from assured. But other than recognising this tri-decennial landmark of endurance, what is there to celebrate when repeated – and ever-more egregious – scandals of kleptocracy, corruption, transnational organised crime and sanctions evasion are constantly revealed? For all the self-congratulation, the threat and impact of financial crime grows at pace and at scale; the response is ponderous, politicised and inflexible, lacking imagination and ambition.
In advance of its anniversary, the FATF published its new mandate which recognises ‘the need for FATF to continue to lead decisive, co-ordinated and effective global action to counter the threats of the abuse of the financial system by criminals and terrorists’ declaring that ministers have agreed an ‘open-ended Mandate for the FATF’. Yet in preparing this new mandate, the FATF – the job of which is in part to highlight the shortcomings of others via its evaluation process – has missed a golden opportunity to reflect on its own shortcomings and effectiveness.
FATF-boosters will dismiss these views as typical of a FATF critic – from an outsider who does not understand the important work undertaken by this global watchdog. That would be wrong. The author would be the first to recognise the tremendous impact the FATF has had on financial crime responses around the world. And it is also worth mentioning that the FATF is a notionally technical body, answerable to its members. Over the past 30 years, the FATF has raised financial crime-fighting standards across the globe. Its recommendations and evaluations have led to positive reforms and greater awareness of the abuse of the financial system. There is no doubt that it has strengthened financial sector integrity.
But tuning out criticism and dismissing outside perspectives is, of course, indicative of any organisation that dislikes scrutiny, operating as a closed shop. Transparency, we are repeatedly told by campaigners, policymakers and politicians is the key to combating financial crime. The FATF itself commits to enhancing the transparency of the financial system, but not of itself. There is sadly little ‘new’ in the FATF’s new mandate beyond the agreement that it should be open-ended, arguably a retrograde step, reducing accountability. The opportunity for bold, forward-thinking that dispels suspicion of bias on a global issue that affects security and prosperity, has been missed. So here are three suggestions that would mean the organisation could mark its 30th with ambition.
First, the FATF needs to recognise that it should be more transparent and be able to provide greater assurance of independence and oversight particularly to those that are subject to its decisions and recommendations. If – as it repeatedly states – it is a purely technical body, the FATF and its activities should be overseen by an independent governance board; its evaluations should be independently reviewed, not subject to the evidently politicised horse-trading that occurs currently. There should be greater transparency of its plenaries, for example by publishing minutes or introducing online steaming of some if its meetings. The annual ‘private sector consultative forum’ (a relatively recent introduction) is a poor substitute.
Second, the FATF needs to recall the so-called ‘Pottery Barn’ rule – if you break it, you own it. Pointing out countries’ shortcomings is not enough, particular where such action leads to negative consequences. Thus, a dedicated technical assistance capability should be established to work with countries to address the shortcomings that the FATF process identifies and the unintended consequences its standards may trigger such as financial exclusion. Some regions (notably the FATF body in Asia Pacific) have set an example – this model should be urgently replicated.
And finally, the FATF needs to show ambition. It needs to question whether the path it is on – adjusted incrementally since 1989 – is still the right one. Does the steady, incremental response to a rapidly expanding financial crime landscape make sense? Is the scourge of financial crime actually being addressed? Are new methods of working, such as public–private partnership and greater information sharing being embraced? The FATF evaluates how effectively its recommendations have been implemented but not the extent to which financial crime is being addressed as a result – it has no basis on which to determine whether its actions, and the burdens it places on countries, private sector actors and NGOs, are genuinely effective in achieving a reduction in financial crime; it is merely assumed that the implementation of its standards have the desired result. True leadership in the fight against financial crime would welcome and embrace an independent review of the FATF’s effectiveness, as it itself reviews the effectiveness of countries around the world.
There are few matters of global agreement these days, but the fact that the response around the world to financial crime is sub-optimal is universally recognised even by those who cheer the FATF. The crooks, kleptocrats and corrupt are winning – they enjoy their ill-gotten gains with impunity; and the responses arrayed against them are outdated and tired. Celebrating and entrenching the status quo of the FATF in Orlando last week was a missed opportunity, and until radical reform is enacted, the nimble financial crime Jerry will continue to elude the hapless FATF-led Tom.
Tom Keatinge is Director of RUSI’s Financial Crime and Security Studies Centre.
The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.
Centre for Financial Crime and Security Studies