Main Image Credit Courtesy of ktsdesign/Adobe Stock
This paper draws on FATF mutual evaluation data to analyse the FATF's progress on including counterproliferation finance in its standards.
In 2012, the Financial Action Task Force (FATF) brought proliferation financing (PF) into the scope of threats it considers, requiring countries to implement targeted financial sanctions made under UN Security Council Resolutions related to PF.
Since then, through a process of peer-led ‘mutual evaluations’, 118 jurisdictions have been assessed on their available legal and regulatory measures to implement targeted financial sanctions related to proliferation (Recommendation 7), as well as how effectively jurisdictions implement targeted financial sanctions for PF in practice (Immediate Outcome 11).
A review of these mutual evaluations reveals stark differences in how jurisdictions are assessed to have adopted these PF standards into their domestic legal and regulatory frameworks. The key findings in this study include:
- After almost a decade of PF being included in the FATF’s standards, the compliance among assessed jurisdictions remains varied. While 50% of jurisdictions are deemed either compliant or largely compliant with Recommendation 7, 20% are still not compliant with the technical requirement within Recommendation 7 to implement targeted financial sanctions related to proliferation ‘without delay’.
- Only two jurisdictions have received high effectiveness ratings for Immediate Outcome 11. 50% of assessed jurisdictions had low effectiveness when it comes to countering PF domestically. This may not capture some subsequent improvements made by jurisdictions as, unlike Recommendations, Immediate Outcomes are not re-rated following initial evaluations.
- Later assessments of jurisdictions are no better than earlier ones. Given the extent to which mutual evaluations are scrutinised when they are published, it would be expected that those countries that are yet to be evaluated would seek to learn lessons from previous cases and implement changes that improve their prospects when their turn to be evaluated comes. This appears not to be the case and, indeed, in some cases, the results in later assessment years are worse than the results received by jurisdictions in earlier assessment years, raising questions as to how learning and best practice are shared.
- Although most jurisdictions did receive the same initial ratings for PF and terrorism financing (TF), a meaningful proportion (34%) of jurisdictions performed better on their TF requirements than they did for PF. This suggests that this latter category of jurisdictions was either more aware of their obligations on TF and devoted more attention and resources to implementation of TF controls, or that PF was not considered as a threat. Of the jurisdictions that performed worse on PF, a significant majority received a non-compliant rating on Recommendation 7 and a low level of effectiveness on Immediate Outcome 11, respectively.
- There are key differences between FATF regions and their performance record on PF. Some regions performed significantly worse than others in their initial ratings on Recommendation 7 but have also improved the most since, as evidenced by re-ratings through follow-up assessments.
Centre for Financial Crime and Security Studies