Boosting the FATF’s Global Asset Recovery Responses

Asset recovery is the process by which the proceeds of crime are recovered from criminals and returned to the country from which they were originally stolen, or to their prior legitimate owners. It is a central pillar in combating financial crime and corruption, showing criminals that ‘crime does not pay’. However, to date, global asset recovery rates have remained consistently low.

Improving asset recovery outcomes has thus become a priority for international bodies such as the Financial Action Task Force (FATF).¹ In November 2023, the FATF introduced amendments to its Standards focused on enhancing asset recovery efforts and international cooperation (Recommendations 4 and 38). These long-awaited changes are the first updates by the FATF on this subject since the publication of Best Practices on Confiscation in October 2012.

Implementing the FATF Recommendations is vital for safeguarding countries’ financial systems against exploitation by criminals and malign actors. In its more than 30 years of existence, however, the watchdog has not been immune from criticism about the effectiveness of its recommendations, and the unintended consequences of its standards. There remains a question as to whether these standards effectively address the wide range of challenges faced by the diverse membership of the FATF and its regional bodies.

This policy brief is based on a review of 30 FATF Mutual Evaluation Reports (MERs) published during the first year of the Singaporean presidency (July 2022– July 2023), to identify common weaknesses in countries’ asset recovery frameworks.² It assesses the question of whether the updated FATF Recommendations 4 and 38 and related guidance address these weaknesses, or whether there are additional weaknesses that emerge from the MERs analysis of the asset recovery response. Acknowledging the recurrent theme in asset recovery literature on the need for more updated asset recovery statistics, Recommendation 33 was also factored into the analysis. As a result of the review, this policy brief highlights five key challenges in the global asset recovery response that are not currently addressed by the amended standards and related guidance.

The FATF monitors the implementation and effectiveness of its standards via the mutual evaluation process. During this process, a country must demonstrate to assessors that is has successfully adopted the required anti-money-laundering and counterterrorism-financing (AML/CTF) laws, regulations, and other instruments, also known as 'technical compliance’. The country must also demonstrate that these measures yield positive outcomes, also referred to as 'effectiveness'.

The FATF Recommendations are not static. Instead, they evolve to address emerging threats posed by criminals and malign actors, and to meet the needs and challenges encountered by jurisdictions. Three Recommendations are relevant to asset recovery:

• Recommendation 4 outlines measures to identify, trace and seize proceeds of crime.
• Recommendation 33 underlines that ‘countries should maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of their AML/[CTF] systems. (...) [including] on property frozen, seized and confiscated; and on mutual legal assistance or other international requests for cooperation’.
• Recommendation 38 identifies measures to improve international formal and informal cooperation.

Associated with these Recommendations are two Immediate Outcomes (IOs), which measure the effectiveness of their implementation:

• IO 2 guarantees that international cooperation delivers appropriate information, financial intelligence and evidence, and facilitates action against criminals and their assets.
• IO 8 ensures that proceeds and instrumentalities of crime are confiscated.

The FATF’s 2021 June Plenary outcome highlighted that the majority of countries assessed during the most recent round of mutual evaluations only achieved low or moderate levels of effectiveness with regard to confiscation³ of proceeds of crime. This trend heightened the urgency of making recovering assets a priority in every country’s response to financial crime and corruption. As such, it prompted the FATF to update Recommendations 4 and 38 in November 2023, to include:

• A requirement to establish asset recovery as a national priority.
• A requirement for countries to establish a non-conviction-based confiscation regime in their legal systems, to the extent it is consistent with fundamental principles of domestic law.
• Tools for temporarily freezing and seizing assets at an early investigation stage to prevent asset flight.
• Obligations for countries to recognise each other’s preliminary and final court orders in relation to the assets that are subject to confiscation.
• The implementation of extended confiscation.
• A recommendation advocating for ‘good communication and cooperation’, such as greater use of Asset Recovery Inter-Agency Networks.

The updated recommendations mark the conclusion of a two-year project that the FATF undertook alongside Interpol (also known as the FATF-INTERPOL Roundtable Engagement (FIRE) to support countries in recovering more proceeds of crime, and are designed to respond to the challenges that emerged during discussions with asset recovery specialists from the public and private sectors. If the recommendations are implemented correctly, it is hoped that the overall global response to asset recovery will improve.

The research for this policy brief highlights two general tendencies in the current global asset recovery response. First, it identifies a general trend of both low technical compliance and effectiveness. Only a small majority of the countries examined received a ‘Largely Compliant’ rating for Recommendation 4, with this figure slightly rising for Recommendation 38. A similar picture appeared in terms of effectiveness, with less than a third of countries reported to have a substantial or high level of effectiveness with regard to international cooperation (IO2), and even fewer achieving substantial effectiveness in confiscation (IO8).

Second, the research notes a disparity between technical compliance and effectiveness, a trend often highlighted by other experts. Regional differences also appear. For instance, MERs from Task Force on Money Laundering in Central Africa (GABAC) jurisdictions received both low technical compliance and effectiveness ratings, in contrast to countries assessed within the Financial Action Task Force of Latin America (GAFILAT) region, the Middle East and North Africa Financial Action Task Force (MENAFATF), or by the FATF. Meanwhile, the Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) jurisdictions had mixed results, with some countries displaying low effectiveness ratings, as opposed to their relatively good technical compliance scores, and others showcasing low ratings in both.;

Looking at the MERs, five common weaknesses in countries’ confiscation efforts, which are yet to be fully reflected in the FATF updated recommendations, were identified:

1. Lack of comprehensive data and statistics on frozen, seized and forfeited assets.
2. Limited risk understanding and level of training for identifying, freezing and confiscating the assets.
3. Deficiencies in managing the seized or confiscated assets properly.
4. Lack of mechanisms for sharing the confiscated assets with foreign partners.
5. Limited involvement of civil society.

1. Lack of comprehensive data and statistics on frozen, seized and forfeited assets

Accurate statistics are essential for national risk assessments, as they enable authorities to allocate resources and assess threats accordingly. This is recognised by the FATF in its guidance on AML/CTF-related data and statistics and reflected, at the Recommendations level, in Recommendation 33.

In the context of asset recovery, as emphasised in the UN General Assembly Political Declaration, providing data also positively contributes ‘to the quality and efficiency of the recovery and return of proceeds of crime and supports evidence-based policymaking’. It also enhances public trust by ensuring that confiscated and/or returned funds are used for their intended purposes.

Yet a lack of comprehensive data and statistics on frozen, seized and forfeited assets were found to be a recurrent weakness identified by most of the MERs that were assessed during the research for this policy brief.

Notable trends across countries identified in the research for this brief include imprecise or disorganised data, absence of mechanisms to maintain received information, and inconsistencies within statistics across different agencies. Additional weaknesses concerning data collection were a lack of breakdown in statistics regarding confiscations or mutual legal assistance requests related to predicate offences, as well as limited categorisation of the types of assets frozen, seized and confiscated.

Recommendation 1: Publishing data and statistics on asset recovery at all stages is crucial for assessing progress with regard to a country’s effectiveness in recovering proceeds of crime – thus improving the FATF’s overall assessment processes. Governments should publish comprehensive data and statistics on frozen, seized and forfeited assets in their National Risk Assessments (NRAs). The data should be disaggregated according to the asset recovery stage and predicate offence, as well as whether the assets are instruments of crime or proceeds of crime, and their eventual end use. Policymakers should also consider involving civil society organisations (CSOs) in the monitoring and overseeing of asset recovery processes, for instance by responding in a timely manner to CSOs’ freedom of information (FOI) requests surrounding investigations and asset recovery cases (see, for instance, projects on the social reuse of confiscated assets in south-eastern Europe).

2. Limited risk understanding and level of training for identifying, freezing and confiscating the assets

A common theme identified during research for this brief is the inconsistency between confiscation outcomes and countries’ risk profiles, which can be attributed to a lack of understanding of a country’s actual risk profile, in contrast to the priorities identified by the FATF. Examples include MERs outlining high-risk predicate offences such as theft and robbery, fraud and drug trafficking, but confiscations related only to the latter.

Related to this point, the majority of the MERs stated that training was a recurring weakness, noting the need for additional training to pursue confiscation and asset recovery. The focus of the related recommended actions, however, differs regionally. For instance, in jurisdictions covered by the GIABA and GABAC, the MERs recommended better equipping personnel to process and file international cooperation requests. Meanwhile, in MONEYVAL countries, recommendations focused on improving the application of confiscation measures in complex cases, training law enforcement agencies to provide beneficial ownership information to foreign partners, and strengthening the application of extended confiscation measures.

As highlighted by the UN Office on Drugs and Crime, the lack of adequate training for law enforcement officers, financial investigators, judges and prosecutors hinders the effectiveness of authorities in initiating relevant investigations that lead to the recovery of proceeds of crime. Lack of knowledge and capabilities also reduces the effectiveness of international cooperation. This is well recognised by the FATF: in its 2022 Report on the State of Effectiveness and Compliance with the FATF Standards, the FATF reported that only 19% of the assessed 120 states demonstrated a high or substantial level of effectiveness in confiscating the proceeds of crimes, and recognised that ‘capacity building efforts for policy development [and] training’ are ‘useful tools to contribute to improving risk mitigation’.

Recommendation 2: While the FATF publishes high-level guidance to assist countries and supervisors, countries should also adequately invest in capacity building and training of staff. While looking at their country’s asset recovery processes, policymakers should ensure that sufficient budget is allocated to the training of law enforcement officers, financial investigators, judges and prosecutors. This training should include the domestic legal framework and best practices based on the country’s specific circumstances and the weaknesses identified (for instance, for GIABA or GABAC countries, training should focus on international cooperation requests).

Policymakers should also consider relying on civil society to provide training and raising awareness. Recent cases have underscored the valuable role of CSOs in assisting states to identify and investigate offences, as well as in engaging with whistleblowers and serving as mediators between them and the judicial apparatus. CSOs can also provide a greater understanding of domestic and international legal frameworks, and inform policymakers and law enforcement agencies on the enhanced use of current mechanisms or the development of new ones.

3. Deficiencies in managing the seized or confiscated assets properly

During recovery processes and until their ultimate disposal, effective and transparent asset management is crucial, as it not only limits the risks associated with the movement of the instruments of crimes, but also preserves the value of those instruments.

Despite the clear importance of robust asset management systems, the research for this brief reveals a concerning lack of such mechanisms in many FATF countries, particularly the assessed GABAC and GIABA members.

While the reasons behind this vary, in most countries, the non-existence of legal arrangements to establish asset management systems, as well as insufficient capacity, pose obstacles for asset recovery efforts. Asset management was found to be a challenge even for countries known to have a more mature asset recovery framework.

Recommendation 3: The FATF already outlines best practice surrounding effective asset management frameworks in its guidance on Recommendations 4 and 38. Policymakers should ensure the effective implementation of these frameworks, assessing their own capacity based on the development of their asset recovery response. The frameworks should also provide different responses depending on the type of asset and capacity of the management agency, which should also be appropriately resourced. Additionally, the involvement of civil society in the oversight of agencies responsible for managing assets should be actively considered by policymakers. Encouragingly, precedents have been set in countries such as Kazakhstan and Nigeria, where governments have collaborated closely with civil society in the management of assets, albeit in the return process.

4. Lack of mechanisms for sharing the confiscated assets with foreign partners

FATF's Recommendation 38 emphasises the need for countries not only to promptly respond to requests from foreign counterparts, but also to establish arrangements for the seizure and confiscation of proceeds, including the sharing of confiscated assets. The FATF’s Best Practices on Confiscation guidance also notes that, although asset-sharing agreements should not be a prerequisite for cooperation, they can facilitate asset-tracing requests and can be a good incentive to the executing country to fulfil asset-tracing requests.

Nevertheless, another key trend observed across the research for this policy brief was the lack of mechanisms for sharing confiscated assets with foreign counterparts – this could be noted in nearly two-thirds of the MERs.

Recommendation 4: FATF already recommends as a best practice for countries to enter into general asset-sharing arrangements with other countries to facilitate the tracing and recovery process. This includes engaging with foreign counterparts’ ministries of finance, interior, justice and international affairs. Bilateral agreements are often the best route, as they allow the specificities of each case to be addressed. However, rather than entering into multiple general asset-sharing agreements, policymakers should increase cooperation and information sharing and draft bilateral agreements with countries they are more likely to interact with for asset recovery purposes, as identified during their NRA. While asset-sharing agreements are mostly in the hands of states, policymakers should also consider leveraging the work of CSOs, as they can provide additional evidence and information that can help in tracing the assets.

5. Limited involvement of civil society

Improving asset recovery outcomes is not only a matter for policymakers and law enforcement, but also for civil society. CSOs’ importance is acknowledged at the national and international level, for example in Article 13 of the United Nations Convention Against Corruption, Article 19 of the EU Directive on Asset Recovery and Confiscation, and the UK’s Framework for transparent and accountable asset return. In recent years, an increasing number of CSOs have more actively engaged with national and global asset recovery responses. However, the involvement of civil society in asset recovery gets little to no recognition in the FATF Recommendations and updated guidance.

Recommendation 5: Building on the momentum started by the FATF, policymakers should interact with civil society stakeholders more closely. To enable this, CSOs require a more nuanced understanding of the entry points available, both nationally and internationally. In this context, the FATF updated standards represent an entryway for greater engagement: on the one hand, CSOs can advocate for the implementation of the updated standards; on the other, they can highlight and address deficiencies that may not be explicitly addressed in the FATF Recommendations.

The amendments to Recommendations 4 and 38 largely address global asset recovery needs. In particular, they place a welcome focus on the prioritisation of asset recovery efforts and make initial strides towards addressing issues of international cooperation.

As articulated by Raja Kumar, the Singaporean president of the FATF during this period: ‘It is now up to countries to make that major mindset and culture shift a reality and prioritise asset recovery as a key pillar of their national crime prevention and criminal justice strategy.’ Furthermore, the success of the FATF standards, and Kumar’s FIRE legacy, hinge on the watchdog’s capacity to cultivate this mindset and promote an inclusive approach that caters to the diverse asset-recovery needs of countries worldwide.

Legislative changes and new legal tools and obligations alone will not achieve this. Instead, to understand the actual asset recovery landscape and improve the response, accurate data and proper training are essential. In this regard, CSOs have the potential to catalyse meaningful change in asset recovery processes through their work. By addressing some of the challenges and exploiting the entry points outlined in this policy brief, there is the opportunity to enhance the effectiveness of the recovery of illicit proceeds.

Footnotes

1. FAFT is the international standard-setter for anti-money-laundering and counterterrorism financing (AML/CTF). Established in 1989, FAFT is made up of 40 country and regional members tasked with setting and supervising global AML/CTF standards. Over 200 jurisdictions have committed to complying with FAFT’s standards, also known as the ‘FATF Recommendations’. These recommendations lay the foundations for an effective framework to combat money laundering and ensure that each country possesses the right tools to tackle financial crime and frustrate illicit financial flows. 

2. In terms of methodology, first the authors analysed the technical compliance scores of each MER in relation to Recommendations 4 and 38. They then considered the effectiveness ratings of these countries, as measured by Immediate Outcomes (IOs) 2 and 8. 

3. A confiscation measure that extends beyond the immediate proceeds of the crime for which someone was convicted, involving the confiscation of property obtained through criminal activity. It is not necessary to establish a direct connection between the property and the offence if the court finds that the property was unlawfully acquired.