Suppression Laundering: Using FATF as a Fig Leaf to Target Civil Society

The Financial Action Task Force (FATF), the global standard setter for anti-money laundering and counterterrorist financing (AML/CTF), is intended to 'protect financial systems and the broader economy from threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security’. But while the FATF has pursued this important mission through its uniform standards, a worrying trend has emerged whereby these standards have been demonstrably misused, putting powerful tools for suppression into the hands of ill-intentioned states.

National-level policies developed to embody the FATF standards have had numerous adverse impacts, seen most clearly in relation to Recommendation 8 on preventing the abuse of non-profit organisations (NPOs) for terrorist financing. Following the arrival of Recommendation 8 in 2001, financial institutions reacted to supposed terrorist financing risk with widespread de-risking of NPO clients, while states’ draconian oversight efforts came to encumber NPOs’ legitimate activities (sometimes accidentally, other times, deliberately). Such ‘unintended consequences’ have been a preoccupation of a network of civil society actors for more than a decade. And for their efforts, they can claim several successes, including two rounds of revisions to Recommendation 8 aimed at reducing ambiguities resulting in those unintended consequences.

These hard-won achievements have come at a cost, however. With discussion and debate on the FATF’s impact on global civil society so tightly intertwined with consideration of Recommendation 8, insufficient attention has been paid to other areas where the FATF system has been seized upon by authorities worldwide to control threats and meet ulterior objectives. Plenty of aspects of the FATF system besides Recommendation 8 have provided ill-intentioned states with the tools and pretence to restrain journalists, lawyers, political opponents and other critics, their suppression ‘laundered’ through the use of FATF compliance as justification. Simply put, the problem of unintended consequences in fact goes beyond the NPO sector, and beyond Recommendation 8 alone.

This Policy Brief is part of a RUSI research project on charting Authoritarian Abuses of the FATF standards, which investigates how the FATF’s anti-financial crime standards have been co-opted to meet authoritarian ends. The term ‘Authoritarian Abuses’ refers to deliberate state misuse of the compliance regime underpinned by the FATF, with the purpose of suppressing targets and pursuing other interests.

Authoritarian Abuses are seen across all regime types. While instances are most common in autocracies and hybrid regimes, a handful of democracies were also seen  using anti-financial crime measures for purposes other than those intended. Authoritarian Abuses are actions taken by regimes to advance authoritarian ends – such as restricting freedom of assembly or opinion or curtailing the freedom or fairness of elections – rather than being actions taken by authoritarian regimes alone. Further, context typically spotlights cases of Authoritarian Abuses, for example, where anti-financial crime measures are levelled against reformers during an election campaign, or against a media organisation shortly after publishing a critical story.

The project included 25 interviews and four roundtable discussions with civil society actors, researchers and representatives of international organisations. It also examined 126 targets of Authoritarian Abuses from 34 countries across the Americas, Eurasia and Africa that were collected in a qualitative database, featuring instances occurring between 2013 and 2023.

This Policy Brief examines how the FATF’s standards have been abused or misused, and the impact of this abuse on civil society. The brief is for policymakers and international-level advocacy organisations, and it offers recommendations intended to introduce new dimensions into an ongoing conversation on human rights considerations pertaining to the FATF system, transcending an as yet almost singular focus on Recommendation 8. It is published in conjunction with a guide on the weaponisation of FATF standards, which aims to provide civil society actors with a plain language resource to aid their advocacy and improve their understanding of response options. 1

Each of the following FATF standards, or Recommendations, was found to enable ill-intentioned regimes to craft for themselves useful tools for suppressing their critics, all under the guise of implementing the FATF’s wishes.

Recommendation 29

Recommendation 29 requires states to establish a financial intelligence unit (FIU) with responsibility for processing financial data pertaining to financial crimes and disseminating financial intelligence packages. It further arms FIUs with the power to ‘obtain additional information from reporting entities’, and states that FIUs should be operationally independent and autonomous. 2 The Egmont Group of FIUs echoes the importance of FIU independence, claiming it as essential to protect ‘the sensitive information [an FIU] holds from undue influence(s)’.

Recommendation 29 enables states to collect financial information held by the private sector on persons of interest, whether they are subject to a formal investigation or not. Such powers are ripe for misuse in circumstances where the independence of FIUs is violated and their operations are directed by the regime, mostly to financially surveil subjects of interest (‘intelligence fishing and scraping’), or fabricate a criminal charge (‘harassment and prosecution of organisations’).

In some jurisdictions, police or the office of the public prosecutor instruct the FIU to use its powers to acquire information from obliged entities to gather telling financial details about a political target, or feed the FIU with ‘evidence’ of financial wrongdoing by a regime target that is sufficient to form a reasonable suspicion, kicking off an investigation. 3 Such procedural capture of national FIUs by the state, activated on demand where necessary, has enabled ill-intentioned regimes to target their opponents through politically motivated criminal charges or the initiation of asset freezes during an investigation.

Recommendations 3 and 5

Recommendations 3 and 5 compel states to criminalise money laundering and terrorist financing on the basis of relevant international conventions. Several cases of Authoritarian Abuses have involved the weaponisation of the offences of money laundering and terrorist financing in national penal codes to suppress targets, often in combination with national-level provisions permitting lengthy pre-trial detention and, in the case of terrorist financing, vague definitions of terrorism and criteria for committing a terrorist (financing) offence in national law. Many such criminal charges are based on little or poor evidence, if any, which coincides with cases where the intention is rarely to find the target guilty of the offence, but merely to paralyse them in pre-trial detention for as long as possible, thus incapacitating and silencing them for a time. In the very worst cases, typically where judicial systems are captured by the state and rule of law is absent, targets may be convicted based on, for example, evidence withheld on grounds of state or military secrecy. To take just one of the most extreme examples, a political opposition figure in Southeast Asia was executed on such politically motivated terrorist financing and other charges in July 2022. These findings reinforce the FATF’s own conclusion of its stocktake of the unintended consequences of its standards, which recognised ‘issues relevant to investigation and prosecution of TF and ML offences, such as the presumption of innocence and a person’s right to effective protection by the courts’.

Recommendation 4

Asset freezing capabilities and other ‘provisional’ or ‘administrative’ measures conferred on authorities through Recommendation 4 have put in the hands of ill-intentioned regimes a powerful tool to disrupt the activities of targets and grind down organisations troublesome to the regime. Freezing powers are intended to be preventative, giving authorities time to investigate potential money laundering or terrorist financing and thwart capital flight, but when misused have the effect of punitively disrupting civil society actors’ access to funds. Wieldable on behalf of and beyond the restrictions imposed by the criminal justice system, asset freezing powers are ripe for Authoritarian Abuse, given the low threshold for deploying them, namely the existence of mere suspicion of accounts or assets being involved in financial crime, which is easily (and often) fabricated or baseless.

Recommendation 4 includes provisions to guard against lengthy or unjust freezing, but these protections are rarely accessible to victims in reality. The standard states that asset freezing actions are to be ‘reviewable through judicial proceedings within a period of time’, yet victims of strategic bank account freezing face considerable barriers and delays in accessing those judicial reviews and exemptions for justified expenses. Victims wanting to present appeals to have asset freezes lifted, to which they are entitled by law, have been effectively rejected where courts fail to respond, and hearing dates are not set. The FATF recognises this itself in its stocktake, noting cases where misuse of the FATF standards has infringed on ‘due process and procedural issues for asset freezing, including rights to review’.

This is compounded by the often circumspect handling of asset freezing orders by financial institutions, who in some cases may inadvertently prolong the detrimental effects of strategic bank account freezing by relying on unequivocal permission from the central bank or FIU to unfreeze, 4 for fear of violating AML/CFT regulations and inviting cause for penalty, even in cases where the duration of the order has lapsed.

Recommendations 37, 38 and 39

These Recommendations on mutual legal assistance and extradition create new pathways for transnational repression of dissidents, particularly in combination with international mechanisms such as the Interpol Red Notice System. Such cases represented a small minority of those identified, but nonetheless expose a vulnerability whereby politically motivated money laundering or terrorist financing cases can be levelled against dissidents and regime critics domiciled in host countries. If granted by the host country, mutual legal assistance requests can provide a home country with privileged information, such as bank account details, which can fuel a sustained smear campaign against an individual. This vulnerability raises the question of potential for other mechanisms of international law enforcement cooperation – such as the information sharing network between members of the Egmont Group of FIUs – to be subjected to similar abuse, despite no such cases being registered at the time of writing.

The above misuses of the FATF standards are levelled against a wide range of civil society actors deemed to pose a threat to the interests of a given regime. Half – 63 – of the instances of Authoritarian Abuses collected for this study did not involve NPOs but a combination of activists/campaigners targeted in an individual capacity, journalists and media organisations, political opposition figures, and a handful of independent business people.

Across these different targets, Authoritarian Abuses serve to suppress opponents and regime critics through various means:

• Reputational damage and smear campaigns: Politically motivated criminal charges or investigations paint targets as criminals, tarnish their reputation and threaten links of trust with the public. Even where targets are acquitted or investigations dropped, the stigma lingers to detrimental effect, particularly for individuals who face social isolation and financial and psychological hardship as a result.
   
• Chilling effects: Where the victim is well known, ill-intentioned states may want to ‘make an example’ of the target to deliberately discourage onlookers from pursuing similar causes or conducting similar activity. In addition, the second-order impact of Authoritarian Abuses tends to fuel an atmosphere of intimidation across civil society.
   
• Disruption of operations and incapacitation: For individuals, targeted asset freezes and pre-trial detention have an obvious impact on their ability to carry out their work. For organisations, prolonged asset freezes grind down the organisation over the long term, limiting programming, reporting or other activities and placing additional stress on staff, who remain unpaid while working to clear their organisation’s name.

In responding to criminal charges or investigations into their grantees, donors are put in a difficult position. While donors may feel a sense of obligation to their grantee and wish to support and defend them, this must be balanced against the risks of doing so, including jeopardising their other grantees by being associated with an organisation under investigation for financial crime. Going to court with or even publicly defending a targeted organisation will, effectively, pit the donor against the host government. In the case of country donors, the diplomatic calculation is highly unlikely to result in the donor government deciding to antagonise a host government in this way. 5

Offending states keep the victims of Authoritarian Abuses hidden from the FATF’s view with ease. 6 Existing feedback mechanisms through which the FATF has become aware of misuses of its standards have depended on the dedication of a handful of individuals. Mandate holders of the UN Human Rights Council’s Special Procedures have collected testimonies of abuse and misuse from victims/survivors and presented them in the form of official communications to states, FATF-style regional bodies (FSRBs), and the FATF. Similarly, leaders within the Global NPO Coalition on FATF have stood in as ambassadors for civil society organisations globally. The FATF does offer NPOs the opportunity to feed in material and insights through its general email address, but only during their country’s periodic mutual evaluation, leaving no formal channel for signalling Authoritarian Abuses to the FATF as they occur.

Recommendation 1: The FATF and FSRBs must formalise ad hoc and one-way communication channels with civil society. The Centre for Finance and Security at RUSI has previously recommended that the FATF should draw on the experience of the Office of the Ombudsperson of the UN Security Council’s 1267 Sanctions Committee in designing such a mechanism. This mechanism should have a mandate to investigate reported misuses, record trends and produce an annual public report on identified abuses, and be given a presentation slot at each plenary.

The FATF wields unique power to induce behavioural change in states. The best prospect for stemming the tide of Authoritarian Abuses is thus for the FATF to use this power by adapting how it evaluates compliance with its standards. As in 2013, when the FATF amended its methodology to incorporate an effectiveness measure into its evaluations, the same must be done now in response to the growing and incontrovertible evidence base of suppression laundering, whereby the FATF is used as a fig leaf behind which authoritarian outcomes are secured in the name of the global fight against financial crime.

Recommendation 2: The FATF should amend its methodology and its conception of ‘compliance’ should be redefined. Amendments should require the mutual evaluation process to determine whether a state has misused the FATF standards – through the misuse of laws, powers and institutions given rise to by those standards – looking to adverse consequences of such actions as evidence and indicators. Through the mechanism described in Recommendation 1, civil society should be empowered to flag abuses to FATF assessors, who should then query those cases with authorities during an on-site visit to determine whether the country exhibits a pattern of abuse. In this way, abuse of standards and the national-level instruments they engender should be viewed as non-compliance with relevant FATF Recommendations or as low effectiveness regarding relevant Immediate Outcomes, thus incorporating abuses of the standards into the FATF’s listing processes and criteria.

The misuse of asset freezing powers to bar civil society actors from their assets is a prominent tactic of Authoritarian Abuses, with detrimental impact on the lives and activities of individuals and organisations.

Recommendation 3: The FATF should amend Recommendation 4 and its accompanying Interpretive Note to include precise language on the need to place limitations on the duration of asset freezing orders and strengthened language on guaranteeing access to timely judicial review of asset freezing orders, in line with international law standards on due process and the rule of law. Guidance on how to interpret Recommendation 4 should be provided, and should include examples of both good and bad practices to guide countries in their use of freezing powers. 7 New language should also reflect that freezing orders cannot be held indefinitely and credible evidence must be required to substantiate suspicion of financial crime. 8 Further, the security sensitivity of such evidence should not be used as an excuse to not present this evidence or prove its existence.

Recommendation 4: Financial institutions should unfreeze accounts and assets in line with legal requirements – for example, immediately on expiry of a freezing order – to refrain from inadvertently prolonging the misuse of asset freezing powers by ill-intentioned states. Financial regulators should ensure no penalties or fines are imposed on financial institutions acting in accordance with the letter of the law in this way.

The ‘procedural capture’ of national FIUs is a direct perversion of FATF Recommendation 29, which requires FIUs to be autonomous components of the civil criminal justice system and free of political, government or industry influences.

Recommendation 5: The FATF should amend Recommendation 29 to strengthen language on FIU independence, including further attention to what types of information FIUs can share with relevant authorities and under what conditions. Where the operations of FIUs are found to be subject to political interference, this should be considered in the country’s mutual evaluation.

Recommendation 6: The Secretariat of the Egmont Group of FIUs should establish an ongoing process for ensuring the operational independence of its member FIUs and enhance its criteria for membership to embolden the requirement for all member FIUs to have a high degree of operational independence. Members should be periodically assessed against this standard to ensure ongoing compliance with operational independence expectations.

Donors of civil society groups operating in jurisdictions prone to misuse of the FATF standards must recognise global patterns of Authoritarian Abuse and consider these not only in their grant making, but in how they prepare for and respond to instances where their grantees are targeted. Regrettably, a failure to anticipate and prepare for such instances in the past has resulted in donors being forced to protect their own interests and those of their other grantees over providing support to a target of Authoritarian Abuses. 

Recommendation 7: Donors should burden-share the risks of Authoritarian Abuse with their grantees. This could include incorporating Authoritarian Abuses into risk assessments, creating contingency plans for grantee support and public messaging in the event of an Authoritarian Abuse, and earmarking donor funds to pay for mitigating measures, such as keeping a lawyer on retainer. At the same time, donors should not ‘de-risk’ grantees operating in areas prone to Authoritarian Abuse, but rather be aware of this risk and manage it.

Authoritarian Abuses of the FATF standards represent a double threat. Attacks on civil society weaken its ability to pursue government accountability and entrench democracy. At the same time, tools and powers intended to prevent financial crime are brought into disrepute when they are abused for political purposes, further exposing societies to the harms of illicit finance, crime and corruption. To defend against these threats to democracy, and to its own reputation and legitimacy, the FATF Secretariat and its member states must recognise the many ways in which its standards have become implicated in democratic backsliding globally, and act to stem the tide.

Fortunately, the FATF has a capable ally in the coalition of civil society organisations with whom it has effectively collaborated on the NPO issue for some time. The goodwill this has engendered will be needed if civil society is to adopt the ‘whole-of-FATF’ approach necessary to effectively analyse and mitigate the full range of consequences that the FATF system has shown to have for civil society and human rights.