Global Cooperation in Digital Assets AML: Lessons from the FATF

By Joseph Jasperse

The Financial Action Task Force (FATF) is an intergovernmental organization that was established in 1989 to combat money laundering and terrorist financing. Over the years, it has become a prime example of successful global cooperation in the financial sector.

One of the main reasons for the success of the FATF is its inclusive nature. The organization comprises 37 member countries, along with two regional organizations, and it operates on the principle of “one country, one vote.” This means that every member has an equal say in the decision-making process, regardless of their size or economic power.

Another factor contributing to the effectiveness of the FATF is its comprehensive approach to fighting financial crimes. The organization develops a set of international standards known as the FATF Recommendations, which outline the measures that countries should take to combat money laundering and terrorist financing. These recommendations cover a wide range of topics, including customer due diligence, suspicious activity reporting, and the freezing and confiscation of illicit funds.

The FATF also plays a key role in helping countries implement these standards. It conducts mutual evaluations of member countries to assess their compliance with the recommendations and provides technical assistance to those that need it. This helps ensure that all member countries are working towards the same goal of combating financial crimes.

The organization also engages with non-member countries, international organizations, and the private sector to build a global cooperation network against financial crimes. This includes partnerships with organizations like the World Bank, the United Nations, and the World Customs Organization.

The FATF’s efforts have been recognized by the international community, and its recommendations have been adopted by more than 200 countries around the world. This demonstrates the importance of global cooperation in tackling financial crimes, and the need for similar cooperation in other areas, such as digital assets.

Digital assets, including cryptocurrencies, present unique challenges when it comes to anti-money laundering (AML) and counter-terrorist financing (CTF). Because they are decentralized and often anonymous, digital assets can be used to facilitate financial crimes, such as money laundering, tax evasion, and terrorist financing.

To address these challenges, it is essential that the AML/CTF regime for digital assets is as comprehensive and inclusive as possible. This means that it should involve the participation of multiple stakeholders, including governments, law enforcement agencies, financial institutions, and digital asset service providers.

One way to achieve this is through the establishment of a global task force on digital assets, similar to the FATF. This task force could develop international standards for the regulation of digital assets, and provide guidance and technical assistance to countries that need it. It could also facilitate cooperation between different stakeholders, such as sharing information and intelligence on financial crimes involving digital assets.

The FATF is a model of how global cooperation can be effective in combating financial crimes. Its comprehensive approach, inclusive nature, and partnerships with other organizations have contributed to its success in fighting money laundering and terrorist financing. Similar cooperation is needed in the realm of digital assets AML to address the unique challenges presented by these assets. By bringing together a diverse group of stakeholders, a global task force on digital assets could help ensure the integrity and security of the digital asset market.

 

Published February 10, 2023.