T. Raja Kumar, the current president of the Financial Action Task Force, speaks about the growing regulatory challenges posed by advances in fintech, the need for increased scrutiny of virtual asset flows, and the body’s work on asset recovery and beneficial ownership.
Q: Ahead of the FATF plenary and working group meetings next week, what do you see as the biggest current challenge for states in the fight against global money laundering?
A: Of the many challenges that states are facing, the pace of technological advancement in the financial sector has to be one of the biggest. Advances in technology have brought about many opportunities and benefits, including faster, cheaper and more secure payments, and a rise in financial inclusion around the world.
But regulators and law enforcement agencies need to keep up to speed and be on top of the systemic weakness and critical risks that these rapid changes bring with them, which terrorists and criminals are quick to exploit in order to hide and move money illegally across jurisdictions.
Keeping on top of all these challenges isn’t something that any single state, regulator or corporate entity can do on its own. So it really behoves the public and private sector to work together to keep up to speed with developments and the risks and challenges that they bring, in order to come up with solutions.
Q: FATF’s mandate has evolved considerably since its establishment in 1989, with the emphasis on countering the financing of terrorism following 9/11 and the granting of an open-ended mandate in 2019. What have been the most significant changes to the organisation’s remit in recent years?
A: What has made FATF successful throughout the years has been its ability to evolve relatively quickly by global standards, enabling it to deal with new risks and threats as they emerge.
One of the best recent examples of this has been our initiative, launched in 2019, to identify the risks surrounding virtual assets, and the development of standards to address those risks. We’ve done this in consultation with the private sector via the FATF’s Virtual Asset Contact Group, which continues to meet and discuss how the space is evolving. Private sector involvement has been key to this process, which allows for the setting of robust, implementable standards.
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Q: How do you evaluate the role of virtual assets such as bitcoin in global money laundering?
A: It’s important to adopt a balanced and nuanced approach when it comes to virtual assets. They offer important opportunities, not least international payment systems that are faster, cheaper and safer.
But one thing that needs emphasising is that compliance needs to be incorporated at the design level of such assets. Developers need to think about [anti-money laundering and countering the financing of terrorism] upfront, and not as an afterthought just before they go to market. In that way, users can benefit from virtual assets and be assured of their safety and security, and if they are used for criminal or terrorist activities, that is readily discoverable.
FATF’s travel rule, for example, puts in place requirements for virtual asset service providers and other financial institutions to obtain and exchange beneficiary and originator information. This is crucial for helping local and international law enforcement agencies be more effective in the fight against crime and terrorism.
Q: How would you judge the progress of both VASPs and states to counter the threat from money laundering to date?
A: It’s an area that definitely needs further attention from both sides. As of last June, 75 per cent of jurisdictions were only partially or not compliant with the FATF’s requirements — including undertaking a risk assessment, enacting legislation to regulate VASPs, and conducting a supervisory inspection — while more than half still have not taken any steps towards implementing the travel rule.
Again, we are working very closely with industry via the Virtual Asset Contact Group. Such ongoing engagement is essential in such a fast-moving space.
Q: What for you have been the highlights of the two-year Singapore presidency of FATF, which comes to an end in June?
A: The first has been the work that has gone into revising standards related to asset recovery, which was an area that had not been looked at in depth for some time. The result has been a major change to the standards regime, which gives countries an impetus to put in place the necessary laws and frameworks to be more effective in this area.
Second has been the continued work on beneficial ownership, building on the work undertaken by the German presidency before my term. Following that work, the standards have been revised relating to Recommendation 24, relating to shell companies and other corporate structures that have been abused by criminals to help them hide and move assets.
Under the Singapore presidency, we’ve continued that stream of work, and we’ve paid attention to enhancing the beneficial ownership requirements relating to legal arrangements such as trusts, which we know have also been abused for nefarious purposes.
I believe that the changes on these two fronts have significantly strengthened the hand of law enforcement and national authorities to be more effective in going after dirty assets.
