Quick Review of FATF's Evaluation of the U.S.

On December 1, the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering (APG) released their fourth mutual evaluation of the United States anti-money laundering and counter-terrorist financing framework.* The report analyzes the United States’ level of compliance with FATF Recommendations, the effectiveness of its anti-money laundering and counter-terrorist financing measures, and makes recommendations on how the U.S. system could be strengthened. While the report largely finds the U.S. compliant with FATF recommendations related to charity and philanthropy, it offers a set of priority actions for the U.S to undertake that do not reflect the recent change to FATF’s Recommendation 8 for nonprofit organizations, which was revised this past June.

The Council on Foundations works with the Charity and Security Network collaborative to understand how FATF affects philanthropy and to share examples of our members' successes and challenges in international grantmaking. Charity and Security Network has put together a helpful summary and analysis of the report that identifies the major issues relevant to nonprofit organizations in the United States, and I share with you here some of this analysis and commentary:

The Financial Action Task Force (FATF) released the results of its Mutual Evaluation of the United States on Dec. 1, 2016, assessing compliance with its 40 anti-terrorist financing and anti-money laundering standards, including Recommendation 8 (R8) on nonprofit organizations (NPOs). Key comments are below.  

While the evaluation found the U.S. to be “largely compliant” with R8, it noted that R8 was revised in June 2016. The evaluation is based on the prior version. Key elements of the new R8, including the proportionality of rules to risk, were not addressed. However, FATF said, “The revised version will be taken into account during the follow-up process.”  Problems NPOs experience with banking services were also discussed. The last evaluation was in 2006.

Some key comments on the evaluation:

• NPOs should be encouraged that FATF has updated its analysis of NPO risk to reflect what research and experience over the last decade demonstrates: that NPOs are not a significant source of terrorist financing. The growing threat from fraudulent fundraising is of concern to all stakeholders. This must be addressed in a manner that does not restrict or disrupt the work of legitimate NPOs.
• In the follow up to this evaluation, FATF should address the issue of how the risk-based approach in the updated R8 is (or is not) reflected in laws and rules that impact NPO’s ability to carry out their work.
• FATF’s recognition that the U.S. anti-terrorist financing rules are “strict liability” is helpful, but there is no discussion of how such “zero tolerance” rules measure up to a risk-based approach. This may reflect the fact that the evaluation was conducted under the old R8, which did not include the risk-based approach.
• The new R8 requires a risk-based approach. In its Best Practices Paper for R8 implementation, FATF spells out the steps this entails. The review of existing laws and measures in light of the risk assessment is a crucial step. As FATF notes, the U.S. has not undergone this process since 2003. Things have changed substantially since then. FATF should look into the need for a review that includes outreach to and input from the NPO sector as part of the follow up to this evaluation. Otherwise, the new R8 may not be effectively implemented in the U.S. for a long time, as the next evaluation will be years from now.

Read Charity and Security Network's Summary and Analysis of FATF's 2016 Evaluation of the U.S.

If you are currently experiencing issues with international grantmaking, please contact Lara Kalwinski, Senior Counsel at kalwl@cof.org.

Additional Resources:

• The next learning opportunity about international grantmaking is December 15. Register now for a webinar on The ABCs of FATF: What Nonprofits Need to Know in 2017 and Beyond.
• Check out how the U.S. fares in Civicus’ Enabling Environment Index and in Freedom House’ comparative assessment of global political rights and civil liberties.
• Download the Norwegian Refugee Council Risk Management Toolkit, In Relation to Counterterrorism Measures, from https://www.nrc.no/globalassets/pdf/reports/nrc-risk-management-tooolkit-2015.pdf
• Access the Civil Society Platform on the Financial Action Task Force here: http://fatfplatform.org/wp-content/uploads/2015/10/Summary-USRiskAssmt20151.pdf

* FATF is an intergovernmental body that combats terrorist financing in all sectors, including philanthropy, and the Asia/Pacific Group on Money Laundering (APG) is an international organization committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism, in particular the FATF Recommendations.