Financial Action Task Force (FATF)

The Financial Action Task Force (FATF) is an inter-governmental watchdog organization that collaborates with policymakers to prevent money laundering and combat terrorism financing on a global scale. Each country faces unique threats to its financial institutions, so FATF recommendations operate as a set of best practices for countries to model.

FATF’s mutual evaluation process is rigorous. First, FATF agents travel to a foreign country to conduct an on-site assessment of that country’s policy effectiveness. Then, the agents draft a mutual evaluation report that details whether the country is compliant with FATF recommendations.

A mutual evaluation report places each country into a category based on its adherence to Anti-Money Laundering (AML), combatting the financing of terrorism (CFT), and Know Your Customer (KYC) guidelines. Those categories include a high level of effectiveness, a substantial level of effectiveness, a moderate level of effectiveness, and a low level of effectiveness.

The FATF incentivizes strict compliance, because organizations like the International Monetary Fund and World Bank use mutual evaluation reports to determine the risk of financial crimes in that country.

A country may comply by carefully implementing FATF recommendations into its legal systems. In particular, the FATF equips officials and authorities with resources to enforce the FATF recommendations effectively.