Legal Issues Concerning a FATF Mutual Evaluation Report
The Financial Action Task Force, also known as the Groupe d'action financière in French, is an intergovernmental organization created in 1989 on the initiative of the G7 to establish Anti-Money Laundering Measures. Its mandate was broadened in 2001 to encompass terrorism financing.
The Financial Action Task Force makes legally non-binding recommendations to its member countries, expected to follow as guidelines.
The mutual evaluation report evaluates a country's efforts to combat money laundering, terrorism financing, and the spread of weapons of mass destruction. This includes reviewing a country's efforts to address its threats from designated terrorists or terrorist organizations.
Mutual evaluations by the FATF are in-depth country studies that examine the implementation and effectiveness of anti-money laundering and anti-terrorist financing measures. Mutual assessments are peer reviews in which participants from various countries evaluate one another. A mutual evaluation report includes an in-depth description and analysis of a country's system for avoiding financial system criminal misuse and specific recommendations for the government to improve its system.
Mutual reviews are stringent, and a country is only deemed compliant if it can demonstrate its compliance to the other members. In other words, it is the assessed country's responsibility to show that it has a functioning system.
Mutual Evaluation Reports
Mutual Evaluations have two essential components, effectiveness, and technical compliance.
- The effectiveness of a mutual evaluation is the most crucial factor to consider. This is the emphasis of the assessed country's on-site visit. During this visit, the assessment team will prove that the assessed country's measures are effective and produce the desired results. What is expected of a country varies depending on its exposure to money laundering, terrorism financing, and other concerns. The FATF has created an intricate assessment system to ensure consistent and fair assessments.
- Each mutual evaluation includes a technical compliance assessment. The examined country must submit information on its money laundering, terrorism funding, proliferation financing laws, regulations, and other legal instruments. FATF's immediate attention used to be on this, and FATF still requires the legal framework. However, history has proven that simply having rules is insufficient; the main focus is now on effectiveness..
A complete mutual evaluation takes up to 18 months. The stages in this process are as follows:
- Assessor training. The FATF holds monthly training sessions to educate experienced country experts on the FATF Recommendations and Assessment Methodology. FATF does not limit assessors to FATF member nations; any country member of the Global Network of FATF, FATF-style regional entities, or FATF observer organizations can send expertise for evaluations.
- Country training. The FATF provides training to representatives of the assessed country to know what they must furnish and demonstrate during the process.
- Technical compliance. The country makes its laws and regulations available. As stipulated by the FATF Recommendations, the assessors examine this information to see if all of the required rules and regulations are in place. This process takes about four months; however, it can take longer if additional paperwork or translations are required. Assessors produce a draft report after the analysis, containing technical compliance scores for all 40 Recommendations.
- Scoping - Assessors conduct a preliminary scoping exercise to select the areas of focus of the on-site visit in preparation for the effectiveness assessment and the on-site visit. The type of threats, vulnerabilities, and risks, the type of economy, the size and financial and other sectors, political stability and commitment, the rule of law, and the maturity of the country's system to combat money laundering, terrorism financing, and proliferation are all factors taken into account.
- On-site visit - For the on-site visit, the assessors travel to the country. The country must give information on the efficiency of its system in all eleven categories covered by the FATF Methodology before, during, and after the inspection (more information on an effective system to combat money laundering and terrorist financing). The assessed country supplied information on the effectiveness of their system before the on-site visit to aid in the discussions.
- Drafting a report - The assessors complete the mutual evaluation report with the effectiveness and technical compliance assessments findings right after the on-site visit. The examined country is given a chance to comment on the draft report and meet with the assessors face to face. Independent reviewers examine the report as well. However, the assessors are the only ones who have the final say over the report's wording and proposed grades for effectiveness and technical conformity.
- Plenary discussion. At one of the three sessions held each year, the assessors give the draft report to the FATF Plenary. The results and proposed ratings of the assessors will be discussed in the Plenary. Members must agree to overturn any of the assessors' draft findings and ratings (except for the evaluated country, which has no vote).
- Final quality check. Following Plenary acceptance, the report will be reviewed by all countries in the FATF Global Network for technical quality and consistency before being published on the website, which generally takes two months after Plenary approval.
- Follow-up. Following adoption, the governments must remedy the deficiencies noted in the study. Post-assessment monitoring applies to all countries. This might range from regular progress reporting for nations that are already largely compliant and demonstrably committed to addressing the remaining few flaws to issuing a public warning against a country that fails to address critical deficiencies.
The UAE’s FATF Mutual Evaluation Report
The following was found in the UAE’s FATF Mutual Evaluation Report:
The United Arab Emirates recently reinforced its legal framework to combat money laundering and terrorist funding, but it must move quickly as a major global financial center and trading engine to successfully block the illicit financial flows it attracts.
Following a recent national risk assessment, the UAE's awareness of the threats it faces from money laundering, terrorist financing, and sponsorship of weapons of mass destruction is still developing. The UAE's enormous financial, economic, business, and commercial activities, especially its position as a global leader in oil, diamond, and gold exports pose significant risks. The UAE's strategic geographic location between continents, proximity to war zones, and jurisdictional complexity, including seven Emirates, two economic free zones, and 29 commercial-free zones, raise the UAE's risk of drawing funds linked to crime and terrorism.
IN RECENT YEARS, the UAE has reinforced vital laws and regulations and established several committees to increase national coordination and collaboration. While the government still has many concerns to address, the foundations for an efficient framework to detect and prevent criminals and terrorists from manipulating the financial system are essentially in place. However, because this framework is new, it has yet to show that it can produce the desired results.
Misuse of legal persons is a significant risk in the UAE, with 39 separate company registers that have enabled the UAE to grow its multiple free zones. The UAE is also at risk of being exposed to proceeds of international crimes. However, authorities do not make enough use of formal international legal assistance processes to combat money laundering, terrorism financing, and proliferation, but they have demonstrated greater capacity in using informal processes.
In their investigations of terrorist financing, fraud, and other crimes, authorities have access to a wide range of financial data. The UAE has had positive success in detecting and prosecuting terrorism financing, but considering the country's risk profile, the country's low number of money laundering prosecutions and convictions, notably in Dubai, is a cause for concern. Authorities do not effectively utilize financial intelligence in their efforts to combat money laundering and track criminal proceeds. Although the Financial Intelligence Unit's role and capacity have improved, better operational outcomes have yet to be demonstrated.
The UAE's financial and non-financial sectors are extraordinarily extensive and diverse. The research noted concerns with the supervision of several higher-risk sectors, including banks, the Dubai property market, gold, and other precious metals and stone dealers.
The UAE is a major international and regional financial center and trading hub that attracts both legitimate financial and economic activity and money laundering and terrorism-related financial flows. The government needs to improve its awareness of the threats it faces at the national and individual Emirate levels and take steps to improve the efficiency of its policies to stop money laundering, anti-terrorism funding, and proliferation financing.
The mutual evaluation report evaluates a country's efforts to combat money laundering, terrorism financing, and the spread of weapons of mass destruction. They help countries that are members of the FATF to regulate their financial and technological services better. For the UAE report, for example, they also catered their report to what was unique about the UAE, e.g., their popular industries and geographic location.