Money laundering and risk countries

Money laundering has its most recent international origin in the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, held in Vienna on December 20, 1988, and the Principles Declaration of the Basel Committee on Prevention of the Use of the Banking System for the Laundering of Funds from Criminal Activities, also from 1988.

While the Basel Declaration establishes canons and standards to build robust and resilient financial systems against money laundering, the Vienna Convention of 1988 mandates criminal penalties for money laundering offenses.

Some industrialized nations had already begun legislative efforts to establish systems or measures to prevent money laundering within their jurisdictions.

For example, the United States had adopted several regulations, such as The Currency and Foreign Transactions Reporting Act of 1970 and later the Money Laundering Control Act of 1986.

Although this small group of nations already had legislative tools to combat this issue, the need to establish international instruments became evident, as national measures alone were insufficient. It was from this foundation that the previously mentioned conventions emerged.

Based on this international framework, and with the support of the G7, the Financial Action Task Force — FATF — was later established on July 16, 1998. FATF is an intergovernmental organization that sets policies to help combat money laundering, assessing national financial systems and issuing recommendations to prevent such activities. One of the most significant contributions by FATF to the prevention of money laundering is the «40 Recommendations» issued in 1990.

FATF and High-Risk Countries

One of FATF’s functions is to prepare and publish periodic reports that evaluate the resilience of financial systems against money laundering. FATF then publishes a list of countries that do not have adequate systems for preventing money laundering. Once the list is published, FATF urges member governments to increase caution when dealing with the listed countries.

These lists are updated every four months by the FATF plenary after a thorough evaluation of the financial systems. The lists are divided into two categories:

• Public Statement: includes countries that are urged to take measures to protect their financial systems and countries with strategic deficiencies that have not made sufficient progress in improving their financial systems.
• Compliance Document: countries that are in the process of making improvements.

Currently, countries such as North Korea, Iran, Ghana, Pakistan, etc., are listed.

FATF’s List of High-Risk Countries.