4th FATF Recommendation

The Financial Action Task Force (FATF) aims to establish standards and promote the effective legal and operational implementation of measures to combat money laundering and terrorist financing. To achieve this, FATF introduced the 40 Recommendations. In this article, we analyze Recommendation 4 on confiscation and provisional measures.

FATF’s Fourth Recommendation requires countries to have adequate policies and frameworks that allow competent authorities to freeze, seize, or confiscate assets derived from illicit activities, whether domestically or internationally.

This recommendation is supported by the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances — Vienna Convention —; the United Nations Convention against Transnational Organized Crime — Palermo Convention —; and the International Convention for the Suppression of the Financing of Terrorism — Terrorism Financing Convention.

The regulatory and operational measures to be adopted should enable competent authorities to:

1. Locate, trace, and evaluate assets obtained from criminal activities and equivalent value assets;
2. Stop or deny authorization for a transaction;
3. Implement any appropriate investigative measures;
4. Quickly apply provisional measures, such as freezing and seizing, to prevent any manipulation, transfer, or disposal of criminal assets and equivalent value assets;
5. Confiscate criminal assets and equivalent value assets through conviction-based confiscation;
6. Confiscate criminal assets without the need for a conviction;
7. Enforce a confiscation order issued; and
8. Ensure the effective management of frozen, seized, or confiscated assets.

Alongside these guidelines, FATF includes an interpretive note that elaborates on the concepts outlined in this recommendation. The interpretive note is divided into 6 sections:

1. Asset Recovery and Prioritization Standards. In line with Recommendation 2, countries should have efficient internal cooperation frameworks. Moreover, the asset recovery regime should be periodically reviewed to ensure its effectiveness.
2. Criminal Assets and Corresponding Value Assets. These assets subject to seizure should also include those held by third parties, without harming the rights of bona fide third parties.
3. Provisional Measures. When relevant information arises, competent authorities should be able to take immediate measures to hold the suspicious transaction related to money laundering or terrorist financing. Additionally, it should be possible to freeze assets without a court order when urgent action is required, with subsequent judicial action for review.
4. Confiscation. Competent authorities must have mechanisms that allow for the confiscation of property derived from illicit activities. FATF notes that these measures should be implemented while respecting fundamental and procedural rights.
5. Asset Recovery and Tax Authorities. Countries should strengthen cooperation between competent authorities and tax authorities, encouraging coordination and information sharing. This cooperation could, in certain cases, reveal a tax liability.
6. Asset Management, Return, and Disposal. FATF notes that countries should have sufficient tools to manage, preserve, and, when necessary, dispose of seized assets. It also recommends the creation of an asset recovery fund and mechanisms to return confiscated property to its legitimate owners.