Spaces for Change | S4C joined other international experts at the high-level multistakeholder global consultation, titled, “Risk and Consequence: The Future of FATF Rec 8 For Financial Integrity and For Civil Society” organized by the EU AML/CFT Global Facility in partnership with the GIZ’s Global Program on Combating Illicit Financial Flows (GP IFF) and the Global NPO Coalition on FATF. The consultation brought together representatives of civil society and the Financial Action Task Force (FATF), the FATF-Style Regional Bodies, Financial Intelligence Units, the European Union, and Member States, along with banks, regulators, supervisors, academics, and think tanks from the public and private sectors to jointly evaluate the performance of FATF’s Recommendation 8 (R8) across jurisdictions and explore opportunities for addressing policy and practical gaps in implementation.
The opening statements from the representatives of global institutions, including the FATF, set the tone for the conversations that ensued during the two-day consultations. Based on the analysis of money laundering and terrorism financing trends across countries, governments often increase monitoring and due diligence in the activities of non-profit organizations (NPOs) and their beneficiaries. These heightened controls make NPO operations more cumbersome and expensive. These consequences may be unintended, and in some cases, fully intended. There is evidence that governments are purposefully using FATF Standards, especially R8, to prohibit certain organizations, stifle organized dissent, and repress the ability of citizens and organizations to organize and assemble freely. Whether these consequences are intended or not, they need to be stopped.
The implementation of R8 has been challenging, and producing chilling effects on civil society across the world. Governments lack the capacity to provide support to people where rule of law systems are weak. NPOs fill these gaps across countries, reaching people in greatest need and in real-time. An increasing number of countries, especially in Africa, are also receiving negative ratings following the Mutual Evaluation of their compliance with FATF Standards. Countries have responded to these negative ratings by increasing their monitoring of civil society and tightening controls on domestic financial systems.
S4C was part of the experts’ panel that examined the transnational effects of international legal regimes for combating money laundering and countering the financing of terrorism (AML/CFT), especially from the perspective of countries that have consistently received negative ratings. The norms undergirding AML/CFT regimes are developed on the international level and passed down to the national level for compliance by states whether they have a terrorism problem or not, regardless of the vastly-different legal, political, and cultural architecture of the domestic contexts. These norms are often imported into the national levels creating confusion between existing legal frameworks and the new ones, and the proliferation of mechanisms for law enforcement. Despite the revision of R8 in June 2016 which places emphasis on a risk-based approach, many countries have not conducted a risk assessment to identify the subsets of NPOs at risk of terrorism financing. In effect, disproportionate regulations and the blanket application of regulatory restrictions to the entire universe of NPOs operating in the country have had devastating effects on charitable and humanitarian interventions.
FATF’s revision of R8 in 2016 is not accompanied by parallel national reviews demonstrating how legal reforms made upstream (at the international standard-setting platforms) hardly trickle down. National legislative procedures are cumbersome, unduly prolonged, expensive, and difficult to engage. Despite the upstream changes, there is evidence that countries are not applying the risk-based approach. Many countries still include NPOs in the list of designated non-financial businesses and professions (DNFBPs) which requires heightened due diligence on customers and the application of counterterrorism measures to their operations. De-risking of non-profits is still commonplace, limiting their access to financial services.
Not only that, some countries are using risk assessments as opportunities to ask for more resources, instead of laying emphasis on the targeted allocation of resources. In other cases, some countries conduct risk assessments just for the sake of compliance with R8 and nothing more. This means that there is no real interest in risk identification, but rather, fixated on satisfying compliance obligations and securing compliant ratings. It was also established that Mutual Evaluations often put countries under pressure, prompting knee-jerk reactions and moves to address strategic deficiencies. Risk assessments should be done in compliance with FATF’s Recommendation 1 in order to have an understanding of the risks in the country. The identification of money laundering and terrorism financing risks should not necessarily be propelled by Mutual Evaluations and greylisting.
Based on the preponderance of opinions and views exchanged during the various panel discussions over the two days, there was consensus among stakeholders that R8 is part of the ecosystem of an enabling environment for civil society. The good news is that FATF is now revising R8 and the Best Practices Paper. Some proposed changes to R8 include the requirement for focused, risk-based, and proportionate measures to be now mandatory for countries. This new mandatory language will, hopefully, prevent intrusions into the civic space whether intended or by accident. Overall, fighting terrorism and protecting the civic space can be complementary goals. That complementarity comes about through an improved implementation of FATF’s R8. The global consultation achieved this aim by exploring ways to strike this balance between securing the integrity of global financial systems and the civic space.