## _071712a - Executive Summary

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---

### Executive summary — purpose and context
- Purpose: inform the Executive Board of the amendments made to the standard on anti-money laundering and combating the financing of terrorism (AML/CFT).
- FATF action: the Financial Action Task Force (FATF) adopted on February 16, 2012 a revised standard, now entitled the “International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: the FATF Recommendations.”
- Historical role of the Fund: the Fund, together with the Bank, the FATF and the FATF-style Regional Bodies (FSRBs), assesses countries’ level of compliance with the AML/CFT standard pursuant to a common assessment methodology. These assessments have contributed to the Report on the Observance of Standards and Codes (ROSC) program and to the Financial Sector Assessment Program (FSAP).

### Main substantive changes of interest to the Fund
- Risk-based approach
  - New Recommendation 1 requires countries to identify, assess, and understand the money laundering and terrorist financing risks they face and take appropriate measures to mitigate those risks.
  - The revised standard integrates the concept of ML/FT risk more comprehensively and raises the prospect of assessing countries’ effectiveness in mitigating ML/FT risks.
  - Board process: staff will report on FATF discussions and the possibility of more targeted, risk-based assessments to the Board in mid 2013, as requested by Directors in June 2011.
- Tax crimes as predicate offenses
  - The list of designated predicate offenses to money laundering has been expanded to include “tax crimes.”
  - The revised FATF standard designates the following categories of offenses as predicate offenses to money laundering (as listed in the source): participation in an organized criminal group and racketeering; terrorism, including terrorist financing; trafficking in human beings and migrant smuggling; sexual exploitation, including sexual exploitation of children; illicit trafficking in narcotic drugs and psychotropic substances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage-taking; robbery or theft; smuggling; (including in relation to customs and excise duties and taxes); tax crimes (related to direct taxes and indirect taxes); extortion; forgery; piracy; and insider trading and market manipulation.
- Financing of proliferation
  - New recommendation: countries should apply UN targeted financial sanctions to persons and entities that finance the proliferation of weapons of mass destruction (WMD).
  - Another recommendation calls on countries to ensure national cooperation and coordination among their competent authorities, inter alia, in the prevention of the financing of proliferation.
- Anti-corruption
  - Revised recommendations place a greater emphasis on action against corruption, following calls from the G20.

### Assessment methodology and timing
- Necessity: an assessment methodology is indispensable for conducting consistent AML/CFT assessments.
- FATF work: the FATF is developing a new assessment methodology for the revised standard with active participation from Fund staff and the Bank.
- Scope of methodology work:
  - bring the assessment methodology in line with the new standard;
  - discuss options for adopting a more targeted, risk-based approach to assessments (in continued cooperation with the Bank) with FATF and FSRBs;
  - establish how best to assess the effectiveness of AML/CFT frameworks;
  - design a new detailed assessment questionnaire and a template for future assessment reports.
- Timetable and sequencing:
  - The FATF plans to complete these tasks by February 2013.
  - The FATF plans to conduct the first on-site assessment visits using the revised methodology in October 2013.
  - Assessments by the other assessor bodies (i.e., the FSRBs, the Fund, and the World Bank) are expected to start concomitantly or soon thereafter.
- Board endorsement process:
  - Consistent with past practice, the revised FATF standard and accompanying assessment methodology will be submitted to the Board with a request for their endorsement in mid 2013, i.e., after the assessment methodology has been finalized.

### Operational and institutional context — key facts and precedents
- FATF history and membership:
  - The original FATF Forty Recommendations were developed in 1990.
  - FATF expanded its mandate in October 2001 to address terrorist financing and issued eight Special Recommendations.
  - The 2003 revision introduced several major changes (listed in the source).
  - The FATF was established by the G7 in 1989; membership grew from 16 members at inception to 36 at present (34 jurisdictions and two regional organizations).
  - The FATF is complemented by nine FATF-style regional bodies (FSRBs); together the FATF and the FSRBs comprise over 180 member jurisdictions. The Fund is an observer at the FATF and the FSRBs.
- Fund involvement:
  - Since 2004, the Fund has conducted AML/CFT assessments of more than 35 countries using the comprehensive methodology applied by all AML/CFT assessor bodies.
  - The FSAP policy requires that every full FSAP and FSAP update incorporate a full AML/CFT assessment.
- Past Board actions:
  - July 2002: Directors endorsed adding AML/CFT to the list of areas where standards and codes are useful to the operational work of the Fund, subject to conditions including finalization of the assessment methodology by the FATF.
  - November 18, 2002: Executive Directors added the FATF 40+8 Recommendations to the list of areas and endorsed the comprehensive and integrated methodology endorsed at the FATF October 2002 Plenary (Decision No. 12884-(02/114)).
  - March 2004: Executive Board endorsed the revised FATF standard and the revised assessment methodology for the Fund’s operational work (The Acting Chair’s Summing Up, Executive Board Meeting 04/29, March 24, 2004).
- Review process leading to the 2012 standard:
  - The FATF initiated a review of its recommendations in 2009 and concluded with formal adoption of a single set of revised recommendations and new interpretive notes in February 2012.
  - The 2009 review was intended as a limited, focused exercise addressing deficiencies and loopholes highlighted during the third round of evaluations and implementation of the standard.
  - The formal adoption of the revised standard took place during the FATF February 15–17, 2012 plenary meeting.

### Board reporting and next steps (as described)
- The methodology will be discussed and finalized; staff will submit the revised standard and methodology to the Board for endorsement in mid 2013.
- Staff will report on the outcome of FATF discussions on a possible shift toward more targeted, risk-based assessments and the associated resource implications requested by Directors in June 2011.
- The FATF plans first on-site assessments under the new methodology in October 2013; other assessor bodies will begin assessments concomitantly or soon thereafter.

---

### Box 2 — Background on inclusion of tax crimes as predicate offenses

### Background: rationale and scope of inclusion
- The FATF considered inclusion of tax offenses as predicate offenses to money laundering during the 2003 revision (smuggling was included then) and revisited the issue in the most recent revision based on a survey of national legislations in OECD countries and FATF members’ experience.
- FATF delegations agreed tax crimes should be considered across three tax types:
  - (a) customs and excise duties and taxes;
  - (b) indirect taxes;
  - (c) direct taxes.
- The revised wording added to the list of categories of predicate offenses:
  - smuggling (including in relation to customs and excise duties and taxes);
  - tax crimes (related to direct taxes and indirect taxes).

### Findings on AML framework utility for tax enforcement
- The AML framework can complement revenue administrations’ efforts against tax crimes by:
  - increasing probability of detection of tax evaders;
  - imposing deterring sanctions;
  - increasing revenues.
- Many jurisdictions already treat tax crimes as predicate offenses to money laundering; several countries’ laws and institutions promote collaboration among tax administrations, financial regulators, financial intelligence units (FIUs), investigators, prosecutors, and other relevant institutions.
- The General Glossary to the FATF Recommendations allows countries, in accordance with domestic law, to decide how to define predicate offenses and which elements make them serious offenses.

### Assessment implications and normative scope
- Future assessments against the revised FATF standard will require assessors to consider whether countries have ensured a sufficiently broad set of tax-related offenses constitute predicate offenses to money laundering.
- These assessments will clarify the normative scope of “tax crimes,” determining the significance of the revised recommendation for facilitating action against tax crimes and related money laundering.

### Implications for the Fund’s surveillance, programs, and TA
- Tax crimes and related money laundering will be discussed in bilateral surveillance when they may undermine domestic financial system stability or external stability.
- In certain countries, tax crimes may be critical in adjustment programs; AML-related conditions can support anti-tax evasion strategies when macro-critical to program goals or monitoring program implementation. Such measures have already been included in adjustment programs.
- Technical assistance (TA) programs will be developed to assist members in leveraging AML tools within domestic fiscal frameworks.

### Relevant FATF Recommendation excerpts and related changes
- Recommendation 3 (Money laundering offence) requires countries to criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention and to apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences.
- Designated categories of offences listed under Recommendation 3 include (excerpt):
  - smuggling; (including in relation to customs and excise duties and taxes);
  - tax crimes (related to direct taxes and indirect taxes);
  - and other offenses such as corruption and bribery; fraud; illicit trafficking in narcotic drugs and psychotropic substances; murder, grievous bodily injury; robbery or theft; extortion; forgery; insider trading and market manipulation; among others.
- The General Glossary permits each country to define the range and elements of predicate offenses in accordance with domestic law.

### Related structural changes in the revised FATF standard (summary)
- Title of the standard amended to reference financing of proliferation.
- The 9 Special Recommendations on terrorist financing merged with the 40 Recommendations on money laundering; total recommendations reduced from 49 to 40 and reorganized into thematic sections.
- Interpretive Notes (INs) were expanded and are more detailed.
- Customer due-diligence (CDD) measures strengthened, including specificity on beneficial ownership and control of legal persons and arrangements.
- Transparency obligations for legal persons and arrangements were strengthened to require reliable information on beneficial ownership and control.
- Investigative powers expanded to include more special investigative techniques.
- International cooperation strengthened, including responding to requests related to non-conviction based confiscation proceedings (unless inconsistent with fundamental domestic law principles) and enhanced cooperation outside mutual legal assistance frameworks.

### Policy and operational considerations for institutions
- Financial institutions and DNFBPs should apply a risk-based approach to identify, assess, and mitigate money laundering and terrorist financing risks.
- Enhanced due diligence measures for PEPs now explicitly include domestic PEPs and persons entrusted with prominent functions by international organizations (on a risk basis).
- Practical implications may include requesting source of wealth/funds information, senior management approval for business relationships, and ongoing monitoring.

---

### ANNEX 2 — POLITICALLY-EXPOSED PERSONS (PEPS) OF INTERNATIONAL ORGANIZATIONS

### Executive summary
- The Financial Action Task Force (FATF) adopted the revised anti-money laundering and combating the financing of terrorism (AML/CFT) standard in February 2012.
- The revised standard extends the application of enhanced due diligence by financial institutions to individuals who are or have been entrusted with a prominent function by an international organization, including the Fund, in cases where a determination is made of a higher-risk business relationship with such individuals.
- The General Glossary to the FATF standard defines “persons who are or have been entrusted with a prominent function by an international organization” as “members of senior management, i.e., directors, deputy directors and members of the board or equivalent functions.”
- The FATF language is generic and not intended to reflect the governance structure of any particular international organization; implementation is a matter of national law, regulation, and practice and may vary across countries and financial institutions.
- The revised methodology, expected to be finalized by February 2013, will help clarify the basis on which countries’ compliance with this recommendation will be assessed.

### Introduction
- The FATF adopted on February 16, 2012 a revised standard, renamed the “International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: the FATF Recommendations.”
- The previous version applied enhanced due diligence to individuals entrusted with prominent public functions by a foreign country (so called “foreign PEPs”).
- The revised standard (Recommendation 12) extends enhanced due diligence also to individuals entrusted with prominent functions domestically or in the context of an international organization, including the Fund.
- The General Glossary defines international organizations as entities established by formal political agreements between their member States with treaty status, recognized by law in member countries, and not treated as resident institutional units of the countries in which they are located; examples include the United Nations, Council of Europe, institutions of the European Union, Organization for Security and Cooperation in Europe, Organization of American States, NATO, World Trade Organization, Association of Southeast Asian Nations, etc.
- For many countries, extension to domestic PEPs is not entirely new: Article 52, paragraph 1, of the United Nations Convention against Corruption (UNCAC) contains a similar provision; only 14 countries around the world have not yet ratified it.
- The FATF is preparing a Best Practice paper which, once finalized, may help further clarify some issues.

### The FATF standard (scope and implementation considerations)
- The FATF standard is not legally binding under international law, nor is it directly applicable to the Fund; however, it is followed and implemented by all FATF member countries and, via FATF-Style Regional Bodies (FSRBs), by some 180 countries.
- A process of mutual evaluations by the FATF and FSRBs, and assessments by the Fund and the Bank, assesses compliance with and effective implementation of the FATF standard at a national level.
- As the revised standard is already in force, each country and financial institution must determine when and how requirements will be transposed into and implemented domestically; implementation may vary by country and institution.
- Financial institutions may impose stricter requirements than domestic law (e.g., pursuant to group policies), as permitted under domestic law.
- Following the revision and implementation, existing or prospective customers could be asked questions by financial institutions to determine PEP status of international organizations; in higher-risk determinations, enhanced due diligence could be applied.
- Possible questions/requests from financial institutions may include:
  - inquiries on the source of wealth (referring to the origin of the PEP’s entire body of wealth, i.e., total assets);
  - inquiries on the source of funds (referring to the origin of the particular funds or other assets which are the subject of the business relationship);
  - completing a financial disclosure of assets at the beginning of the relationship to generate a baseline for ongoing monitoring.

### FATF Recommendation 12 and practical implications for the Fund
- Recommendation 12 extends existing enhanced due diligence for foreign PEPs to persons who are or have been entrusted with a prominent function by an international organization in cases of a higher-risk business relationship.
- The General Glossary definition of PEPs of international organizations includes:
  - directors, deputy directors and members of the board or equivalent functions;
  - family members or close associates of such PEPs.
- The FATF definition is generic and not intended to mirror any organization’s governance structure; it does not encompass middle-ranking or more junior individuals.
- Enhanced due-diligence provisions also apply where the beneficial owner (e.g., of the funds/assets or transactions) is a PEP (for example, if the customer is acting in representation of a third party who is a PEP).
- Definitions referenced:
  - “close family” per the Wolfsberg Frequently Asked Questions on PEPs: a PEP’s direct family members, including spouses, children, parents and siblings.
  - “close associate” per the Wolfsberg Frequently Asked Questions on PEPs: a PEP’s widely and publicly known close business colleagues and/or personal advisors, in particular personal financial advisors or persons acting in a financial fiduciary capacity; includes persons closely connected socially or professionally.
  - “beneficial owner” in FATF terminology: the natural person(s) who ultimately owns or controls a customer and/or on whose behalf a transaction is being conducted; includes those who exercise ultimate effective control over a legal person or arrangement, including through chains of ownership or other means.
- Practice implications:
  - A financial institution—either at account opening or during an existing relationship—must take reasonable measures (defined by the FATF General Glossary as appropriate measures commensurate with money laundering or terrorist financing risks) to determine whether the relationship with a person entrusted with a prominent function by an international organization poses a “higher risk.”
  - If a higher-risk determination is made, required measures include:
    - obtaining senior management approval to commence or continue the business relationship;
    - taking reasonable measures to establish the source of wealth and funds;
    - conducting enhanced ongoing monitoring of the business relationship.
- Additional points:
  - While foreign PEPs must be subject to enhanced due-diligence measures, PEPs of international organizations are subject to enhanced due diligence only if the financial institution determines they pose a higher risk.
  - Family members and close associates of PEPs are to be treated as PEPs themselves; their family members and close associates (a “second layer”) are not required by Recommendation 12 to be treated as PEPs unless they are PEPs in their own right, but financial institutions will consider the risks of doing business with such persons.
  - Recommendation 22 extends customer due-diligence requirements to designated nonfinancial businesses and professions (DNFBPs); references to financial institutions apply, mutatis mutandis, to DNFBPs.

### Conclusion / implications
- As a result of the implementation of revised FATF Recommendation 12, PEPs of international organizations, including the Fund, may become subject, in cases of a determination of a higher-risk business relationship, to enhanced due diligence by financial institutions in the United States or elsewhere.
- The revised methodology for the assessment of countries’ compliance with the standard will help clarify the basis on which these issues will be assessed.

*Source: Executive Summary (IMF document)._071712a - Executive Summary*

### Executive Summary ......................................................................................................

### _071712a - Executive Summary ......................................................................................................

### Executive summary — purpose and context
- Purpose: inform the Executive Board of the amendments made to the standard on anti-money laundering and combating the financing of terrorism (AML/CFT).
- FATF action: the Financial Action Task Force (FATF) adopted on February 16, 2012 a revised standard, now entitled the “International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: the FATF Recommendations.”
- Historical role of the Fund: the Fund, together with the Bank, the FATF and the FATF-style Regional Bodies (FSRBs), assesses countries’ level of compliance with the AML/CFT standard pursuant to a common assessment methodology. These assessments have contributed to the Report on the Observance of Standards and Codes (ROSC) program and to the Financial Sector Assessment Program (FSAP).

### Main substantive changes of interest to the Fund
- Risk-based approach
  - New Recommendation 1 requires countries to identify, assess, and understand the money laundering and terrorist financing risks they face and take appropriate measures to mitigate those risks.
  - The revised standard integrates the concept of ML/FT risk more comprehensively and raises the prospect of assessing countries’ effectiveness in mitigating ML/FT risks.
  - Board process: staff will report on FATF discussions and the possibility of more targeted, risk-based assessments to the Board in mid 2013, as requested by Directors in June 2011.
- Tax crimes as predicate offenses
  - The list of designated predicate offenses to money laundering has been expanded to include “tax crimes.”
  - The revised FATF standard designates the following categories of offenses as predicate offenses to money laundering (as listed in the source): participation in an organized criminal group and racketeering; terrorism, including terrorist financing; trafficking in human beings and migrant smuggling; sexual exploitation, including sexual exploitation of children; illicit trafficking in narcotic drugs and psychotropic substances; illicit arms trafficking; illicit trafficking in stolen and other goods; corruption and bribery; fraud; counterfeiting currency; counterfeiting and piracy of products; environmental crime; murder, grievous bodily injury; kidnapping, illegal restraint and hostage-taking; robbery or theft; smuggling; (including in relation to customs and excise duties and taxes); tax crimes (related to direct taxes and indirect taxes); extortion; forgery; piracy; and insider trading and market manipulation.
- Financing of proliferation
  - New recommendation: countries should apply UN targeted financial sanctions to persons and entities that finance the proliferation of weapons of mass destruction (WMD).
  - Another recommendation calls on countries to ensure national cooperation and coordination among their competent authorities, inter alia, in the prevention of the financing of proliferation.
- Anti-corruption
  - Revised recommendations place a greater emphasis on action against corruption, following calls from the G20.

### Assessment methodology and timing
- Necessity: an assessment methodology is indispensable for conducting consistent AML/CFT assessments.
- FATF work: the FATF is developing a new assessment methodology for the revised standard with active participation from Fund staff and the Bank.
- Scope of methodology work:
  - bring the assessment methodology in line with the new standard;
  - discuss options for adopting a more targeted, risk-based approach to assessments (in continued cooperation with the Bank) with FATF and FSRBs;
  - establish how best to assess the effectiveness of AML/CFT frameworks;
  - design a new detailed assessment questionnaire and a template for future assessment reports.
- Timetable and sequencing:
  - The FATF plans to complete these tasks by February 2013.
  - The FATF plans to conduct the first on-site assessment visits using the revised methodology in October 2013.
  - Assessments by the other assessor bodies (i.e., the FSRBs, the Fund, and the World Bank) are expected to start concomitantly or soon thereafter.
- Board endorsement process:
  - Consistent with past practice, the revised FATF standard and accompanying assessment methodology will be submitted to the Board with a request for their endorsement in mid 2013, i.e., after the assessment methodology has been finalized.

### Operational and institutional context — key facts and precedents
- FATF history and membership:
  - The original FATF Forty Recommendations were developed in 1990.
  - FATF expanded its mandate in October 2001 to address terrorist financing and issued eight Special Recommendations.
  - The 2003 revision introduced several major changes (listed in the source).
  - The FATF was established by the G7 in 1989; membership grew from 16 members at inception to 36 at present (34 jurisdictions and two regional organizations).
  - The FATF is complemented by nine FATF-style regional bodies (FSRBs); together the FATF and the FSRBs comprise over 180 member jurisdictions. The Fund is an observer at the FATF and the FSRBs.
- Fund involvement:
  - Since 2004, the Fund has conducted AML/CFT assessments of more than 35 countries using the comprehensive methodology applied by all AML/CFT assessor bodies.
  - The FSAP policy requires that every full FSAP and FSAP update incorporate a full AML/CFT assessment.
- Past Board actions:
  - July 2002: Directors endorsed adding AML/CFT to the list of areas where standards and codes are useful to the operational work of the Fund, subject to conditions including finalization of the assessment methodology by the FATF.
  - November 18, 2002: Executive Directors added the FATF 40+8 Recommendations to the list of areas and endorsed the comprehensive and integrated methodology endorsed at the FATF October 2002 Plenary (Decision No. 12884-(02/114)).
  - March 2004: Executive Board endorsed the revised FATF standard and the revised assessment methodology for the Fund’s operational work (The Acting Chair’s Summing Up, Executive Board Meeting 04/29, March 24, 2004).
- Review process leading to the 2012 standard:
  - The FATF initiated a review of its recommendations in 2009 and concluded with formal adoption of a single set of revised recommendations and new interpretive notes in February 2012.
  - The 2009 review was intended as a limited, focused exercise addressing deficiencies and loopholes highlighted during the third round of evaluations and implementation of the standard.
  - The formal adoption of the revised standard took place during the FATF February 15–17, 2012 plenary meeting.

### Board reporting and next steps (as described)
- The methodology will be discussed and finalized; staff will submit the revised standard and methodology to the Board for endorsement in mid 2013.
- Staff will report on the outcome of FATF discussions on a possible shift toward more targeted, risk-based assessments and the associated resource implications requested by Directors in June 2011.
- The FATF plans first on-site assessments under the new methodology in October 2013; other assessor bodies will begin assessments concomitantly or soon thereafter.

*Source: Executive Summary (IMF document)._071712a - Executive Summary*

### Box 2 provides some background on the considerations that led to the inclusion by FATF of tax crimes as

### _071712a - Box 2 provides some background on the considerations that led to the inclusion by FATF of tax crimes as

### Background: rationale and scope of inclusion
- The FATF considered inclusion of tax offenses as predicate offenses to money laundering during the 2003 revision (smuggling was included then) and revisited the issue in the most recent revision based on a survey of national legislations in OECD countries and FATF members’ experience.
- FATF delegations agreed tax crimes should be considered across three tax types:
  - (a) customs and excise duties and taxes;
  - (b) indirect taxes;
  - (c) direct taxes.
- The revised wording added to the list of categories of predicate offenses:  
  - smuggling (including in relation to customs and excise duties and taxes);  
  - tax crimes (related to direct taxes and indirect taxes).

### Findings on AML framework utility for tax enforcement
- The AML framework can complement revenue administrations’ efforts against tax crimes by:
  - increasing probability of detection of tax evaders;
  - imposing deterring sanctions;
  - increasing revenues.
- Many jurisdictions already treat tax crimes as predicate offenses to money laundering; several countries’ laws and institutions promote collaboration among tax administrations, financial regulators, financial intelligence units (FIUs), investigators, prosecutors, and other relevant institutions.
- The General Glossary to the FATF Recommendations allows countries, in accordance with domestic law, to decide how to define predicate offenses and which elements make them serious offenses.

### Assessment implications and normative scope
- Future assessments against the revised FATF standard will require assessors to consider whether countries have ensured a sufficiently broad set of tax-related offenses constitute predicate offenses to money laundering.
- These assessments will clarify the normative scope of “tax crimes,” determining the significance of the revised recommendation for facilitating action against tax crimes and related money laundering.

### Implications for the Fund’s surveillance, programs, and TA
- Tax crimes and related money laundering will be discussed in bilateral surveillance when they may undermine domestic financial system stability or external stability.
- In certain countries, tax crimes may be critical in adjustment programs; AML-related conditions can support anti-tax evasion strategies when macro-critical to program goals or monitoring program implementation. Such measures have already been included in adjustment programs.
- Technical assistance (TA) programs will be developed to assist members in leveraging AML tools within domestic fiscal frameworks.

### Relevant FATF Recommendation excerpts and related changes
- Recommendation 3 (Money laundering offence) requires countries to criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention and to apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences.
- Designated categories of offences listed under Recommendation 3 include (excerpt):
  - smuggling; (including in relation to customs and excise duties and taxes);
  - tax crimes (related to direct taxes and indirect taxes);
  - and other offenses such as corruption and bribery; fraud; illicit trafficking in narcotic drugs and psychotropic substances; murder, grievous bodily injury; robbery or theft; extortion; forgery; insider trading and market manipulation; among others.
- The General Glossary permits each country to define the range and elements of predicate offenses in accordance with domestic law.

### Related structural changes in the revised FATF standard (summary)
- Title of the standard amended to reference financing of proliferation.
- The 9 Special Recommendations on terrorist financing merged with the 40 Recommendations on money laundering; total recommendations reduced from 49 to 40 and reorganized into thematic sections.
- Interpretive Notes (INs) were expanded and are more detailed.
- Customer due-diligence (CDD) measures strengthened, including specificity on beneficial ownership and control of legal persons and arrangements.
- Transparency obligations for legal persons and arrangements were strengthened to require reliable information on beneficial ownership and control.
- Investigative powers expanded to include more special investigative techniques.
- International cooperation strengthened, including responding to requests related to non-conviction based confiscation proceedings (unless inconsistent with fundamental domestic law principles) and enhanced cooperation outside mutual legal assistance frameworks.

### Policy and operational considerations for institutions
- Financial institutions and DNFBPs should apply a risk-based approach to identify, assess, and mitigate money laundering and terrorist financing risks.
- Enhanced due diligence measures for PEPs now explicitly include domestic PEPs and persons entrusted with prominent functions by international organizations (on a risk basis).
- Practical implications may include requesting source of wealth/funds information, senior management approval for business relationships, and ongoing monitoring.

*Source: _071712a - Box 2 provides some background on the considerations that led to the inclusion by FATF of tax crimes as*

### ANNEX 2. POLITICALLY-EXPOSED PERSONS (PEPS) OF INTERNATIONAL ORGANIZATIONS:

### ANNEX 2. POLITICALLY-EXPOSED PERSONS (PEPS) OF INTERNATIONAL ORGANIZATIONS:

### Executive summary
- The Financial Action Task Force (FATF) adopted the revised anti-money laundering and combating the financing of terrorism (AML/CFT) standard in February 2012.
- The revised standard extends the application of enhanced due diligence by financial institutions to individuals who are or have been entrusted with a prominent function by an international organization, including the Fund, in cases where a determination is made of a higher-risk business relationship with such individuals.
- The General Glossary to the FATF standard defines “persons who are or have been entrusted with a prominent function by an international organization” as “members of senior management, i.e., directors, deputy directors and members of the board or equivalent functions.”
- The FATF language is generic and not intended to reflect the governance structure of any particular international organization; implementation is a matter of national law, regulation, and practice and may vary across countries and financial institutions.
- The revised methodology, expected to be finalized by February 2013, will help clarify the basis on which countries’ compliance with this recommendation will be assessed.

### Introduction
- The FATF adopted on February 16, 2012 a revised standard, renamed the “International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: the FATF Recommendations.”
- The previous version applied enhanced due diligence to individuals entrusted with prominent public functions by a foreign country (so called “foreign PEPs”).
- The revised standard (Recommendation 12) extends enhanced due diligence also to individuals entrusted with prominent functions domestically or in the context of an international organization, including the Fund.
- The General Glossary defines international organizations as entities established by formal political agreements between their member States with treaty status, recognized by law in member countries, and not treated as resident institutional units of the countries in which they are located; examples include the United Nations, Council of Europe, institutions of the European Union, Organization for Security and Cooperation in Europe, Organization of American States, NATO, World Trade Organization, Association of Southeast Asian Nations, etc.
- For many countries, extension to domestic PEPs is not entirely new: Article 52, paragraph 1, of the United Nations Convention against Corruption (UNCAC) contains a similar provision; only 14 countries around the world have not yet ratified it.
- The FATF is preparing a Best Practice paper which, once finalized, may help further clarify some issues.

### The FATF standard (scope and implementation considerations)
- The FATF standard is not legally binding under international law, nor is it directly applicable to the Fund; however, it is followed and implemented by all FATF member countries and, via FATF-Style Regional Bodies (FSRBs), by some 180 countries.
- A process of mutual evaluations by the FATF and FSRBs, and assessments by the Fund and the Bank, assesses compliance with and effective implementation of the FATF standard at a national level.
- As the revised standard is already in force, each country and financial institution must determine when and how requirements will be transposed into and implemented domestically; implementation may vary by country and institution.
- Financial institutions may impose stricter requirements than domestic law (e.g., pursuant to group policies), as permitted under domestic law.
- Following the revision and implementation, existing or prospective customers could be asked questions by financial institutions to determine PEP status of international organizations; in higher-risk determinations, enhanced due diligence could be applied.
- Possible questions/requests from financial institutions may include:
  - inquiries on the source of wealth (referring to the origin of the PEP’s entire body of wealth, i.e., total assets);
  - inquiries on the source of funds (referring to the origin of the particular funds or other assets which are the subject of the business relationship);
  - completing a financial disclosure of assets at the beginning of the relationship to generate a baseline for ongoing monitoring.

### FATF Recommendation 12 and practical implications for the Fund
- Recommendation 12 extends existing enhanced due diligence for foreign PEPs to persons who are or have been entrusted with a prominent function by an international organization in cases of a higher-risk business relationship.
- The General Glossary definition of PEPs of international organizations includes:
  - directors, deputy directors and members of the board or equivalent functions;
  - family members or close associates of such PEPs.
- The FATF definition is generic and not intended to mirror any organization’s governance structure; it does not encompass middle-ranking or more junior individuals.
- Enhanced due-diligence provisions also apply where the beneficial owner (e.g., of the funds/assets or transactions) is a PEP (for example, if the customer is acting in representation of a third party who is a PEP).
- Definitions referenced:
  - “close family” per the Wolfsberg Frequently Asked Questions on PEPs: a PEP’s direct family members, including spouses, children, parents and siblings.
  - “close associate” per the Wolfsberg Frequently Asked Questions on PEPs: a PEP’s widely and publicly known close business colleagues and/or personal advisors, in particular personal financial advisors or persons acting in a financial fiduciary capacity; includes persons closely connected socially or professionally.
  - “beneficial owner” in FATF terminology: the natural person(s) who ultimately owns or controls a customer and/or on whose behalf a transaction is being conducted; includes those who exercise ultimate effective control over a legal person or arrangement, including through chains of ownership or other means.
- Practice implications:
  - A financial institution—either at account opening or during an existing relationship—must take reasonable measures (defined by the FATF General Glossary as appropriate measures commensurate with money laundering or terrorist financing risks) to determine whether the relationship with a person entrusted with a prominent function by an international organization poses a “higher risk.”
  - If a higher-risk determination is made, required measures include:
    - obtaining senior management approval to commence or continue the business relationship;
    - taking reasonable measures to establish the source of wealth and funds;
    - conducting enhanced ongoing monitoring of the business relationship.
- Additional points:
  - While foreign PEPs must be subject to enhanced due-diligence measures, PEPs of international organizations are subject to enhanced due diligence only if the financial institution determines they pose a higher risk.
  - Family members and close associates of PEPs are to be treated as PEPs themselves; their family members and close associates (a “second layer”) are not required by Recommendation 12 to be treated as PEPs unless they are PEPs in their own right, but financial institutions will consider the risks of doing business with such persons.
  - Recommendation 22 extends customer due-diligence requirements to designated nonfinancial businesses and professions (DNFBPs); references to financial institutions apply, mutatis mutandis, to DNFBPs.

### Conclusion / implications
- As a result of the implementation of revised FATF Recommendation 12, PEPs of international organizations, including the Fund, may become subject, in cases of a determination of a higher-risk business relationship, to enhanced due diligence by financial institutions in the United States or elsewhere.
- The revised methodology for the assessment of countries’ compliance with the standard will help clarify the basis on which these issues will be assessed.

*Source: _071712a - ANNEX 2. POLITICALLY-EXPOSED PERSONS (PEPS) OF INTERNATIONAL ORGANIZATIONS:*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_071712a.pdf_