The FATF’s customer identification framework: fit for purpose?

Pages281-295
Published date08 July 2014
Date08 July 2014
DOIhttps://doi.org/10.1108/JMLC-01-2014-0003
AuthorLouis de Koker
Subject MatterAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
The FATF’s customer
identication framework: t for
purpose?
Louis de Koker
School of Law, Deakin University, Melbourne, Australia
Abstract
Purpose This paper aims to investigate the purpose, reach and effectiveness of the customer
identication framework of the Financial Action Task Force (FATF).
Design/methodology/approach – The article draws on relevant research and documents of the
FATF, the Basel Committee on Banking Supervision and the Alliance for Financial Inclusion to
determine whether compliance with the standards and practices of the FATF would prevent
anonymous usage of nancial services.
Findings – The FATF’s identication principles, guidance and practices resulted in processes that are
largely bureaucratic and do not ensure that identity fraud is effectively prevented. Strict identication
requirements on the other hand may impact on nancial inclusion, leaving the FATF with little leeway
to raise its standards. There are potential solutions, but they are longer-term and partial in nature.
Originality/value – Current identication and verication practices affect the lives of millions of
people around the globe. The measures are being enforced to ensure that users are appropriately
identied. This article informs the debate by highlighting the weaknesses of the current approach.
Keywords Money laundering, Proling, Identity fraud, FATF, Financial inclusion, Anonymous
customers, Customer identication, Terrorist nancing, Risk-based approach, Simplied CDD
Paper type Conceptual paper
The Financial Action Task Force (FATF) sets international standards to be met by
countries, nancial institutions and designated non-nancial businesses and
professions to combat money laundering and terrorist nancing. To this end, specic
FATF Recommendations set customer identication requirements to prevent
anonymous business relationships, especially anonymous bank accounts. These
anti-money laundering (AML) and counter terrorist nancing (CTF) standards are aimed at
increasing transparency of nancial services. Banks that comply with these standards
may, however, not necessarily ensure identication of customers. The article
considers the current principles and limits of the current regime and whether the
approach can be improved.
The FATF Recommendations extend to a large number of nancial and also
non-nancial institutions, but for the sake of simplicity, this paper is restricted to the
duties of banks. The focus is furthermore limited to individual customers that interact in
their own capacity with banks. Benecial owners and corporate identication give rise
to additional layers of complexity that lie beyond the scope of a single article.
A brief overview of the current identication standards of the FATF is provided
before the focus of this article shifts to the meaning of “identication” and “verication”
within the FATF framework.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
FATF’s
customer
identication
framework
281
Journal of Money Laundering Control
Vol. 17 No. 3, 2014
pp. 281-295
© Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2014-0003

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