Third round FATF mutual evaluations indicate declining compliance

Abstract

Purpose

To review the reported compliance levels of third round mutual evaluations with a view to determining any change or differences in compliance levels for Financial Action Task Force (FATF) member countries following the updating of FATF's Forty Recommendations in 2003 and the introduction of the Nine Special Recommendations relating to the financing of terrorism.

Design/methodology/approach

A comparison of pre‐ and post‐2003 compliance with the FATF's Forty Recommendations and Nine Special Recommendations is made using both self‐assessment and mutual assessment data.

Findings

There are significant differences in compliance levels pre and post 2003. Since, the FATF updated their Forty Recommendations in 2003 compliance with those Recommendations has declined. With regard to the Nine Special Recommendations which have not changed since their introduction there is a significant difference between self‐assessment compliance levels in 2003 and compliance determined using independent mutual evaluations, casting doubt on the value of self assessment.

Research limitations/implications

In using an analytical approach it has been necessary to put numerical values on compliance levels used by the FATF. Given that these are very broad, substituting a single value for each compliance level will provide only a crude measure of compliance for comparisons to be made. The results should therefore be used as a guide to the ranking and compliance of countries rather than some exact measurement of compliance.

Practical implications

The value of self assessment by FATF members should be re‐evaluated.

Originality/value

Publication of the third round of FATF mutual evaluations provides an opportunity, not previously available, to analyse the compliance levels amongst FATF members.

Citation

Johnson, J. (2008), "Third round FATF mutual evaluations indicate declining compliance", Journal of Money Laundering Control, Vol. 11 No. 1, pp. 47-66. https://doi.org/10.1108/13685200810844497