FATF Typologies report 2002

The narrow definition of financial services business has permitted the USA, primarily, to legislate for compulsory suspicion based reporting from banks. Other businesses have generally, if included at all, been subject to voluntary reporting codes imposed by regulators.

Where other countries have sought to regulated their financial services sector by regulation not legislation, the approach has been deemed unacceptable to both the USA acting unilaterally and to the FATF.

So called "money services businesses" were not strictly controlled under the Bank Secrecy Act and FinCEN had been dilatory in pushing for their compliance with suspicion based reporting when it was introduced. The securities industry was not subject to compulsory suspicion based reporting until the implementation of the USA PATRIOT Act. Both groups greatly resent being handed additional paperwork and disruption to their work. In the case of securities dealers, in particular, they say that they deal with money already in the system so the due diligence has already been done by someone else.

It is against this background that the 2002 Typologies Report emphasises both of these as high risk areas - something the USA and the FATF have until recently consistently failed in.

The long established use of the gold markets is also covered - but the fact that gold is just an example of the schemes for using high valuable, portable items as tokens is not explored. For example, for a time, computer memory chips were ideal as they could be moved against invoices which bore all the hallmarks of legitimate trade and a large value could be carried in a a traveller's hand luggage.

Also included is Insurance and Money Laundering - this is timed to coincide with a report published in New York about ten days ago into the use of insurance in specific cases. Again, there is a general feeling that insurance is not usable by money laundering, a notion that the more aware advisers have been keen to disabuse their clients of for some time.

So, much of the report is a recognition of things that the industry should have been aware of and either was not concerned with or was in denial about. That is not the FATF's fault, except insofar as it has taken much too long for these issues to be taken seriously, but more of a reflection of the determination of sectors of the financial services industry to say that money laundering happens somewhere else.

However, what should be of real value is the financial profile of the 11 September 2001 terrorists - the conclusion that the "conventional" banking system was used for small value transactions and paying for preparation for the attacks will not surprise readers of World Money Laundering Report: we got the approximate amount spent right, explained the problems of identifying terrorist finance and set out why the transactions were not identifiable prior to the attacks all within about a week of the attacks.

It was not rocket science - it was common sense. The FATF has not quoted the USA produced report but has provided information on how to get it. It provides much information as to how organisations may apply certain rules to their profiling systems.

In all, this FATF report really adds little, if anything, to the body of knowledge about money laundering. And that, ironically, is a good thing - it means that few new schemes have been discovered and that criminals are doing the same things as before but to different targets.

But it is a shame that the FATF has to be used as a blunt instrument to help governments make regulated business come into compliance.