Combatting Illicit Finance In The Digital Age: Prioritising Asset Recovery And Cybersecurity To Protect Societies And Economies

The FATF has set global standards, through the FATF Recommendations, that provide countries with robust tools to tackle the illicit financial flows that fuel crime and terrorism, and continuously refines and strengthens them to address evolving risks. Over the years, the work and mandate of the FATF have evolved in line with new and emerging threats, but always having as its compass the core objective of preventing criminals, the corrupt, and terrorists, from abusing the international financial system, as strengthening the financial integrity of the global financial system is fundamental to supporting stability and promoting inclusive growth.

This year, the FATF has made important progress in helping countries increase the effectiveness of their measures, including through vital work to help prevent the misuse of shell companies to hide criminal activities and proceeds, and more robust tools that will help countries trace and recover the proceeds of crime more quickly and effectively.

Beneficial Ownership Transparency

The FATF has long warned that anonymous shell companies and other opaque corporate structures enable organised crime gangs, the corrupt, and sanctions evaders to further their illicit activities and enjoy their illicit proceeds. Countries face the added challenge that they cannot deal with these problems alone, and international cooperation is critical. Criminals are mobile, savvy and adept at regulatory arbitraging to access and exploit the international system.

In March 2022, the FATF enhanced its global standards on beneficial ownership to ensure that national law enforcement authorities have rapid and efficient access to adequate, accurate and up-to-date information on the true owners of companies operating in their country. In February 2023, the FATF strengthened the transparency requirements for legal arrangements, such as trusts. These measures are a powerful tool in dismantling the opaque structures that criminals use to hide their assets. In October 2023, the FATF revised its assessment Methodology and will start assessing countries’ implementation of these new requirements in the next round of assessments, starting January 2024.

The Reality Of Asset Recovery: Only A Small Fraction Of Criminal Assets Are Recovered

As we navigate the ever-changing landscape of financial crime, it is crucial to prioritise asset recovery as a key strategy to disrupt criminal networks and safeguard our societies. Asset recovery plays a pivotal role in disrupting criminal networks and dismantling their infrastructure. By effectively identifying, tracing, seizing and confiscating illicit assets, law enforcement agencies deprive criminals of their ill-gotten gains, disrupt and deter future criminal activity, and are able to return stolen funds to victims.

Despite the significant efforts of law enforcement agencies worldwide, the harsh reality is that only a very small proportion of criminal assets are intercepted and returned to their rightful owners. Organised crime continues to be a lucrative business, with criminals finding innovative ways to evade detection and enjoy their ill-gotten gains.

The illicit proceeds of crime, estimated to be beyond hundreds of billions of dollars annually, fuel organised crime groups, terrorist organisations, and other malicious actors, undermining the integrity of financial systems and perpetuating harm across our communities and societies. This global phenomenon highlights the imperative for enhanced international cooperation and more effective asset recovery mechanisms by every country.

A Critical Step In Disrupting Criminal Networks

Enhancing global asset recovery is a key pillar of FATF’s strategic priorities under the Singapore FATF Presidency. During the last two years, the FATF has worked tirelessly to make significant strides in this area.

The FATF significantly strengthened its Standards on asset recovery in October 2023 to provide law enforcement, financial intelligence units, prosecutors and other competent authorities with a more robust and wide-ranging toolkit to target and confiscate criminal assets.

The revised Standards require countries to make asset recovery a priority, periodically review confiscation policies and operational frameworks, and establish extended confiscation and non-conviction-based confiscation system in their legal framework, subject to fundamental principles of domestic law. They also provide new tools to allow relevant national authorities to secure criminal assets swiftly, increasing the chances of successful confiscation and potential recovery for victims. The strengthened international cooperation requirements would help promote information sharing and cross-border asset recovery, and better target sophisticated crime syndicates who are not bound by or respect national boundaries.

The revised Standards are a major milestone that will help bring about the necessary mindset and cultural shift to ensure that asset recovery becomes a core component of a national crime prevention and mitigation strategy. It is now up to each country to effectively incorporate and implement these revised requirements in their national frameworks, use these tools to deprive criminals of their illicit assets, and contribute to a safer society.

Good Use Of Asset Recovery Inter-Agency Networks (ARINS)

ARINs are informal international or regional networks that bring together law enforcement and operational experts in the field of asset tracing, freezing, seizure and confiscation. They have an important role in improving the effectiveness of global asset recovery efforts.

The FATF recently published a detailed report to help policymakers better understand the role and impact of ARINs and identify areas for potential improvement so that these networks can fulfil their potential of helping countries ‘follow the money’ and take the profit out of crime.

FATF-INTERPOL Roundtable Engagement (FIRE)

Under the Singapore FATF Presidency, the FATF joined forces with INTERPOL to strengthen global asset recovery and to focus on the strategic and operational changes necessary to take the profit out of crime. This joint FATF-INTERPOL initiative, FIRE, led to two events that provided a platform for law enforcement agencies, prosecutors, and policy specialists from around the world to discuss and address emerging trends in illicit finance, including cyber-enabled fraud and the abuse of virtual assets.

Cyber-enabled Fraud

Another major facet of illicit finance is that cyber-enabled fraud has grown exponentially in recent years. Sophisticated criminal syndicates exploit the anonymity and global reach of the internet to extend their claws to snare victims, exploit services, and to move and hide their illicit proceeds across multiple borders and sectors. The rise of cyber-enabled fraud also has links with other crimes, such as human trafficking, creating a complex web of interconnected criminal enterprises. The FATF’s research shows that funds are being laundered faster than ever across multiple jurisdictions and sectors, leaving a long trail of victims. Left unchecked, this threat will only grow further in an increasingly digitalised world.

The Increasing Use Of Virtual Assets To Evade Law Enforcement

Virtual assets, such as cryptocurrencies, have become an increasingly attractive tool for criminals and terrorists seeking to evade law enforcement and launder illicit funds. Recent FATF reports on cyber-enabled fraud, crowdfunding for terrorism financing, and ransomware, have all highlighted the growing misuse of virtual assets by criminals to conceal their activities and move illicit proceeds rapidly across borders.

The decentralised nature of these assets and the near-instantaneous speeds with which these transactions are transferred cross-border pose significant challenges for tracking and recovering stolen assets. The FATF reports also identified the complexities of these digital threats which underscore the urgent need for robust regulatory measures to ensure virtual asset service providers implement necessary anti-money laundering, and combatting financing of terrorism obligations, including identifying customers and their beneficial owners, as well as reporting suspicious transactions.

In February 2023, the FATF agreed on a roadmap to strengthen the implementation of FATF Standards on virtual assets and virtual asset service providers. In the first half of 2024, the FATF will report on steps that FATF members and countries with materially important virtual asset activity have taken to regulate and supervise virtual asset service providers.

Citizenship And Residency By Investment

The FATF is also working to address the laundering of the proceeds of corruption. This includes the recently published report on identifying and preventing the misuse of citizenship and residency by investment programs.

Each year, tens of thousands of people around the world become new citizens or permanent residents of countries in which they were not born, by investing in those countries. Citizenship and residency by investment (CBI/RBI) programmes are government-administered programmes that can benefit both host countries (by spurring economic growth, such as through expanding foreign investment channels) and wealthy individuals (by allowing them to gain citizenship or residency and the associated additional rights by expediting or bypassing the normal, more lengthy migration processes). However, they can also be abused by criminals who seek to launder and conceal proceeds of crime or to commit new offences, including financial crimes, undermining these programmes’ intended objectives.

FATF and the Organisation for Economic Co-operation and Development (OECD) has recently published a report on the misuse of citizenship and residency by investment programmes which holistically examines money laundering and financial crime risks associated with investment migration programmes, including risks related to foreign bribery, fraud and corruption, alongside other policy considerations related to public integrity, tax and migration. This report also sets out a range of tools that countries can use to mitigate the risks when running these programmes.

The FATF’s Steadfast Commitment To Combat Money Laundering And Terrorist Financing

The fight against illicit finance is a complex and ever-evolving challenge. However, the FATF is fully committed to working with its partners, including the private sector, to address this issue. By enhancing transparency, developing robust legal frameworks and strengthening international cooperation, we would be better equipped to collectively disrupt criminal networks and protect our societies from the harmful effects of crime. Together, we can and must rise to meet and prevail over the challenges.

T. Raja Kumar
T. Raja Kumar began a two-year term as President of the Financial Action Task Force (FATF) on 1 July 2022. He succeeded Dr. Marcus Pleyer. Mr. Raja Kumar has rich leadership and operational experience, having held a wide range of senior leadership roles in the Ministry of Home Affairs in Singapore and the Singapore Police Force for over 35 years. He currently serves as the Senior Advisor (International) in the Ministry of Home Affairs, advising on international policy development, partnerships and engagement. Prior to this, he was Deputy Secretary (International) at the Ministry from January 2015 to July 2021 and was concurrently the Chief Executive of the Home Team Academy between 2014 to 2018. As Deputy Secretary (International), Mr. Raja Kumar forged stronger collaborative relationships with key counterparts in the safety and security arena, including with strategic partners such as INTERPOL and the UN. Mr. Raja Kumar is a passionate advocate for the FATF and firmly believes in FATF’s mission and ability to make a global difference. He has led Singapore’s delegation at the FATF since 2015 and is the co-lead for Singapore’s national Inter-Agency Committee on AML/CFT. He co-led Singapore’s efforts for its Mutual Evaluation in 2015-2016 and has driven Singapore’s high level of involvement at FATF, including serving as a FATF Steering Group member for the last four years.