- Sets global standards affecting financial regulations worldwide Issues recommendations that over 200 jurisdictions feel compelled to follow
- Conducts “mutual evaluations” of countries’ compliance with its standards
- Can effectively blacklist nations, severely impacting their economies
- Anti-money laundering measures
- Countering terrorist financing
- Regulation of financial institutions and certain non-financial businesses
- Overreaching surveillance of financial transactions
- Stifling of civil society organizations and non-profits
- Disproportionate impact on developing countries and marginalized communities
- Limited effectiveness in actually preventing terrorism or money laundering
- Excessive regulation of NGOs and charities
- Shrinking space for civil society in many countries
- Legitimate humanitarian work being hindered
The Story of FATF
FATF is founded
In the face of rampant laundering of drug money, FATF starts as a small fact-finding task force put together by the G-7 countries to collect information about all anti-money laundering statutes in law books across countries.
The 40 recommendations
FATF issues a report containing 40 recommendations for a plan to combat money laundering.
The emerging narrative of counterrorism
As late as 1999, the International Convention for the Suppression of the Financing of Terrorism makes no mention of charities being vulnerable to terrorist financing in the operative portion of its text. FATF is not involved in controlling terror financing, and the worlds of civil society and counterterrorism are separate. Unfortunately, two short years later, all of this is about to change for the worse.
FATF joins the counterterrorism picture
In the wake of 9/11, G7 countries bring FATF into the fight against the financing of terror by passing 8 “Special Recommendations” in addition to the original 40 FATF recommendations. One of these special recommendations, S.R.8, without any empirical evidence to back it, deems nonprofit organizations (NPOs) as “particularly vulnerable” to being misused for the purposes of terrorist financing.
FATF standards become the new norm
The UN Security Council and General Assembly both endorse FATF’s recommendations in 2005 and 2006 respectively. Later, the UN will itself strongly critique the unintended consequences of FATF. But for now, the UN ends up subjecting nonprofits across countries to international law that targets NPOs without any empirical evidence.
Hesitancy in the face of FATF’s imposed standards
A study of 159 mutual evaluations between 2005 and 2011 shows 85% of countries as rated “noncompliant” or “partially compliant” on SR8, showing reluctance of countries to implement harsh repressive measures against nonprofits. These ratings, however, put pressure on the countries to target their civil societies with harsher requirements. In this period, Egypt and Tunisia are two of the only five countries to receive a full “Compliant” rating. Both these countries are known to have harsh repressive measures against civil society.
In India, FATF facilitates draconian laws
India invokes FATF to justify passing draconian amendments to anti-terror law Unlawful Activities (Prevention) Act that Human Rights Watch stated in 2008 already claimed provisions in contravention of the Indian constitution and international law. Over the next 12 years, over 10,000 activists will be arrested under this law and denied bail for years, despite the law having only a 2% conviction rate.
FATF’s attacks on civil society go global
Attacks on civil society prompted by FATF-inspired international and national laws escalate. Azerbaijan, Mexico, Pakistan, Russia, Sudan, and Venezuela all pass laws blocking NPOs from receiving foreign funds. Hungary attacks well-known civil society organizations funded by the Norwegian government to support civil society in poorer parts of Europe. A dozen countries follow suit in the next few years.
A new era of dominance for FATF
By this point, 180 countries worldwide have committed to implementing FATF standards, and thereby to enacting harsh measures against NPOs. Of these, between 2004 and 2010, more than 50 countries have enacted measures to restrict civil society, and between 2012 and 2018, new restrictions are enacted in 72 countries
The first victory against FATF
After criticism and campaigns by global civil society organizations, FATF admits instances of overly broad application and misapplication of Recommendation 8 (formerly S.R. 8) leading to attacks on Not-for-Profit Organizations (NPOs). FATF calls on jurisdictions to ensure that R.8 implementation is in line with the risk-based approach targeting high-risk parts of the NPO sector, and to ensure measures do not disrupt or discourage legitimate non-profit activities.
Money laundering remains severely unchecked
David Lewis, Executive Secretary of FATF, admits that countries were failing to check money laundering by organized criminals, corrupt regimes, and corporations. In the wake of scandals including Offshore Leaks, Panama Papers, and Paradise Papers, Lewis calls for new assessment mechanism that focuses on high-risk sectors.
‘Unintended Consequences’
FATF publishes a “Stocktake of the Unintended Consequences of the FATF Standards” document. It admits to four harms enabled by FATF: (1) De-risking leading to de-banking of key areas; (2) De-risking leading to financial exclusion; (3) Undue targeting of NPOs; and (4) Curtailment of human rights (with a focus on due process and procedural rights).
A second victory against FATF
As a result of sustained campaign from civil society actors against the misuse of FATF standards by countries for restricting operations of charitable organizations, FATF again revises its Recommendation 8. From its initial, unsubstantiated position that NPOs are “particularly vulnerable” to terrorist financing risks, FATF now admits that only in rare cases do NPOs face such risks.
India praised for upholding FATF standards despite blatant harms
FATF grants India a glowing review despite clear evidence that India’s government has (1) enabled political corruption and money laundering through its controversial Electoral Bonds Scheme (later struck down by India’s Supreme Court, citing FATF norms); (2) failed to check corporate fraud; and (3) misused FATF recommendations to target civil society and political opposition. FATF’s shameful India MER continues its pattern of enabling repressive regimes to run roughshod over rights, democracy, and rule of law.