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As a new round of evaluations begins, it’s time to remember why anti-financial crime standards exist – and it has little to do with compliance.

If you work in a think tank, you spend much of your life writing funding proposals. Central to most donor applications is what’s innocuously known as a ‘Theory of Change’. If you want to consume very many hours, there is an extensive literature available on this topic, in which you can lose yourself. But, put simply, the idea is to clearly define a project’s objective and then explain the link between what you propose doing and how you will attain that objective. It’s a simple and appealing notion, and a valuable discipline to master, but it’s surprisingly hard to articulate.

Theory of What?

In the case of the Financial Action Task Force (FATF), the global anti-financial crime standard setter, its objectives are ‘to protect financial systems and the broader economy from threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security’. Noble indeed, if quite a mouthful, but the bid writer in me wonders whether the word ‘thereby’ is working too hard in this sentence, and would attract the literary equivalent of a reviewer’s raised eyebrow and a comment asking ‘Really? How?’. There would probably be a second comment, querying the connection between ‘financial sector integrity’ and ‘safety and security’, with a final ‘Of what?’ related to the objective of safety and security.

Parsing the FATF’s objectives like this is not intended to be facetious. An increasing number of informed voices are raising questions about the FATF’s objectives. This matters because these objectives set the tone when it comes to how countries engage with and implement the FATF’s standards, and how the FATF in turn assesses the effectiveness of a country’s anti-financial crime efforts.

In the past decade the FATF seems to have lost its way, as it struggles to determine what all this investment in laws, new agencies and awareness-raising is trying to achieve, beyond the elusive notion of effectiveness

This is not the place – nor is there space – to provide an exposition on the workings of the FATF, but suffice to say, it is not known as ‘the most powerful organisation few people have heard of’ for nothing. Its assessments of countries matter. Those that fail to meet the necessary level of compliance with its standards are publicly named on the so-called grey (or worse still, black) list, with countries placed in the economic equivalent of medieval stocks as they strive to fix their failings, with real consequences for their economies. 

Missing in Action

In 2022, the FATF published a ‘landmark’ strategic review giving ‘a comprehensive overview of the state of global efforts to tackle money laundering, terrorist and proliferation financing’ in order to prepare for the next round (the fifth since the FATF was created in 1989) of country evaluations. Worthy indeed, but remember the word ‘thereby’ in the FATF’s objectives? What does this comprehensive overview tell us about the success that the FATF has had in meeting the second half of that sentence, the strengthening of financial sector integrity and contributing to safety and security? The first thing to note is that the phrase ‘financial integrity’ does not appear in the review at all, nor do safety and security (the latter is only used in referencing the UN Security Council). 

The headline ambitions that emerge from the 2022 report are for the evaluation cycle to be considerably shorter (perhaps seven years instead of the current 10) so countries are assessed more frequently; a ‘greater emphasis on the major risks and context to ensure that countries focus on the areas where the risks are highest’; and ‘a results-orientated follow-up assessment process, which will focus on specific actions to tackle money laundering, terrorist financing and the financing of weapons of mass destruction’. 

This all makes sense, except for the fact that these ambitions feel remote and detached from the harms (remember ‘safety and security’?) associated with the financial crimes with which the FATF concerns itself.

In line with and reflecting the findings of the strategic review, in 2025 the FATF will start its next round of country evaluations. Countries will be required to mobilise significant government resources to demonstrate their compliance with the FATF’s standards, and that this compliance is leading to ‘effectiveness’. But will all this work really contribute to the ‘safety and security’ of the country in question, or indeed the global financial system (the FATF’s objectives do not specify which)? That is not a question that the FATF evaluation seeks to answer – nor one that the strategic review sought to interrogate – and so we will never know the answer. 

What’s the Point of the FATF?

The FATF’s mission is far from pointless. Its focus on technical compliance has encouraged countries to introduce valuable laws, build important capabilities, and raise awareness of the importance of tackling dirty money in the private sector, the frontline in any country’s financial system. But in the past decade it seems to have lost its way, as it struggles to determine what all this investment in laws, new agencies and awareness-raising is trying to achieve, beyond the elusive notion of effectiveness. Indeed, a number of countries produce stellar overall results, but clearly remain central to global money laundering.

Armies of civil servants occupy themselves with the business of the FATF, flying across the globe to confer at plenaries, assess each other, discuss typologies, and meet at a dizzying array of committees. Meanwhile, private sector compliance departments hang on each and every utterance and publication, obediently responding to their government’s (extremely expensive) FATF-induced requirements while privately questioning whether form is being prioritised over substance.

Time for a Change?

But it’s worth pausing to reflect on the extent to which all this effort and expense ‘thereby strengthens financial sector integrity and contributes to safety and security’. I’m not convinced.

The FATF should be honest in evaluating whether the theory of change it has set itself is fit for purpose – or indeed even makes sense

After 35 years of rightly exhorting countries to develop the necessary laws and capabilities to tackle financial crime, and a decade spent assessing effectiveness, the FATF must not lose sight of why all this work matters. It should be honest in evaluating whether the theory of change it has set itself is fit for purpose – or indeed even makes sense.

Therefore, as it embarks on its next round of evaluations, perhaps the FATF might want to adopt adjusted objectives that lead to outcomes which more clearly benefit society. So, here’s an alternative suggestion: ‘by promoting the fight against financial crime and the exploitation of financial intelligence, the FATF will support national and international efforts to reduce the harms caused to society by criminal and terrorist activity’. You’re welcome.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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