FATF reports on money laundering and terrorist financing in securities sector

On 26 October 2009, the Financial Action Task Force (FATF) publisheda report on money laundering (ML) and terrorist financing (TF) in the securities sector.

The FATF decided to carry out a global study of ML and TF in the securities sector in June 2008 in order to better understand, and raise awareness of, the vulnerabilities of the sector to ML and TF. The findings of this study are set out in the report.

The FATF explains in the report that “some of the features that have long characterised the industry, including its speed in executing transactions, its global reach, and its adaptability, can make it attractive to those who would abuse it for illicit purposes, including [ML] and [TF]”. It has found that suspicious transaction reporting (STR) in the securities sector remains at a low level, relative to other industries such as banking. The FATF believes that this is due to a number of factors, including a lack of awareness, and insufficient securities-specific indicators and case studies. The report attempts to address these issues by:

Raising awareness of the ML and TF risks in the securities sector, by outlining how criminals may be able to use securities firms to launder money and finance terrorism, and how illicit funds can be generated through fraudulent activities.

Identifying specific risks based on different types of product, intermediary, client, market, payment method and distribution channel.

Providing a comprehensive set of suspicious indicators and case studies that are applicable to the securities sector.

Identifying current and emerging issues that would benefit from further consideration by the FATF.

As some of the risks outlined in the report exist in the banking and insurance sectors, the report may be of interest to firms outside the securities sector.