In an unprecedented move, on 24 February 2023, the Financial Action Task Force (“FATF”), a global money laundering and terrorist financing watchdog, suspended membership of the russian federation, urging all agents in the international financial system to increase caution and ensure compliance.
AVELLUM acted as the legal counsel to the action group led by the Ministry of Finance of Ukraine and the State Financial Monitoring Service of Ukraine to facilitate the adoption of restrictive measures against russia by the FATF.
This step followed a series of previous more conservative measures taken by the FATF during June and October 2022 plenaries, which significantly limited russia’s role and influence within the FATF by depriving it of the right to (i) hold any leadership or advisory roles, (ii) take part in decision-making and peer-review processes, and (iii) participate in the FATF project teams and meetings of the FATF-Style Regional Bodies (FSRBs).
Because of the FATF’s February decision russia can no longer attend the FATF meetings and access the FATF documents. As such, it eliminates russia’s influence over decision making processes within the FATF and significantly decreases russia’s role in the global financial system.
In its public statement on russia, the FATF, among others, stressed that:
- it is deeply concerned by the reports of arms trade between russia and the United Nations sanctioned jurisdictions, and malicious cyber-activities emanating from russia, as well as possible emerging risks from the circumvention of measures taken in order to protect the international financial system;
- russia’s actions unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system, represent a gross violation of the commitment to international cooperation and mutual respect contrary to the FATF standards;
- all jurisdictions must remain vigilant of threats to the integrity, safety, and security of the international financial system arising from russia’s war against Ukraine.
This statement highlights that the FATF sees a threat in russia’s prohibited arms dealings, malicious cyber-activities, circumvention of sanctions and uncooperative behaviour and requires additional attention to and scrutiny of any transactions with russian financial system.
Though the FATF did not include russia in its lists of high-risk and non-cooperative jurisdictions, it made a clear signal to its members and observers, as well as businesses, that any transactions with russia imply the higher level of risk. Therefore, businesses and financial institutions must properly understand and identify such risks as well as assess whether the existing risks and deterioration of the situation in russian financial system are inadequately high for continuing business operations in and (or) with russia.
The FATF will continue monitoring russia’s compliance with its standards and will consider the grounds for lifting or modifying the restrictions imposed on russia at the next plenary meetings.