FATF and Your Banking Relationship

By Dave Griffiths, AML Gurus

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing watchdog. Organized in 1989 in response to a G7 initiative, they develop policies and recommendations to combat money laundering and terrorist financing worldwide.


While the “Recommendations” (FATF 40) put forth are non-binding, they are embraced by over 180 countries as best practices. Those choosing to ignore these recommendations are guided towards compliance or risk facing sanctions by the global financial community. That short list involves countries like Iran, North Korea, and Myanmar.


While the FATF 40 are aimed at countries, the standards trickle down to banking and non-banking entities. Pawnbrokers are considered a Non-Banking Financial Institution. So are MSB’s and casinos among others. The recommendations are applied to all sectors of the financial world that can be utilized to launder money or provide or move terrorist funds.


The core idea of the FATF 40 is the “Risk Based Approach” where potential threats (risks) are identified along with appropriate solutions to mitigate these risks operationally. Those activities that are deemed higher risk receive more attention than those that are considered a lower risk. These risks evolve over time, so the organization has to periodically evaluate and revise their mitigation attempts accordingly.


When I opened my pawnshop in 1999, Moissanite was yet to be actively marketed. We had a single hand-held diamond tester. After Moissanite was introduced, we had to purchase a tester just for Moissanite in order to mitigate the risk to our store. Now the industry has vendors that provide much more advanced testing techniques in order to keep us from getting taken advantage of. As you well know, it’s not just diamonds; what about the super fake timepieces that are prevalent? What about the luxury handbags? Bullion and coins? While we had fake Rolex issues in the late 90’s, it was fairly simple to identify the real from the phony, until it wasn’t.


As bad actors hone their craft, the global financial community has had to hone their craft as well. Typically, there is little proactivity to our honing. We are a reactive bunch, and so end up getting stung first before we learn and make adjustments. In our world, this is most routinely evidenced by a store being broken into. Immediately they beef up their security, even though they have had ample examples of why they should have done so sooner.


Banks have had to evolve over the last several years to the reality that few customers deal with cash now, so they stockpile far less than they used to. That impacts us in two ways. First, since they have to order extra cash for us, or need to call the truck to get it removed if it is past their limit, they are charging us for cash handling. Second, and more important, is that our industry is in a “high-risk” category because we are one of the few industries left that is still cash intensive. That means we need special handling. Special handling costs more money and so the bank will decide on a regional scale whether they choose to absorb the cost of that special handling. This caused the “de-risking” many of us may have experienced over the years when we lost a bank account and were never given a reason as to why.


We are currently seeing more banks making an effort to retain their high-risk clients but that means that the clients have to jump through some hoops along the way. It is now normal for banks at account opening to ask for a copy of your AML program and your last independent review. The inability to produce these documents is almost always a deal breaker.


We have always recommended that clients maintain accounts in multiple banks, at least one of which is a regional business bank. While that guidance is unchanged, we have recently seen increased acquisition activity in that space, which means your relationship with your bank may be short-lived. The question for you is whether your bank is the acquirer or the acquiree! Having an AML program that is current is your best tool in your arsenal for when these events occur.


ATM machines on site, crypto activity, the frequency of your cash transactions (in or out) with the bank are all scrutinized while decisions are made to keep you as a customer. Your goal is to be a manageable risk for the bank!


In closing, keep in mind that we never get a second chance to make a first impression. We are trying to improve our image daily and every single contact is important. Keep in mind that the folks in the banks have opinions, too. Your compliance may have an impact on that opinion!