Understanding GAFI and Its Role
The Group of Action Financial International (GAFI) is an intergovernmental body established by the G7 in 1989 to set international standards for preventing and combating money laundering and terrorism financing. GAFI’s recommendations aim to ensure financial institutions’ compliance with these standards.
Experts’ Perspectives on GAFI Recommendations
During the World Integrity & Compliance Forum, experts emphasized that GAFI recommendations should not be treated as a rigid dogma or a “camisa de fuerza” (straightjacket). They argued that some recommendations are impractical to implement fully in real-world scenarios.
“We need to be more creative, not just in regulation but also in practice. Being overly conservative due to fear of sanctions or penalties can hinder our ability to prevent money laundering effectively,” said Iván Aleksei Alemán Loza, a partner at Alemán, Santiago y Abogados.
Practical Challenges in Anti-Money Laundering Efforts
Experts highlighted specific challenges in implementing GAFI recommendations, such as the recent modification of the anti-money laundering law that does not consider the importation of chemical precursors as a vulnerable activity.
“This is precisely where fentanyl concerns lie, and it’s one of the reasons why drug cartels are designated as terrorist organizations,” Alemán Loza explained.
Another example is GAFI’s recommendation for financial institutions to know their clients’ clients (KYCC) to identify risks and prevent money laundering. However, experts argue that this is impractical in real-world scenarios.
“GAFI should not be a dogma or a restrictive force. We must have that dialogue with financial institutions and Mexican authorities to elevate these concerns,” Alemán Loza stated.
Designation of Drug Cartels as Terrorist Groups
During the panel discussion on GAFI reforms, experts discussed the implications of the U.S. government designating Mexican drug cartels as terrorist organizations.
“This designation could lead banks to initiate a derisking process, closing accounts of clients suspected of having links with criminal organizations,” said Regina Martha González, academic coordinator of the anti-money laundering program at ITAM.
“While authorities demand banks to distance themselves from suspicious clients, we must consider the potential harm to the formal economy by closing legitimate client accounts that generate employment,” González concluded.
Key Questions and Answers
- What is GAFI? The Group of Action Financial International (GAFI) is an intergovernmental organization that sets international standards for combating money laundering and terrorism financing.
- Why are experts concerned about GAFI recommendations? Some GAFI recommendations are considered impractical or overly restrictive, hindering effective prevention of money laundering.
- What challenges do financial institutions face with GAFI’s KYCC recommendation? Identifying and monitoring clients’ clients is difficult in practice, potentially causing harm to the formal economy.
- What are the implications of designating drug cartels as terrorist organizations? Banks may initiate derisking processes, closing accounts of legitimate clients with potential links to criminal organizations.
