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What are CFT and FATF in banking?

What are CFT and FATF in banking?


CFT is acronym to Combating the Financing of Terrorism (CFT). Financing of terrorism means providing financial support to terrorist or terrorist organizations intended to achieve political, religious, or ideological goals through violence and the threat of violence against civilians.  The flow of funds may reach to those terrorists from legitimate religious or cultural organizations or it may reach them through illegal sources like drug trafficking. Such illegal money takes the shape of legal money through money laundering. Therefore, money laundering and terrorism financing are often linked. Whenever law enforcement authorities are able to detect and prevent money laundering activities, such prevention concurrently cuts the major source of funds being used to finance acts of terror. Thus, combating money laundering is important to CFT. Since it involves funds for committing crime as against the funds derived from crime, terrorist financing is also referred as ‘reverse money laundering’.

The Financial Action Task Force (FATF), was set up in 1989 on the initiative of the G7 countries summit in Paris, to develop policies to combat money laundering. In 2001 the purpose expanded to act on terrorism financing, and the financing of proliferation of weapons of mass destruction. All members of FATF are expected to upgrade their laws, regulations and enforcement efforts, including through Financial Intelligence Units (FIUs) and cross-border sharing of information for CFT purposes. The FATF black-list (Non- co-operative countries and territories (NCCT) list) mechanism was used to coerce countries to bring about change. All these efforts have brought about a huge change to global CFT regulations and have ushered in a new era of information sharing. India is a full-fledged member of Financial Action Task Force (FATF).

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