FATF Recommendations: Becoming Soft Law

Michael Pucci

Vol. 37 Associate Editor

In his 2009 article in Foreign Policy, Moisés Naím popularizes the concept of minilateralism, a type of multilateralism that “bring[s] to the table the smallest possible number of countries needed to have the largest possible impact on solving a particular problem.”[1] Instead of relying on the post-WWII global institutions, many of which have become paralyzed because of their failure to adapt to changing power dynamics and requirement for world-wide consensus, minilateral organizations offer states an alternative type of international organization which is more limited in membership and scope.[2] In the domain of combatting terrorism, these organizations are particularly useful because they create soft law, incentivizing states to collaborate but not creating legal obligations. One such minilateral organization is the Financial Action Task Force (FATF), an organization under the umbrage of the Organization for Economic Cooperation and Development whose “original mandate was to explore ways in which states and intergovernmental organizations could deter, prevent and halt money laundering.”[3] This mandate was expanded to include terrorist financing after the 9-11 terrorist attacks in the United States.[4] Comprised of thirty-four nations and two regional organizations, FATF primarily acts by publishing recommendations, called the “FATF Recommendations” and which now number forty, that outline standards and policies for anti-money laundering and terrorist financing, countries are encouraged to adopt into their domestic law.[5] FATF members agree to implement these Recommendations but because they “do not have the force of law . . . failure to implement” can only result in “expulsion from the organization.”[6] Unlike treaties or customary international law, soft law—for which there is no universally accepted definition—does not create any legal obligations; rather, it includes nonbinding rules or instrumentals that interpret or inform our understanding of binding legal rules or represent promises that in turn create expectations about future conduct.” [7] It is this second category—promises that, although not binding, create an expectation of future compliance—which captures the thrust of the FATF Recommendations. As Laurel Terry observes, the FATF’s [r]ecommendations . . . are extremely influential because it is unlikely that countries such as the United States would want to be excluded from the FATF, which is a powerful tool in the fight against money laundering and terrorist financing.”[8] Although non-binding, states continue to employ soft law because “states seek to lower the costs of both compliance with and potential violations of an agreement.” [9] Because of this structure, states depend on these types of soft law arrangements when states are unable or unwilling to forge formal, legal frameworks to address a particular collective action problem. Rather than remain paralyzed like the U.N. Security Council has in many of its attempts to address international terrorism, states can create informal arrangements whose compliance-inducing nature is not strictly binding but is nevertheless powerful motivation. Such a system works well for the FATF, in part because the political, economic, and reputational incentives are so strong vis-à-vis restricting the financing of terrorist activity. Additionally, the FATF allows an easier process to adapt to changes in how terrorists secure financing to carry out their attacks. Because the FATF’s Recommendations are non-binding, the process by which those Recommendations are formulated are more easily amenable to change because states know that, ultimately, they are non-binding, so are more willing to agree to them if compliance is not required. This feature of minilateral organizations is of particular importance for those whose mandate includes combatting international terrorism because that is an area in which states a more likely to bend or even ignore international law because of the self-defense implications terrorism raises. By not creating binding obligations, states do no delegitimize international law by ignoring it because, with these minilateral organizations, there is no international law. At the same time, the incentives of being a member of these minilateral organizations is sufficiently strong that states will not completely ignore them.

  [1] Moisés Naím, Minilateralism: The Magic Number to Get Real International Action, Foreign Policy, June 2009. [2] Kenneth W. Abbott & Duncan Snidal, Why States Act through Formal International Organizations, J. Conflict Resolution 3, 11 (1998). [3] Ilias Bantekas, The International Law on Terrorist Financing, in Research Handbook on International Law and Terrorism 121, 125 (Ben Saul ed., 2014). [4] Id. [5] Laurel S. Terry, Combating Threat to the International Financial System, 59 N.Y.L. Sch. L. Rev. 488, 488 (2014-15). [6] Id. at 490. [7] Andrew Guzman & Timothy Meyer, Soft Law, in The Research Handbook on the Economics of Public International Law 5 (Eugene Kntorovich ed., 2014). [8] Terry, supra note 5, at 490. [9] Guzman & Meyer, supra note 7, at 6.