FATF ¦ R.35 Sanc­tions

Recommendation 35: Accountability at the Top

Building a credible anti-money laundering and counter-terrorist financing (AML/CFT) framework requires more than well-written laws and policies. At its core lies the ability of a country to enforce those rules through sanctions that are effective, proportionate and dissuasive. Without meaningful consequences, even the most sophisticated regulatory framework risks becoming a mere paper exercise.

The Purpose and Scope of Sanctions

Sanctions in the AML/CFT context are designed to ensure that all relevant actors take their obligations seriously. These actors include both natural persons and legal persons who are subject to key international standards, particularly those set out in Recommendations 6 and 8 to 23 of the FATF framework. This scope covers a broad range of requirements, from targeted financial sanctions related to terrorism and proliferation financing, to customer due diligence, record-keeping, reporting of suspicious transactions and internal controls.

Importantly, sanctions are not limited to financial institutions. Designated Non-Financial Businesses and Professions (DNFBPs), such as casinos, lawyers, accountants, real estate agents and dealers in precious metals and stones, must also face meaningful consequences if they fail to comply with AML/CFT requirements. This reflects the reality that money laundering and terrorist financing risks exist well beyond the traditional banking sector.

Individual Accountability: Directors and Senior Management

A key element of an effective sanctions regime is the ability to hold individuals personally accountable. Sanctions should apply not only to institutions and other entities, but also to their directors and senior management. This personal exposure drives a culture of compliance at the top, ensuring that boards and executives cannot simply delegate responsibility and then claim ignorance when failures occur.

When directors and senior leaders know that they may face criminal, civil or administrative sanctions for serious compliance failures, they are more likely to invest adequately in systems, training and oversight. This shift from purely institutional to individual accountability has become a defining feature of modern AML/CFT enforcement.

Bastian Schwind-Wagner _Follow

"The existence of a credible sanctions regime is central to any serious AML/CFT framework. Without meaningful consequences, legal and regulatory requirements risk being ignored, underfunded or treated as a mere formality by obliged entities and their leadership.

By ensuring that sanctions are effective, proportionate and dissuasive, countries not only deter misconduct but also shape behaviour and culture over the long term. This is especially true when accountability extends beyond legal entities to directors and senior management, who ultimately set the tone for compliance."

Effective, Proportionate and Dissuasive Measures

For sanctions to be credible, they must balance three characteristics:

• Effective: Sanctions must be capable of achieving their intended objective, namely changing behaviour and ensuring compliance. Symbolic or rarely enforced penalties will not deter misconduct.
• Proportionate: The severity of sanctions should reflect the nature and seriousness of the violation. Overly harsh penalties for minor breaches can be counterproductive, while lenient treatment of serious violations undermines trust in the system.
• Dissuasive: Potential offenders must perceive the sanctions as sufficiently significant to outweigh any perceived benefit from non-compliance or criminal behaviour.

This triad ensures that sanctions are not merely punitive tools, but instruments that drive sustainable improvement in risk management and compliance culture.

Criminal, Civil and Administrative Options

Countries should maintain a broad toolkit of sanctions: criminal, civil and administrative. Each serves a distinct purpose:

• Criminal sanctions are reserved for the most serious and intentional violations, particularly where there is wilful blindness or active involvement in money laundering or terrorist financing.
• Civil sanctions can be used to address significant breaches that may not meet the criminal threshold but still require a strong response.
• Administrative sanctions allow regulators to respond quickly and flexibly to a wide range of compliance failures, for example through fines, license restrictions, remedial orders or fit-and-proper assessments.

Having this range of options allows authorities to tailor their response to the specific circumstances of each case, strengthening the overall effectiveness of the AML/CFT regime.

Conclusion

An AML/CFT framework without credible sanctions invites non-compliance. By ensuring that sanctions are effective, proportionate and dissuasive, and that they apply to institutions, DNFBPs and their leaders, countries can significantly enhance the integrity of their financial systems. In practice, the real test lies not just in the laws on the books, but in how consistently and transparently these sanctions are imposed.

Dive deeper

• FATF ¦ The FATF Recommendations ¦ Link
• FATF ¦ Luxembourg’s measures to combat money laundering and terrorist financing ¦ Link