What Are Designated Non-Financial Businesses and Professions (DNFBPs)?

The FATF sets out its guidance for the regulation and supervision of DNFBPs in its 40 Recommendations (specifically Recommendation 24). The guidance requires jurisdictional authorities to take various supervisory steps, including:

• Implementing licensing requirements and ownership criteria for casinos. 
• Introducing effective monitoring systems to ensure DNFBP compliance with AML/CFT requirements. 
• Preventing criminals and their associates from owning or controlling DNFBPs.
• Implementing proportionate and dissuasive sanctions to deal with Designated Non-Financial Businesses and Professions compliance violations. 

In most jurisdictions today, Designated Non-Financial Businesses and Professions are regulated in much the same way as credit and financial institutions. Some financial authorities have tailored their AML/CFT regulations to counter the unique money laundering threats posed by different types of DNFBP.

DNFBP AML Regulatory Challenges

Many criminals exploit regulatory uncertainty around DNFBPs to commit financial crimes such as money laundering. The specific AML challenges that firms face when dealing with DNFBPs often vary depending on the national regulatory environment and industry. 

DNFBPs: Regional Challenges

DNFBP AML compliance is a global regulatory concern and deficiencies in national regulation offer criminals attractive opportunities to commit financial crimes. 

Governments and national authorities frequently take action to raise awareness of DNFBP money laundering as it relates to specific criminal trends. In Australia, for example, the Senate recently released a report focusing on the country’s failure to expand its AML regulations to DNFBPs – which has led to billions of dollars being laundered through the housing market and the “systemic non-compliance” of casino operators. The report stated that “Australia is a laggard on the world stage, one of only three states to fail to enact any regulation in relation to DNBPs.”

Australia originally proposed updated DNFBP AML legislation in 2008, but the financial crisis delayed the relevant reforms, which shifted the government’s political priorities. In 2015, a FATF Mutual Evaluation Report (MER) found Australia largely non-compliant with Recommendation 24. As a result, the FATF recommended that Australia accelerate its legislative reforms. It stressed that the government should introduce a beneficial ownership register to catch up with Western peers like the US, the UK, and the EU. 

DNFBPs: Industry Challenges

Certain industries pose a higher DNFBP AML compliance risk than others. Examples of recent AML/CFT incidents that highlight industry-specific risks of DNFBPs include: 

Casinos 

Australia: In March 2022, the Australian Transaction Reports and Analysis Center (AUSTRAC) started civil proceedings against Australia’s largest casino operator, Crown Resorts, citing “serious and systemic non-compliance” with AML/CFT laws. The AML/CFT failures that AUSTRAC identified included: 

• Poor governance and risk management
• Failure to maintain a compliant AML/CFT program
• Failure to carry out appropriate customer due diligence and enhanced due diligence
• No framework for senior management to provide AML/CFT oversight

United States: The US casino industry also faces AML/CFT challenges. A scam artist who used casinos to launder thousands of dollars through a Cincinnati casino is currently featured on the FBI’s most-wanted list. In perpetrating his criminal activity, Ismail Shalash would visit casinos to convert cash obtained through fraud and then launder that money by cashing out in credits. Between May and August 2021, Shalash cashed in $464,796 and cashed out the significantly larger amount of $789,541. 

Precious metals and stones

North Korea: Many criminals, and even rogue states, are exploiting DNFBPs in the precious metals and stones industry. In January 2022, the Royal United Services Institute (RUSI) released a report warning that North Korea was targeting DNFBPs to evade sanctions imposed against it. One of North Korea’s key targets was dealers in precious metals and stones (DPMS). RUSI found that jewelry is featured in 25% of North Korea’s sanctions evasion cases, while diamonds are featured in 5%. Similarly, gold was the most frequently mentioned precious metal, appearing in 60% of the DPMS sanctions evasion cases. 

RUSI identified DPMS mining and production as a prominent target of North Korea’s sanctions evasion attempts (accounting for 21% of cases) and wholesale and trading (34% of cases). Under current FATF record-keeping and CDD requirements, RUSI points out that DPMS only have to apply AML/CFT measures to cash payments over $15,000. Similarly, the FATF’s AML/CFT standards do not define ‘precious metals and stones.’ 

Real estate 

United States: In 2021, the US Financial Intelligence Network (FinCEN) issued an advance notice of proposed rulemaking (ANPRM) in response to money laundering and corruption threats to DNFBPs in the real estate industry. In the US, real estate businesses do not have particularly stringent reporting requirements, especially for transactions that do not require a mortgage. FinCEN found that over 50% of those transactions involved politically exposed persons (PEP), along with their relatives and close associates, and that many illegal transactions involved using shell companies to conceal beneficial ownership. 

Accordingly, the ANPRM emphasized the need to implement anti-corruption regulations in the US. FinCEN stated it would take “aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug, and arms trafficking, or terrorist financing.” 

Australia: The 2021 inquiry by the Australian Senate revealed that criminals were exploiting the country’s real estate industry to launder billions of dollars through the housing market. The Australian Federal Police (AFP) revealed that $116 million of illegal real estate assets were seized in 2021 – accounting for over half of the total assets seized in that year ($187 million). Similarly, FATF Mutual Evaluation Reports (MER) have repeatedly recommended that Australia address DNFBP exploitation. Its 2015 MER noted that Australia’s regulatory framework gave DNFPBs ‘substantive discretion’ for applying AML/CFT requirements and offered only ‘limited guidance’ for high-risk customers. 

Following input from Australian banks and financial institutions, the senate inquiry found that Australia’s AML legislation had major loopholes. Those deficiencies were helping criminals to launder money and hurting the country’s international reputation. Accordingly, the Senate recognized the urgent need for legislation that would subject DNFBPs to the same AML/CFT regulations as banks and other financial institutions.

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Originally published June 9, 2016, updated July 4, 2022