The Financial Action Task Force (FATF), which is also known as “Groupe d’action financière” is an intergovernmental organisation founded in 1989 to develop policies to combat money laundering, ensuring that the aim of jurisdictions is that to combat money laundering, terrorist financing, and financing of proliferation.
The FATF’s Grey List highlights countries that are not able to demonstrate the required protections against money laundering, proliferation financing, and terrorist financing.
The FATF’s Blacklist lists countries that are considered as non-cooperative countries towards the global effort to combat money laundering and the financing of terrorism.
FATF’s Blacklist – High–Risk Jurisdictions
High-Risk Jurisdictions are subject to a Call for Action. The main aim of all jurisdictions should be to combat money laundering, terrorist financing, and financing of proliferation. Failing to do so is recognised as having serious deficiencies and thus possible classification as a High-Risk Jurisdiction.
Once a country is identified as a High-Risk Jurisdiction, the FATF makes a call for all members and urges the application of enhanced due diligence.
In most serious cases, countries are called upon to apply countermeasures to protect the international financial system.
The blacklist is not a permanent list and is periodically updated. As AML and CFT regulatory regimes meet the standards of the FATF, then countries are added and withdrawn accordingly.
FATF’s Grey List – Jurisdictions Under Increased Monitoring
When FATF includes a country in its grey list, monitoring is increased, and the country must find a quick-paced solution to the highlighted discrepancies.
Countries on FATF’s grey list impose a high risk of money laundering and terrorism financing however are committed to working with FATF to develop an action plan addressing the pointed AML/CFT deficiencies.
When a country is greylisted, it means that that country is subject to FATF monitoring making sure AML/CFT goals are being reached to meet the standards of the FATF.
A grey-list country is not as negative as a black-list country and is periodically reviewed so as to add new countries and remove the countries that complete their action plans.
The FATF and FATF-style regional bodies (FSRBs) works with jurisdictions to address deficiencies in their strategies. Such countries would need to comply with the action plan, and the progress thereof is closely monitored.
Can a Country be removed from a Grey List?
The short answer is YES! Take Iceland as an example. Iceland has been removed from the FATF’s Grey List after satisfactorily completing measures against money laundering and terrorist financing.
They were grey listed due to a lack of legislature concerning money laundering and the delay to deal with the monetary reform. One of their action plans was the introduction of legislation on the registry of beneficial owners of companies.
The aftermath
Serious consequences are possible but necessarily likely. The major FATF-related risk to the economy emanates from the possibility of the country’s government being unable to implement the action plan in a satisfactory manner as per FATF’s standards.
Being grey listed means that a country needs to work on its action plan. In doing so, and whilst its progress is being monitored, there is a possibility that the country adopts strict measures and may be subject to economic sanctions against the financial sector such as banks.
Foreign investment and trade flows are subject to being impacted upon the greylisting of a country making it difficult to access global capital markets. However, every country’s government will actively seek to avoid such impacts.
Ultimately being included on the grey list or blacklist can have a detrimental effect on an economy of a country, however, the impact may vary depending on the reasons of why a country has been included.
For example, after Iceland was grey listed, the main long-run impact on Iceland was its low investment rate. Stricter controls led to instability. However, Iceland’s economy has successfully survived a sovereign bankruptcy and a government collapse after successfully being removed from the FATF’s Grey List and after meeting the Action Task Force’s requirements.
The advantages?
The involvement of FATF may help a country come back to its best form and shape. The grey list is considered as a warning to prevent a country from being blacklisted, which leads to higher risks and more severe penalties and regulations. A country that is grey listed may use it as an opportunity to wake up and revive an economy which has been lost. The FATF gives such countries a second chance to avoid being blacklisted and an opportunity to repair damage made.
For more information visit: https://www.fatf-gafi.org/home/.
Disclaimer: The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet up with any of our representatives to seek further information, please contact us for an appointment.
