Understanding the FATF Grey List

The Financial Action Task Force (FATF), also known as the “Groupe d’action financière”, is an intergovernmental organisation established in 1989. Its purpose is to develop policies to combat money laundering and ensure that jurisdictions are committed to fighting money laundering, terrorist financing, and proliferation financing.

The FATF Grey List highlights countries that are unable to demonstrate the necessary safeguards against money laundering, proliferation financing, and terrorist financing.

The FATF Black List identifies countries considered non-cooperative with global efforts to combat money laundering and terrorist financing.

The FATF Black List - High-Risk Jurisdictions

High-Risk Jurisdictions are subject to a Call for Action. The primary goal for all jurisdictions should be to combat money laundering, terrorist financing, and proliferation financing. Failure to do so is recognised as a serious deficiency, potentially leading to classification as a High-Risk Jurisdiction.

Once a country is identified as a High-Risk Jurisdiction, the FATF issues a call to all members, urging them to apply enhanced due diligence.

In particularly severe cases, countries are called upon to implement counter-measures to protect the international financial system.

The Black List is not permanent and is updated regularly. Countries are added or removed as their AML and CFT regulatory systems meet or fail to meet FATF standards.

The FATF Grey List - Jurisdictions Under Increased Monitoring

When the FATF places a country on its Grey List, monitoring is intensified, and the country must find a swift resolution to the identified discrepancies.

Countries on the FATF Grey List pose a high risk for money laundering and terrorist financing, but they are committed to working with the FATF to develop an action plan that addresses the identified AML/CFT deficiencies.

Being on the Grey List means that the country is subject to FATF monitoring to ensure that AML/CFT objectives are met, thereby aligning with FATF standards.

A country on the Grey List is not viewed as negatively as one on the Black List and is regularly reviewed, with new countries added and those that have completed their action plans removed.

The FATF and FATF-style regional bodies (FSRBs) collaborate with countries to address shortcomings in their strategies. These countries must adhere to the action plan, and progress is closely monitored.

Can a Country Be Removed from the Grey List?

The short answer is YES!

Take Iceland as an example. Iceland was removed from the FATF Grey List after satisfactorily completing its anti-money laundering and counter-terrorist financing measures. The country had been placed on the Grey List due to a lack of legal regulation on money laundering and a failure to address currency reform in a timely manner. One of its action plan items was the introduction of legislation concerning the register of beneficial owners of companies.

The Aftermath

Serious consequences are possible, though not necessarily probable. The biggest FATF-related risk to an economy arises from the possibility that the country's government is unable to implement the action plan satisfactorily according to FATF standards.

Being on the Grey List means a country must work on its action plan. During this period, there is a possibility that the country might implement strict measures, and economic sanctions could be imposed on its financial sector, such as banks.

Foreign investment and trade flows can be affected if a country's Grey List status makes access to global capital markets more difficult. However, any country's government will actively strive to avoid such impacts.

Ultimately, inclusion on either the Grey or Black List can have an adverse effect on a country's economy, with the impact varying depending on the reasons for a country's listing.

For instance, after Iceland was placed on the Grey List, the most significant long-term impact on the country was its low investment rate. Stricter controls led to instability. However, the Icelandic economy successfully navigated sovereign default and government collapse after being removed from the FATF Grey List and fulfilling the requirements of the Action Task Force.

The Benefits?

FATF involvement can help a country return to its best form and shape. The Grey List serves as a warning to prevent a country from being placed on a Black List, which would lead to higher risks and stricter penalties and regulations. A country on the Grey List can use this as an opportunity to 'wake up' and revitalise a struggling economy. The FATF offers such countries a second chance to avoid the Black List and a path to repair any damage incurred.

For more information, visit: https://www.fatf-gafi.org/home/.

Disclaimer: The article above is based solely on independent research by Dr. Werner and Partners and does not constitute legal advice. If you wish to meet with one of our representatives for further information, please contact us for an appointment: https://www.drwerner.com/de/kontakt/