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The Financial Action Task Force (FATF) is an intergovernmental organization that keeps track of global trends in money laundering and terrorism financing. To create a legislative, regulatory, and practical framework for addressing these threats, the FATF works in conjunction with its member states and regional organizations. The FATF has a black list—officially known as High-Risk Jurisdictions subject to a Call for Action—and a grey list as part of its operations. Countries that have pledged to fix strategic gaps in their anti-money laundering and counter-terrorist financing (AML/CTF) regimes are included on the grey list. Financial institutions should be aware of the countries on the FATF black list and grey list and what that classification means given the possible regulatory risk associated with nations that do not uphold international compliance requirements.
FATF Black List
A list of nations that the intragovernmental organization considers uncooperative in the worldwide campaign to combat money laundering and the funding of terrorism is known as the FATF black list (also known as the OECD black list). The FATF expects that by releasing the list, nations would be encouraged to strengthen their regulatory frameworks and create a set of international AML/CTF standards and norms. Economic sanctions and other restrictive measures will probably be imposed on the nations on the black list by FATF member states and international organizations.
The black list is a dynamic resource that is published and regularly updated in official FATF reports. As nations' AML and CFT regulatory frameworks are modified to comply with the pertinent FATF requirements, they are added to and removed from the black list. In 2000, the FATF published the first black list, initially listing 15 countries. Since then, the lists have been released annually, and occasionally twice a year, as part of the official FATF statements and reports. The following countries were on the FATF's "black list" as of February 2023:
North Korea
Iran
Myanmar
The FATF notes serious shortcomings in the AML/CTF frameworks of the countries included on the black list and advises other countries to proceed with extreme caution when conducting business with companies based in these jurisdictions. The FATF recognized Iran's earlier commitment to enhancing its AML/CTF regulation while urging its member countries to "apply effective counter-measures" in any economic dealings with North Korea, Iran, and Myanmar. As a result, the FATF has outlined the procedures for Iran to be removed off the list, which include ratifying the Palermo and Terrorist Financing Conventions.
The FATF regularly observes international AML/CFT regimes to update the content of its black lists, despite the fact that it lacks direct investigative powers. Certain commentators have disputed the phrase "non-cooperative" in reference to countries on the black list, pointing out that certain nations on the black list may not have the regulatory framework or financial resources to implement the FATF's AML/CTF criteria rather than acting contrary to international best practice.
FATF Grey List
Jurisdictions Under Increased Monitoring, or the "FATF Grey List," is a list of nations with weak AML/CTF regimes. The grey list was developed in 2000 and is also periodically updated, just as the black list. Countries who are put on the grey list are subject to further scrutiny and must cooperate with the FATF to strengthen their regimes.
The FATF either uses FATF-style regional bodies (FSRBs) to report on their progress toward their AML/CTF objectives or conducts direct assessments of them to do this. Although being placed on the grey list is less severe than being on the black list, it can still have a negative impact on commerce and result in economic sanctions from organizations like the World Bank and the International Monetary Fund (IMF).
The grey list is updated frequently as new nations are added or as nations are removed after completing their action plans. The following nations were on the FATF grey list as of February 2023:
Albania
Barbados
Burkina Faso
Cayman Islands
Democratic Republic of Congo
Haiti
Jamaica
Jordan
Mali
Malta
Mozambique
Nigeria
Panama
Philippines
Senegal
South Africa
South Sudan
Syria
Tanzania
Turkey
Uganda
United Arab Emirates
Yemen
Recent Additions to the Lists
The FATF continuously assesses the AML/CTF performance of its member states to determine how closely they adhere to its regulatory recommendations. The following nations have recently been added by the FATF on the "grey list":
Democratic Republic of Congo: In October 2022, the FATF put the Democratic Republic of the Congo (DRC) to the black list. The decision was taken as a result of the country making insufficient progress on the recommendations outlined in the DRC's most recent Mutual Evaluation Report (MER). The FATF has mandated that the DRC adopt the recommended action plan by 2025 in order to fully close the identified strategic gaps.
Jordan: Jordan pledged to rectifying deficiencies with its domestic money laundering and terrorism funding rules after a MER in 2019. Jordan was added to the grey list in October 2021 after the FATF concluded that it had not achieved enough progress toward set goals.
Mali: In October 2021, the FATF added Mali to its "grey list." Mali's inclusion on the grey list, like Jordan's, was brought about by a lack of progress towards its goals in its 2019 MER. The FATF mainly concentrated on weaknesses in the nation related to terrorism financing.
Mozambique: Mozambique made a high-level political pledge to rectify gaps in its domestic money laundering and terrorism funding rules after a MER in 2021. Mozambique was added to the "grey list" in October 2022, despite the FATF noting that the government had made progress on several of the MER's suggested steps.
Myanmar: Myanmar pledged in February 2020 to address the strategic shortcomings outlined in the nation's 2018 MER. However, no significant advancements had been made before Myanmar's action plan expired in September 2021. The FATF recommended Myanmar to finish its action plan by October 2022 in June 2022. The FATF put Myanmar to the black List in October 2022 due to a persistent lack of progress and the majority of the country's action items still not being addressed a year after the action plan deadline.
Nigeria: Nigeria was first placed on the "grey list" in 2007 as a result of a number of weaknesses in its legal and regulatory framework. However, it was removed off the list of countries subject to heightened surveillance in October 2013 after the nation fully implemented the mutually agreed-upon action plan. Nigeria was once again placed on the grey list in February 2023 as a result of strategic AML/CTF inadequacies discovered by the FATF.
South Africa: The country's 2021 MER, which showed inadequate due diligence, chronic failure to implement AML/CFT identification procedures, and a lack of training and staffing in important areas, including law enforcement, caused the FATF to place South Africa to the grey list in February 2023.
Tanzania: The FATF states that Tanzania has made progress on several of the MER's suggested actions to enhance its AML/CTF system since its MER in 2021. However, the FATF put Tanzania on the "grey list" in October 2022 as a result of a number of incomplete action items.
Turkey: Turkey was placed to the grey list by the FATF in October 2021 after it was determined that it had not made enough progress in resolving the problems outlined in its 2019 MER. The threats from Turkey's neighbors, Syria, Lebanon, Iraq, and Iran about terrosim financing were specifically mentioned as specific concerns by the FATF.
United Arab Emirates (UAE): Following a Plenary and Working Group Meeting in February 2022, the FATF added the UAE to the grey list in March 2022. Although the UAE had made "significant progress" since its 2020 assessment on matters relating to money laundering, terrorism financing, seizing criminal proceeds, and international cooperation, the FATF determined that more progress is necessary to ensure that investigations and prosecutions of money laundering cases are "consistent with UAE's risk profile."
Recent Removals from the Lists
Countries that improve in resolving their AML/CTF weaknesses are often removed from the black list and grey list, just as new nations are frequently added to both lists. The following nations were recently taken from the FATF's "grey list":
Mauritius: Mauritius was added to the grey list by FATF in 2020 due to issues with its procedures for seizing proceeds of crime and beneficial ownership regulations. Mauritius was removed from the grey list in February 2021 after adhering to the FATF's action plan to rectify those flaws, which included creating new risk-based supervision plans and law enforcement training plans.
Botswana: 2018 saw Botswana's inclusion on the FATF's "grey list." Following many evaluations by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Botswana was found to be in compliance with the AML/CTF issues that had been previously mentioned in 2021. Botswana was consequently taken from the grey list by FATF.
Cambodia: Due to problems with gambling and human trafficking, Cambodia was first added to the "grey list" in February 2019. However, the FATF noted the nation's "substantial progress" in enhancing its AML/CFT regime following its on-site visit in January 2023. Cambodia was removed off the grey list in February 2023, but it will still cooperate with its FSRB, the Asia/Pacific Group (APG), and is no longer under additional scrutiny.
Bahamas: In December 2020, The Bahamas was taken off the restricted list. Following shortcomings found in 2018, the FATF noted Bahama's "significant progress" in improving its AML/CFT systems.
Ghana: Ghana was added to the grey list in 2018, along with the Bahamas. Ghana was removed off the grey list in 2021 after the FATF concluded that it had made significant AML/CTF advancements and had finished its strategic action plan.
Pakistan: Since 2008, Pakistan has repeatedly landed on the FATF grey list. The FATF announced in June 2022 that Pakistan would remain on the list until a visit to the nation was made to assess its development. Due to Pakistan's considerable advancements in strengthening its AML/CTF regime, the FATF declared in October 2022 that the country will no longer be subject to increased monitoring.
Morocco: In February 2021, Morocco was initially included to the grey list. Following a site inspection that took place between January 16 and 18, 2023, the FATF declared that the nation had fixed its technical issues and was no longer under increased monitoring.
Nicaragua: The FATF declared Nicaragua would no longer be subject to increased monitoring as of October 2022 after it was placed back on the grey list in February 2020. Although the FATF commended Nicaragua for strengthening its AML/CTF regime, it also strongly advised against applying the FATF Standards incorrectly in a way that would suppress Nicaragua's nonprofit sector. Nicaragua was urged by the FATF to make sure that its oversight of nonprofit organizations is risk-based and compliant with FATF Standards.
Zimbabwe: 2019 saw the addition of Zimbabwe to the "grey list" after the country's evaluation revealed a number of issues with how the AML/CTF Standards were being implemented. Zimbabwe was taken off the grey list by the FATF as of March 2022, citing "significant progress" in strengthening its AML/CTF regime and its effectiveness.
Screening and monitoring for the Grey List and the Black List
Most financial regulators require businesses to have adequate risk-based AML/CTF measures to reduce that hazard due to the greater risk of money laundering and financing terrorism that black-listed and grey-listed countries bring.
As a result, businesses must continuously monitor their clients' transactions and screen them against the FATF black list and grey list at onboarding and throughout their business relationship. Firms should make sure that their customer due diligence processes confirm their customers' residence in or business with the mentioned countries in order to accurately screen. In order to determine whether criminal conduct, such as money laundering, is occurring, they should also confirm that their transaction monitoring software can carefully examine the volume, regularity, and pattern of transactions involving high-risk countries.
Firms are required to submit suspicious activity reports (SAR) to the relevant financial authorities when suspicious activity is discovered in order for those authorities to take enforcement action.
By fLEXI tEAM
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