Guide to FATFs Grey List and Black List

In a global watch of balanced dance where one step defines your country’s economy while the other one will judge how determined you are to fight financial crimes through compliance structure, the global regulatory body FATF (Financial Action Task Force) with its grey and black lists define the future of your country and its global status.

With an estimated decline of GDP by 7.6% through falling capital inflows, a country being under increased monitoring list known as FATF grey list when continues to stay non-compliant to FATF action plan in implementing coarse AML/CFT measures, is pushed to the high-risk jurisdictions list, the infamous black list of FATF, with increased economic restrictions and reputational damages.

It is fairly important to have a concise understanding of FATFs lists and to enable you in doing so, let’s walk through the guide to FATFs grey list and black list. Additionally, this blog will allow you to construct an idea of a realistic action plan one can adopt to stay compliant with evolving regulations.

Orchestration of a Global Body: FATF in a Brief Overview

Money is the king and its power motivates the owners to go far and beyond to make more while hiding their illegal executions, talking about the bad guys who abuse the financial systems to turn their black money into white gains which is precisely termed as money laundering. Dissolving the illicit gains from one of the most notorious organized crimes, drug trafficking, into the structured financial landscape to avoid legal aggravation, gave birth to a global governing body called Financial Action Task Force (FATF) in Paris, in 1989.

The magnitude of the problem can be estimated from the fact that around $100 billion of drug profits are annually moved through the financial system of the United States while in 1987 the proceeds were estimated at $300 billion. The infamous Pablo Escobar, dominated the cocaine trade while chairing the Medellin Cartel and made drug money of $400 million per week.

To regulate the flow of illicit proceeds through organized crimes, participants of G7 Summit started the FATF which was designed to set forth the global guidelines for its member countries to maintain stringent compliance strategies against flowing drug money into financial systems. Followed by the guidelines on curbing money laundering by drug traffickers, the incident of 9/11 was a kick start to more stringent regulations on fighting terrorist financing. Based on a robust compliance criteria of how serious their AML/CFT framework is, FATF categorizes the member countries and jurisdictions into its grey and black list, encouraging the developed and developing countries to follow the anti money laundering and combating the financing of terrorism (AML/CFT) guidelines. Let’s navigate through the intricate boundaries of these lists.

What is Grey List of FATF?

A list that identifies the countries or jurisdictions with weak AML/CFT/PF measures and determined to improve their efforts in fighting predicate crimes is termed as grey list, dubbed as a cautionary waltz. In a plenary sitting on Oct 2023, it was made sure that jurisdictions identified in the grey or increased monitoring list are actively working on improving their counter-finance crime strategies, in collaboration with FATF and its regional bodies (FSRBs).

What is Implied by Being in the Grey List?

The grey listed jurisdictions are obliged to implement their compliance framework in a timely manner and as promised. Aimed to monitor their progress and review placement in the grey list, the destination of any country in these lists is decided three times a year. Seeing the will and commitment of the subject countries towards AML/CFT measures and robust implementation, FATF does not impose enhanced due diligence measures while dealing with the country and subject institutions but a risk based approach is recommended to be practiced when dealing with people and businesses from these jurisdictions. Below is the list of countries enlisted in master FATF grey list where Bulgaria joined the crew recently while four other countries upon meeting the set recommendations by FATF got the pass to exit.

Black List of FATF: A Foreboding Dirage

The absence of cooperation with FATF and constant non-compliance with AML/CFT/PF action plans pushes the jurisdictions under high-risk monitoring radar termed as black list by the FATF. these countries with weak to no compliance strategies against money laundering and other financial crimes. Identified as red alert, all members and jurisdictions of FATF are recommended to employ enhanced due diligence and in some cases stringent monitoring measures such as sanctions checks ensuring the safety of the global financial system. Currently three countries Myanmar, Iran, and DPRK (Democratic Republic of Korea) are in the FATF black list with a call to action of enhanced due diligence and counter measures (sanctions) being practiced before getting into business with them.

FATF Compliance Cruciality: A Strategic Roadmap is Imperative

On a ladder of economic and compliance progress, where financial stability decides your economy and national sustainable development, the other foot needs to be in-line with regulatory compliance and strategic measures to strengthen action plans in stemming the money laundering and associated predicate crimes- indicating the country’s place in FATFs list. Being understood the magnitude of the problem, the jurisdictions are in dire need to implement a robust compliance culture within the businesses and institutions at all levels. Difficult but not impossible measures are needed to be designed to protect the economic and reputational stability of a country.  Let’s take a deep dive into the imperative measures that are basic steps to ensure a functional compliance culture within the institutions.

Access to Updated & Simplified Regulatory Framework

Aligned with FATF guidelines, the subject jurisdictions are in dire need of accessible, simplified, and updated regulations for all the sectors whether financial or non-financial. A culture of awareness with these regulations enable the all-size organizations to interpret and integrate them into their compliance measures. Unfamiliarity with the changing regulations creates a blind spot for firms leading to contribute and facilitate the crime actors unknowingly. Taking help from regular assessments and audits can bridge the gaps between ever-evolving regulations and existing compliance measures.

Persistent Educational Culture & Trainings

Knowledge is power, the culture of training and continuous knowledge development at both government and private sector is crucial to redesign and assess the existing compliance policies meeting the global regulatory standards. From policy makers to implementers, the dedicated training and workshops ensure a robust check on the policy gaps and strengthen the abilities of compliance officers in thoroughly identifying the suspicious or illegal activities. With the provision of knowledge resources through webinars, digital platforms to raise awareness on compliance and the gore impacts of noncompliance, dedicated news media, and easy guides, the compliance can be ensured within the organizations and ultimately on the global scale. Fostering the mindset of compliance practices in daily business deals is more crucial than merely understanding the regulations, which can be made possible through continuous educational culture.

With Globalization, Information Channeling is Inevitable

Money launderers work in strange yet subtle ways where globalization plays a beneficial factor for them to hide their illicit gains. These inter-border relations are being abused by crime actors, highlighting the need for cross-border cooperation and information sharing culture to curb the flow of laundered money. Amalgamating the available resources and expertise, countries can share and track the records of illegal money flowing in their financial systems. With an empowered fight against financial crimes, the countries need to streamline a structured and robust communication mode to unveil the heinous crimes and exploitation of the financial ecosystem. Along with strengthening the ability of one weak jurisdiction against financial crimes, the shared data allows the compliance measures to be more impactful.

Fostering Culture of Due Diligence and Accessible Screening for All

Under the umbrella of due diligence practiced by the institutions and businesses on all scales, the primary objective is to identify and verify every person a business allows to enter into the financial systems. Vigilance against the identity of your customers and the customer of your customer is the key to build a base for curbing financial crimes. Adding more impact to the scrutiny measures, the availability of simple, reliable, and tech integrated screening solutions against potential crime actors is pivotal and that too for all businesses whether small or large. With the implementation of risk-based approach and ongoing monitoring while dealing with domestic or international clients, the firms can empower their compliance measures and thrive in the global business community.

Having that highlighted, the question arises “who will bell the cat”? Countries with increasing inflation and declining economies need a vision that will serve the compliance purpose in the most feasible way possible.

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