The Financial Action Task Force (FATF) is the global watchdog fighting against money laundering and terrorist financing. Its grey and black lists identify countries whose financial systems do not comply to its standards. Duncan Taylor, Infinity’s Compliance Officer, explains what these designations mean and the implications for investors.
What is the Financial Action Task Force?
The Financial Action Task Force (FATF) is an intergovernmental organisation established in 1989 by the G7 countries to develop policies to combat money laundering. Its mandate was expanded in 2001 to include efforts to combat terrorist financing.
The FATF’s main objectives are:
- To combat money laundering and terrorist financing: FATF sets international standards to prevent illegal financial activities, focusing on money laundering, terrorist financing, and other related threats to the integrity of the international financial system.
- To promote effective implementation: The organisation encourages and monitors the effective implementation of these standards by its member countries.
- To carry out assessments and mutual evaluations: FATF conducts regular assessments and mutual evaluations of its member countries to ensure compliance with its standards. The FATF maintains two lists – commonly referred to as the ‘grey list’ and the ‘black list’ – to identify jurisdictions with deficiencies in their anti-money laundering (AML) and counter-terrorist financing (CTF) regimes. The lists are updated three times a year.
FATF’s grey list
The grey list includes countries that are considered to have strategic deficiencies in their AML/CTF frameworks but have committed to working with the FATF to address these issues. These jurisdictions are subject to increased monitoring by the FATF.
Asian countries on the current grey list (as of June 2024) are Vietnam and the Philippines. South Africa is one of a number of African nations included, while within Europe, Monaco, Croatia and Bulgaria feature.
Because transactions in countries on the grey list are considered to carry a higher risk of involvement in money laundering and terrorist financing, individuals and businesses living or operating in them, as well as those holding assets there, may be affected in the following ways:
- Increased scrutiny: Financial transactions involving individuals from grey-listed countries may face increased scrutiny by banks and other financial institutions. This could mean more rigorous checks and increased processing times for international transactions.
- Enhanced due diligence (EDD): Financial institutions, including Infinity, may be obliged to conduct EDD if you come from a grey-listed country. We could ask you to provide additional documentation and information to verify the legitimacy of your transactions and the source of your wealth and funds.
- Higher fees: Investors with investments in grey-listed jurisdictions may find fees rise due to the increased cost of ensuring compliance.
- Reputation risk: Being associated with a grey-listed country can carry a reputation risk. This could potentially affect your business relationships and credibility in the international financial community.
The grey list is not a life sentence. Türkiye and Jamaica were removed from the grey list in June 2024.
FATF’s black list
The black list is formally known as the ‘Call for action’ list. Countries included on this list have been deemed to have significant strategic deficiencies in their AML/CTF regimes. According to the FATF they have not made sufficient progress in addressing the issues identified and/or have not committed to an action plan. These jurisdictions are subject to more severe FATF countermeasures.
There are currently three countries on the list: Myanmar, North Korea and Iran.
The FATF calls on its members and other jurisdictions to apply enhanced due diligence (EDD) measures to business relationships and transactions involving these countries. As a result, if you come from any of these countries, you can expect any financial transactions that you make to be heavily scrutinised.
The economic consequences of being on the black list can be extremely punitive including reduced access to international financial systems, higher costs of financial transactions, and potential economic sanctions from individual countries.
Investing in or conducting business in a country on the FATF blacklist carries significant risks and challenges and we would advise against this.
Infinity and managing risk
Here at Infinity, we are committed to maintaining the highest standards of compliance. As compliance officer I am continuously monitoring regulatory developments, including FATF guidelines to manage risks effectively and uphold best practices. If you are from a country recently classed as high risk, we may need to contact you as part of enhanced due diligence measures.
Rest assured, the security and integrity of your investments are of paramount importance to us. If you have any questions about how to manage the risks associated with the FATF grey and black lists, please don’t hesitate to get in touch.
Chartered FCSI
I have over 20 years of experience in the financial services industry and hold a Chartered FCSI qualification. I ensure that our operations are fully compliant with the rules of our most stringent regulators.
