Your In-Depth Guide to FATF’s Grey List and Black List

In this article, we will explain FATF Grey Lists and Blacklists, give examples of Grey Listed countries, and suggest tools that empower financial institutions to tackle the complexities and challenges of anti-money laundering compliance and fraud prevention. So, let’s start!

What is FATF?

The Financial Action Task Force (FATF) is an intergovernmental organization founded to counter illegal activities such as money laundering and terrorism financing by developing international standards and adopting effective prevention measures.

What is the role of FATF?

The responsibilities of FATF are:‍

1. Setting International Standards: The FATF develops global recommendations known as FATF Recommendations. These guidelines address a range of matters about anti-money laundering (AML), counter-terrorism financing (CTF), and the battling of additional threats to the integrity of the global financial system.

2. Mutual Evaluations: Mutual evaluation is a requirement for FATF member nations to assess their level of compliance with the recommendations. 

3. Listing of Jurisdictions: The FATF keeps a list of states and regions that require heightened monitoring due to deficiencies in their compliance with AML/CFT global standards.

FATF Color-Coded Lists

FATF maintains various lists to which countries and jurisdictions are added and removed based on periodic measures and updates. Below, we will be explaining two types of these lists, namely, the Grey List and the Blacklist. 

FATF Grey List

What is FATF Grey List?

FATF Grey List is composed of The High-Risk and Other Monitored Jurisdictions (the FATF high-risk countries list). The Grey List is composed of countries or jurisdictions that are identified by the FATF and labeled as having shortcomings and deficiencies in their AML and CFT frameworks. If a country is listed in the FATF Grey List, it entails:

1. It is being observed and monitored more closely, with more frequent reviews, evaluations, and reporting obligations.

2. It tarnishes the international reputation of the country, which has a detrimental effect on the state's ability to engage in financial markets, draw in new foreign investment, and maintain its participation in international trade.

Why are countries or jurisdictions placed on the FATF Grey List?

Some of the most common criteria for including a country or jurisdiction in the FATF Grey List are:

1. Lack of up-to-date and sufficient AML/CTF laws and regulations.
2. Lack of satisfactory and adequate regulatory and supervisory frameworks.
3. Lack of productive and effective financial intelligence units (FIUs).
4. Lack of robust and effective customer due diligence (CDD) measures.
5. Lack of transparency in beneficial ownership information.

What are the Grey Listed countries as of October 2023?

1. Barbados
2. Bulgaria
3. Burkina Faso
4. Cameroon
5. The Democratic Republic of the Congo (DRC)
6. Croatia
7. Gibraltar
8. Haiti
9. Jamaica
10. Mali
11. Mozambique
12. Nigeria
13. Philippines
14. Senegal
15. South Africa
16. South Sudan
17. Syria
18. Tanzania
19. Turkey
20. Uganda
21. United Arab Emirates (UAE)
22. Vietnam
23. Yemen

FATF Black List

What is the FATF Black List?

Significant inadequacies in the AML/CFT frameworks of a country or jurisdiction lead the FATF to label it as a High-Risk and Non-Cooperative Jurisdiction, which is also known as the Black List. The Black List title brings on serious ramifications, such as, but not restricted to:

1. Financial and economic penalties.
2. Imposed limitations on international financial transactions.
3. Heightened monitoring of financial exchange to and from the blacklisted country.
4. Prevented and decreased access to international markets.
5. Decreased ability to draw in foreign investments.

Why do countries or jurisdictions end up on the FATF Black List?

The most common reasons are:

1. Severe and serious deficits in their AML/CFT laws and regulations.
2. Negligence in criminalizing money laundering and terrorism financing.
3. Non-compliance to international standards.
4. Inadequate and non-functional Financial Intelligence Unit (FIU).

Which countries are on the Black List as of October 2023?

1. Democratic Republic of North Korea
2. Iran
3. Myanmar

FATF Grey List Vs. FATF Black List (A General Comparison)

FATF Blacklist countries are considered a bigger threat in terms of financial crimes, resulting in them facing more immediate and dire consequences. On the other hand, Grey List countries are given the opportunity and significant monitoring to ensure future compliance and delisting from the FATF Grey List.

Grey Lists, Blacklists, and AML Compliance: Screening and Monitoring

Screening and Monitoring are among the crucial tools for assessing AML compliance, particularly for states and areas included on the FATF's Grey and Black Lists. Screening and Monitoring practices are rudimentary for financial institutions and businesses to preserve the integrity of their operations and to remain compliant with international AML standards.

Screening:

Screening practices necessitate systematically investigating people, organizations, or transactions within the Grey Lists and Blacklists to pinpoint potential risks. Specifically, financial institutions utilize screening to determine whether their customers or counterparties are associated with jurisdictions or establishments known for AML/CFT deficits (Grey List) or severe non-compliance with AML/CFT standards (Black List).

Selecting which new customers to onboard and which existing customers to perform due diligence on is a decision that compliance teams at financial institutions must make with knowledge from effective screening, which is essential for evaluating the risk factors associated with customer relationships and financial transactions.

Monitoring:

Transaction monitoring is a tool that detects and reports suspicious financial activities. Its continuous and real-time attributes make it fundamental for addressing AML compliance within Grey List and Blacklist jurisdictions and countries. Increased monitoring is used for grey-listed countries to identify potential evolving risks in customer behavior and transactions.

For FATF Blacklist countries, it is a tool that enables strict scrutiny of financial transactions to ensure compliance with imposed sanctions. Effective monitoring encompasses current customer due diligence (CDD) as well. Monitoring is a proactive and preventative approach to upholding the integrity and security of financial institutions by ensuring compliance with AML standards.

The Significance of FATF Blacklists and Grey Lists Check

Regular checks of FATF Blacklists and Grey Lists are central to preserving AML and CTF standards. While Blacklists are composed of FATF high-risk countries and jurisdictions encountering strict sanctions, Grey Lists include jurisdictions with less systemic AML/CTF deficits. Through these checks, financial institutions can inspect high-risk transactions and thus perform effective due diligence and enhance international AML compliance, protecting the financial system from suspicious and illegal activities.

Outcomes FATF Plenary, October 2023

As of the 25th-27th of October 2023, FATF released the FATF Outcomes FATF Plenary, which included:

1. FATF granted Indonesia full membership as its 40th Member.

2. FATF released a report that details guidance to strengthen the use of asset recovery networks, or ARINs, in tracking transnational money laundering cases.

3. FATF delegates decided on a considerable set of amendments to the FATF Recommendations.

4. FATF adopted reports on Illicit Financial Flows from Cyber-Enabled Fraud and the Misuse of Citizenship and Residency by Investment Programs.

5. FATF delegates agreed to release the updated FATF Risk-Based Guidance on Recommendation 25 on Beneficial Ownership and Transparency of Legal Arrangements for public consultation

6. FATF delegates discussed the joint FATF-GAFILAT assessment of Brazil.

7. FATF removed four countries from its Grey List following successful on-site visits. The four countries are Albania, the Cayman Islands, Jordan, and Panama.

8. FATF confirmed that the suspension of the membership of the Russian Federation continues to stand.

Recent Developments and Examples

United Arab Emirates:

This example will showcase why the UAE was previously placed on the FATF Grey List and the consequential reforms followed as of October 2023.

In 2022, the UAE was included in the FATF Grey List due to concerns about insufficient prevention of illegal financial activities. UAE has been subjected to heightened monitoring due to “strategic deficiencies” in its efforts to battle money laundering.

According to CNN:

“Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing,” the organization claimed.

“When the FATF places a jurisdiction under increased monitoring, it means the country has committed to swiftly resolve the identified strategic deficiencies,” the organization continued.

“The UAE takes its role in protecting the integrity of the global financial system extremely seriously and will work closely with the FATF to quickly remedy the areas of improvement identified,” said the UAE’s agency in charge of combating money laundering, according to Emirates News Agency.

However, in October 2023, FATF, at its October 2023 plenary, reached the initial conclusion that the UAE has considerably fulfilled its action plan, which warrants an on-site assessment to confirm the sustainable implementation of AML/CFT reforms and necessary political commitment to future compliance.

The UAE has implemented the following significant reforms:

1. Expand the number of outgoing MLA requests to enable ML/TF inquiries

2. Boost its understanding of ML/TF risks and implement risk-based CDD for DNFBP industries 

3. Apply effective and comparable sanctions for AML/CFT non-compliance involving FIs and DNFBPs, and increase STR filing for non-complying sectors

4. Establish a more accurate knowledge of the risks of legal abuse and implement risk-based preventative measures

5. Provide supplementary resources to the FIU to enhance its capacity to provide financial intelligence to LEA and better utilize financial information from overseas partners to monitor high-risk money laundering threats

6. Increase investigations and prosecution of money laundering while conforming with the country’s risk profile

7. Establish effective implementation of TFS by sanctioning non-compliance among reporting entities and demonstrate a better grasp of UN sanctions evasion within the private sector.

Jordan:

The FATF welcomed Jordan’s notable progress in mitigating its AML/CFT deficits. Per Jordan’s action plan, due to the strategic deficiencies the FATF identified in 2021, Jordan managed to improve the effectiveness of its AML/CFT regime and meet the commitments detailed in the action plan. The commitments included:

1. Complete and communicate the ML/TF risk assessments of virtual assets and legal persons

2. Improve risk-based inspection and oversee training for FIs and DNFBPs

3. Keep thorough and current records of legal persons' basic and beneficial ownership information.

4. Monitor and pursue money laundering cases for underlying offenses that fit its risk profile and bolster the policy of prohibition and seizure, even at the border.

5. Implement a legal and institutional framework for TFS

6. Administer risk-based monitoring of NPOs without interfering with legitimate NPO activities. Thus making Jordan officially exempt from the FATF’s increased monitoring.

FATF claimed that although Jordan has been removed from the FATF Grey List, it is strongly encouraged to continue working with MENAFATF to sustain the improvements in its AML/CFT system.

Compliance and Delisting

What must countries do to get off the FATF Grey List or Black List?

Being removed from the FATF Grey or Black lists looks different in terms of specific plans and timelines, depending on the organization or authority that maintains the lists and the different circumstances of each jurisdiction or country.

The table below presents a general comparison of steps required by countries or jurisdictions to be delisted from the Grey List in comparison to the FATF Blacklist, specifically within the context of anti-money laundering and counter-terrorism financing.

‍How can FOCAL Help?‍

Preventative methods towards financial crimes and proactive tools that ensure compliance with Anti-Money Laundering (AML) regulations are vital now more than ever, with rapid technological advancements continuously changing financial landscapes.

FOCAL is a comprehensive platform that uses Artificial Intelligence to help you comply with Anti-Money Laundering (AML) regulations. Let's explore how FOCAL can assist you in navigating the AML space:

Compliance Control: FOCAL Transaction Screening encompasses Global Watch-lists Screening and Customer-owned Lists, ensuring robust adherence to local and international AML regulations.

Efficiency: With Real-Time Monitoring capabilities, FOCAL promptly identifies and flags potential money laundering activities, streamlining the AML compliance journey.

Customization: The Dynamic Scenario Builder, coupled with Customizable Library Rules, equips institutions to mold their AML strategies, catering to specific business needs.

Scalability: Irrespective of business size, FOCAL flexible API integration ensures seamless integration, making AML compliance more accessible.

Scenario Building: FOCAL Dynamic Scenario Builder allows institutions to create custom monitoring scenarios, improving the detection of suspicious patterns.

Risk Scoring: By offering a Customizable Score under Customer Risk Scoring, FOCAL ensures that businesses can gauge and categorize the AML risks associated with individual customer profiles accurately.

Real-time Screening: The ongoing customer screening guarantees that AML checks remain updated, reflecting evolving compliance requisites.

It is crucially important for financial institutions to remain up to date with the FATF Gray Lists and Black Lists. Moreover, adopting empowering tools such as FOCAL by Mozn can be a game-changer for all types of financial establishments. You can learn more about FOCAL by booking a demo today.