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1999 OECD BLACKLISTING TO FATF BLACK/GREYLISTING IN 2022

26/05/2022

PREAMBLE

Blacklisting is black or white (a discrete scale) and does not stop money laundering.The problem with black/white is shown by Rawlings (2007):

  • After states complied with the standards, these jurisdictions have been marked as ‘good governance’ (the other end of the scale), which lead, in the end, to reverse (unwanted) effects.

Some background

The first blacklist related to money laundering and tax havens was published by the IMF, in 1999. The IMF presented a list of countries and territories with Offshore Financial Centres (OFCs).

  • “OFCs are jurisdictions where offshore banks are exempt from a wide range of regulations which are normally imposed on onshore institutions […]
  • Countries may decide to establish OFCs for a number of reasons, including gaining access to international capital markets, attracting needed foreign technical expertise and skills, and introducing an element of competition in domestic financial systems while, at the same time, somewhat sheltering domestic institutions.” (IMF, 1999, p.6)

But, and this is the main point of the blacklist,

  • “OFCs can be exploited for dubious purposes.
  • OFCs attract funds partly because they promise anonymity and the possibility of tax avoidance or evasion.
  • A high level of bank secrecy is almost invariably used as a selling point by OFCs some of which have been (and are) exploited also for activities related to money laundering” (IMF, 1999, p.10).

After this blacklist of historic value established by the IMF in 1999, tax haven revelations were left to the OECD and money laundering blacklisting was delegated to the Financial Action Task Force (FATF).

In 1989 at the G-7 Summit in Paris the Financial Action Task Force on Money Laundering (FATF) was established. The FATF is an intergovernmental body that tries to combat money laundering and terrorist financing by developing and promoting policies in different countries.

This intergovernmental organization blacklisted countries with regard to money laundering and terrorist financing, by naming and shaming them as

  • Non-Cooperative Countries and Territories (NCCTs).

The blacklist was developed based on assessing countries with regard to the

  • ‘Criteria for Identifying Countries and Territories Non-Cooperative in Anti-money Laundering and Terrorist Financing’.
  • It contains 25 ‘negative’ criteria, such as banking secrecy, some loopholes of law and financial regulation (for the complete list see FATF 2000)

The countries that meet many [*]  of these 25 negative criteria, have a poor anti-money-laundering record and are listed as NCCTs.

  • [*]  IMF/FATF (2000) listed s countries on the blacklist that met 14 of the 25 criteria, like JERSEY / MAURITUS , but there WAS NOT a clear quantitative threshold.
  • The FATF (2000a, p.2) defines: "meeting the criteria" means that the concerned jurisdictions were found to have detrimental rules and practices in place by the FATF team.

When one looks at the development of this annual blacklist, and at the countries disappearing from the list every year, one does not get the impression that this list is very effective.

As of 13th October 2006 there are no NCCTs according to the FATF (2006).

WAS THIS THE END OF MONEY LAUNDERING WORLDWIDE?

NO AND FATF STARTED AGAIN [or refreshed the process]

The Financial Action Task Force (FATF) NEW  blacklist (sometimes referred to as the OECD blacklist) is a list of countries that the intragovernmental organization considers non-cooperative in the global effort to combat money laundering and the financing of terrorism.

By issuing the list, the FATF hopes to encourage countries to improve their regulatory regimes and establish a global set of AML/CFT standards and norms.

The FATF also publishes a greylist, in which it sets out countries with deficiencies in their AML/CFT controls, but that have committed to addressing their shortcomings. Given the potential regulatory risk associated with countries that do not maintain international compliance standards, financial institutions should be aware of FATF blacklist and greylist countries and what that designation entails.

THE FATF BLACKLIST

Officially known as High-Risk Jurisdictions subject to a Call for Action,

the FATF blacklist sets out the countries that are considered deficient in their anti-money laundering and counter-financing of terrorism regulatory regimes.

The list is intended to serve not only as a way of negatively highlighting these countries on the world stage, but as a warning of the high money laundering and terrorism financing risk that they present. It is extremely likely that blacklisted countries will be subject to economic sanctions and other prohibitive measures by FATF member states and international organizations.

The blacklist is a living document that is issued and updated periodically in official FATF reports. Countries are added and withdrawn from the blacklist as their AML and CFT regulatory regimes are adjusted to meet the relevant FATF standards. The first FATF blacklist was issued in 2000 with an initial list of 15 countries. Since then, the lists have been issued as part of official FATF statements and reports on a yearly, and sometimes twice-yearly, basis. As of January 2022, the following countries were included on the FATF blacklist:

  • North Korea
  • Iran

The FATF cites significant deficiencies in both blacklisted countries’ AML/CFT regimes and suggests other countries exercise extreme caution when doing business with firms based in either.

While the FATF has called on its member-states to “apply effective counter-measures” in any business dealings with North Korea and Iran, it has noted Iran’s prior commitment to improving its AML/CFT regulation. Accordingly, the FATF has set out the steps for Iran’s removal from the list, including a requirement for it to ratify the Palermo and Terrorist Financing Conventions.

While it has no direct investigatory powers, the FATF monitors global AML/CFT regimes closely to inform the content of its blacklists.

THE FATF GREYLIST

In addition to its blacklist, the FATF also issues a greylist, officially referred to as Jurisdictions Under Increased Monitoring.

Like the blacklist, countries on the FATF greylist represent a much higher risk of money laundering and terrorism financing but have formally committed to working with the FATF to develop action plans that will address their AML/CFT deficiencies.

The countries on the greylist are subject to increased monitoring by the FATF, which either assesses them directly or uses FATF-style regional bodies (FSRBs) to report on the progress they are making towards their AML/CFT goals.

While greylist classification is not as punitive as the blacklist, countries on the list may still face

  • Economic sanctions from institutions like the International Monetary Fund (IMF) and the World Bank, and
  • Experience adverse effects on trade.

The greylist is updated regularly as new countries are added or as countries that complete their action plans are removed.

As of March 2022, the FATF greylist included the following countries:

Recent Additions to FATF Greylist and Blacklists 

The FATF continuously reviews its member states’ AML/CFT performance in order to gauge their alignment with its regulatory guidance. The FATF has recently added the following countries to the greylist:

  1. Jordan: Following a Mutual Evaluation Report (MER)in 2019, Jordan made a commitment to addressing deficiencies in its domestic money laundering and terrorism financing regulations. In October 2021, FATF determined that Jordan had not made sufficient progress towards those objectives and it was added to the greylist.
  2. Mali: The FATF added Mali to the greylistin October 2021. Like Jordan, Mali’s addition to the greylist was motivated by a lack of progress towards achieving objectives set out in its 2019 MER. The FATF primarily focused on risks in the country related to terrorist financing.
  3. Turkey: The FATF added Turkey to the greylistin October 2021 after determining that it had not made sufficient progress towards addressing the issues set out in its 2019 MER. The FATF cited specific concerns about the terror financing threats from Turkey’s neighbours, Syria, Lebanon, Iraq, and Iran.
  4. United Arab Emirates (UAE): TheFATF added the UAE to the greylist in March 2022 following a Plenary and Working Group Meeting in February 2022. The FATF determined that while the UAE had made “significant progress” since its 2020 assessment on issues related to money laundering, terrorism financing, confiscating criminal proceeds and international cooperation, further progress is required to ensure investigations and prosecutions of money laundering cases are “consistent with UAE’s risk profile”.

RECENT REMOVALS FROM FATF GREYLIST AND BLACKLISTS 

Just as countries are added to the blacklist and greylist on a regular basis, countries that make progress in addressing their AML/CFT deficiencies are removed from the lists. With that in mind, the FATF recently removed the following countries from the greylist.

  1. Mauritius: In 2020, FATF added Mauritius to the greylist citing deficiencies in its beneficial ownership controls, and its procedures for confiscating the proceeds of crime. After following the FATF’s action plan to address those deficiencies, including developing new risk-based supervision plans and law enforcement training plans, Mauritius was removed from the greylist in October 2021.
  2. Botswana: Botswana was added to the FATF’s greylist in 2018. In 2021, following a series of assessmentsfrom the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), Botswana was deemed compliant with previously-cited AML/CFT deficiencies. Accordingly, FATF removed Botswana from the greylist.
  3. Bahamas: The Bahamas was removed from the greylist in December 2020. The FATF cited the Bahama’s ‘significant progress’ in strengthening its AML/CFT systems following deficiencies identified in 2018.
  4. Ghana: Like the Bahamas, Ghana was added to the greylist in 2018. After it completed its strategic action plan, FATF determined that Ghana had made sufficient AML/CFT progress, and removed it from the greylist in 2021.
  5. Zimbabwe: Zimbabwe was added to the greylist in 2019 after its assessment highlighted various deficiencies in the country’s implementation of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CTF) Standards. As of March 2022, the FATF’s report cited Zimbabwe’s “significant progress” in improving its AML/CTF regime and its effectiveness, thus removing the country from the greylist.

SOURCE

  1. https://www.uu.nl/sites/default/files/rebo_use_dp_2008_08-12.pdf
  2. https://complyadvantage.com/insights/fatf-blacklists-greylists/
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