Financial Action Task Force Makes Sweeping Changes to Grey List Criteria
Historically, several countries, such as the Philippines and Malta, that rely on gambling revenue for their economies have had their financial systems under intense scrutiny, but that could soon change. The Financial Action Task Force (FATF) has announced significant revisions to its criteria for placing countries on its grey list of jurisdictions under increased monitoring.
FATF President Elisa de Anda Madrazo speaks during the International Anti-Financial Crime Summit 2024 in London in October. (Source: FATF/LinkedIn)
LISTEN TO THIS ARTICLE:This move, designed to relieve pressure on less developed nations and focus on those that pose greater risks to the global financial system, marks a shift in how the international body evaluates potential money laundering and financial crime risks. The new criteria will prioritize FATF member countries, those classified as high-income by the World Bank, and nations with financial sector assets exceeding $10 billion for review.
Related: Malta Introduces New Legislation to Protect Operators from Foreign LiabilityCountries classified as least developed by the United Nations will not be prioritized for active review unless the FATF determines that they present a significant risk of money laundering, terrorist financing, or proliferation financing. In those cases, countries with lower economic capacities entering the review process may be granted extended observation periods, giving them more time to make necessary improvements in accordance with their Key Recommended Action roadmaps.
These adjustments are expected to take effect in the next round of assessments and could result in a considerable reduction in the number of low-capacity countries currently on the grey list, potentially halving their representation.
The revised criteria come under the leadership of Elisa de Anda Madrazo, who took over as President of the FATF in July. Her tenure has seen a renewed focus on balancing the expectations placed on emerging markets and more developed countries.
The decision to alter the grey list criteria follows ongoing criticism that the FATF has been too harsh on emerging-market nations, while applying less scrutiny to more powerful members. A recent FATF report pointed out regulatory deficiencies in countries such as the US and Australia, specifically regarding the oversight of designated non-financial businesses and professions, including casinos, real estate agents, and lawyers.
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A Lighter Approach
According to FATF officials, the shift reflects a new approach to how the organization treats countries with strategic deficiencies. High-income nations and FATF members will now be held to a higher standard, as these countries are seen to have the resources and infrastructure to address financial crime risks more effectively.
Although no changes have been announced regarding the criteria for inclusion on the blacklist, which currently includes Iran, North Korea, and Myanmar, the changes to the grey list criteria are expected to impact countries like the Philippines, which is seeking to be removed from the list by the end of this year.
The Philippines, one of 21 countries currently on the grey list, has been identified as having inadequate oversight of risks in sectors such as casino junkets. In response, Philippine President Ferdinand Marcos Jr issued a Memorandum Circular in 2023, instructing 44 government agencies, including the gaming regulator PAGCOR, to take all necessary actions to ensure the country’s removal from the grey list.
The FATF, in announcing the changes to its grey list criteria, underscored the devastating impact that illicit financial flows can have on the global economy, particularly on least developed nations. Illicit activities such as human trafficking, terrorism, tax evasion, and corruption divert billions of dollars away from essential public services, hindering sustainable development. The FATF stressed that depriving criminals of their illicit proceeds is crucial in helping countries build robust economies and societies, particularly in vulnerable regions where the impact of financial crime is most acutely felt.
With these revised criteria, the FATF aims to ensure that the grey list process more accurately targets countries that pose the greatest risks to the international financial system. The organization hopes that the changes will result in more targeted support for low-capacity countries, allowing them to strengthen their financial systems without facing the same level of scrutiny as more advanced economies.
The first assessments under the new criteria are expected to take place in the coming months.
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