Financial Crime World

FATF Recommendations Bring Consequences for Non-Compliant Countries

The Financial Action Task Force (FATF) has issued recommendations aimed at combating money laundering and terrorist financing globally. These recommendations are binding for member countries, and they must undergo regular assessments to ensure compliance. Failure to comply can have significant consequences.

Member Countries and Jurisdictions

The FATF has 39 member countries, including two supranational bodies: the European Commission and the Gulf Cooperation Council. Additionally, over 200 jurisdictions are members of the FATF or one of its regional bodies, known as Financial Sector Regulatory Bodies (FSRBs).

Assessment Process

The assessments carried out by the FATF and FSRBs involve a thorough technical review of a country’s legislation to ensure compliance with the recommendations. The process includes:

  • On-site visits: Experts examine the work of authorities in detail and evaluate the effectiveness of the system.
  • Review of legislation: A technical review is conducted to ensure that laws are in line with the FATF recommendations.

Sweden’s Experience

Sweden, a member of the FATF but not an FSRB, took approximately two and a half years to complete the assessment process. Assessed countries must carry the burden of explanation for their implementation of the recommendations and effectiveness.

Consequences of Non-Compliance

Countries that demonstrate successful implementation of the majority of the FATF recommendations and receive a sufficient effectiveness rating may be placed in the regular follow-up process. Those with technical or effectiveness deficiencies may be placed in enhanced follow-up. If a country receives a poor rating, it will be put under observation by the FATF’s International Cooperation Review Group (ICRG) and must implement specific reforms within 18 months.

  • Failure to comply can lead to:
    • Placement on the grey list: A high-level political commitment is required to cooperate with the FATF.
    • Refusal to make such a commitment or refuse to cooperate: The country may be placed on the black list, which has only been done twice (for Iran and North Korea).

Consequences of Non-Compliance

The consequences of non-compliance are severe, making it difficult or impossible to carry out transactions. The FATF’s recommendations aim to ensure that countries have effective systems in place to prevent money laundering and terrorist financing, and its assessments play a crucial role in achieving this goal.

In summary, the FATF’s recommendations bring significant consequences for non-compliant countries. It is essential for countries to implement these recommendations and undergo regular assessments to ensure compliance and avoid severe penalties.