FATF Recommendations and Country Assessments: A Review of the Consequences
The Financial Action Task Force (FATF) has been a significant player in the global fight against money laundering and terrorist financing for many years. Its recommendations have become a benchmark for countries to measure their progress in implementing effective anti-money laundering and counter-terrorist financing systems.
Global Reach of FATF
In recent years, the number of FATF members has increased from 16 to 39, with over 200 jurisdictions participating in the organization or its regional bodies. Sweden is a member of the FATF but not an FSRB (Financial Sector Regulatory Body), which means it would be assessed by MONEYVAL if it were to join.
The Assessment Process
When a country is assessed, a team of expert volunteers from member countries, accompanied by experts from the FATF or relevant FSRBs, conduct a thorough review of the country’s legislation to see how well it has implemented the FATF recommendations. Each recommendation receives a grade on a four-point scale, with two high grades indicating a pass and two low grades signaling a fail.
The Burden of Assessment
The assessment process is rigorous, requiring countries to submit extensive documentation, including translations of laws, regulations, and strategies. This can be a significant burden for assessed countries, which are assumed to be deficient in their implementation of the recommendations until they prove otherwise.
Consequences of Non-Compliance
Depending on its ratings, a country may enter one of three follow-up processes: regular follow-up, enhanced follow-up, or observation by the FATF’s International Cooperation Review Group (ICRG). The latter is considered the most severe consequence, requiring countries to implement specific reforms within 18 months. Failure to do so can result in measures being taken against the country.
Blacklisting
Countries that refuse to cooperate with the FATF may be placed on its black list, a move that essentially makes it difficult or impossible for them to carry out transactions internationally. Only Iran and North Korea have been placed on this list.
Benefits of Membership
The consequences of not implementing the FATF recommendations are severe, making it a significant motivation for countries to join the organization and undergo assessments. The benefits of membership include:
- Increased international cooperation
- Improved relations with other countries
- Enhanced credibility in the global financial system
Conclusion
In conclusion, the FATF recommendations have become a standard for countries to measure their progress in combating money laundering and terrorist financing. The consequences of not implementing these recommendations are severe, making it a crucial motivation for countries to join the organization and undergo assessments.