Assessing Country Compliance: The FATF Process
Overview of the Financial Action Task Force (FATF)
The FATF is an inter-governmental organization that sets international standards for combating money laundering and terrorist financing. It evaluates countries’ compliance with its recommendations to ensure they have adequate measures in place to prevent and detect financial crimes.
The Assessment Process
Technical Review
Countries submit documents demonstrating their technical compliance with the FATF recommendations, which are then assessed on a four-point scale:
- Pass: Two high grades indicate successful implementation of the FATF recommendations.
- Fail: Two low grades indicate failure to implement the recommendations.
On-Site Visit
A team of experts conducts an on-site visit to examine the effectiveness of a country’s system in combating money laundering and terrorist financing. This visit assesses eleven outcomes specified by the FATF, graded on a four-point scale.
Effectiveness Outcomes
The on-site visit evaluates the following outcomes:
- Pass: Two high grades indicate successful implementation of the FATF recommendations.
- Fail: Two low grades indicate failure to implement the recommendations.
Follow-Up Processes
Countries receive one of three follow-up processes based on their ratings:
Regular Follow-Up
For countries that have successfully implemented most of the FATF recommendations and received high effectiveness ratings.
Enhanced Follow-Up
For countries with technical or effectiveness deficiencies, requiring specific reforms.
Observation by the International Cooperation Review Group (ICRG)
For countries receiving poor ratings, requiring specific reforms within 18 months.
Grey Listing
Countries making a high-level political commitment to cooperate with the FATF and implement required reforms are placed on the grey list. This designation allows them to continue operating internationally while implementing necessary reforms.
Black Listing
Countries refusing to make such a commitment or cooperate with the FATF are placed on the black list, making it difficult or impossible to carry out transactions with them.
Exceptions
Notable exceptions include:
- Iran’s temporary removal from the blacklist under the nuclear deal (JCPOA)
- North Korea having an action plan but showing minimal interest in reforms