Global safeguards to combat money laundering and terrorist financing (AML/CFT) are only as strong as the country with the weakest measures. Criminals can circumvent weak AML/CFT controls to successfully launder money or to move assets to finance terrorism through the financial system. A key objective of the FATF is to identify countries with significant weaknesses in their AML/CFT system, and to work with them to address these weaknesses. The FATF’s process helps protect the integrity of the international financial system by issuing a public warning about the risks emanating from the identified countries. These public warnings also put pressure on the countries in question to address these deficiencies in order to maintain their position in the global economy. Public identification, and the prospect of public identification, encourages countries to swiftly make significant improvements.
As of October 2016, the FATF’s International Co-operation Review Group (ICRG) process has reviewed over 80 countries and publicly identified 59 of them. Of these 59, 49 have since made the necessary reforms to address their AML/CFT weaknesses and have been removed from the process.
The FATF continues identifying and reviewing potentially higher-risk countries in this process and closely monitors the progress by countries already identified. The FATF has updated its procedures to take into account the revised FATF Recommendations of 2012 and subsequent mutual evaluation cycle.
The basis for the review process is information on threats, vulnerabilities, or particular risks arising from the country. This information can come from mutual evaluation reports, from members, or from the fact that the country is not participating in the work of any of the FATF-Style Regional Bodies and consequently not committing to implementing the FATF standards.
During the review process, the FATF determines for each country its most serious AML/CFT weaknesses and potential loopholes, or ‘strategic AML/CFT deficiencies’ and develops an action plan with the country to address these deficiencies. The FATF also requests a high-level political commitment that the country will implement the legal, regulatory, and operational reforms required by the action plan. Four regional review groups carry out the review, covering Africa/Middle East, the Americas, Asia/Pacific, and Europe/Eurasia. Each jurisdiction under review has the opportunity to participate in a face-to-face meeting to discuss the findings with the review group.
On the basis of the results of its reviews, the FATF publishes two statements at the end of each Plenary meeting, in February, June and October. These statements provide a short summary of the specific risks emanating from each country, as well as any measures that countries should take. The two statements reflect the seriousness of the risks posed by the country.
FATF calls on its members, and non-members, to take action that is commensurate with the risk these countries pose to the international financial system. FATF provides instructions and examples of what these measures could be (Recommendation 10 and 19), but it is the responsibility of each country to define the enhanced due diligence measures and counter-measures, in line with the FATF Standards. For example, business relationships with countries subject to enhanced due diligence measures will see an increase in the degree and nature of monitoring. Countries for which counter-measures apply could be subject to a range of measures, from further enhanced due diligence and reporting measures to a limitation or prohibition of financial transactions with that country.
A country must first substantially address all the components of this action plan at the technical level. Once this has been established, the FATF will organise an on-site visit to confirm if implementation of the necessary legal, regulatory and/or operational reforms is underway and there is political commitment to continue improving the AML/CFT regime. If this on-site visit has a positive outcome, the FATF will consider removing the country from public identification at the next FATF plenary.