FATF Black List and Gray List

The Financial Action Task Force (FATF) is an intergovernmental body that monitors trends of financial crimes such as Terrorist Financing (TF) and Money Laundering (ML) globally. The watchdog collaborates with its member countries and regional entities to develop a legal and operational framework on how to combat the threats of financial crime.  The FATF maintains black list and a gray list as a part of its efforts to deter ML and TF. Financial institutions must be aware of the regulatory risk linked to countries that do not comply with FATF regulations.

The FATF’s effort to publicly list jurisdictions with weak Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT) regimes has proved to be effective. As of June 2023, the financial watchdog has reviewed more than 125 countries and publicly detected 98 of them. Among the 98 identified, 72 have taken essential steps to address shortcomings in their AML and CFT measures and are removed from the FATF lists. 

What is the FATF Black List?

The FATF black list also called as “High-Risk Jurisdictions subject to a Call for Action.” This statement, known as “Public Statement,” detects jurisdictions with significant loopholes to combat terrorist financing, money laundering, and financing of proliferation. The FATF mandates all members and jurisdictions to conduct Enhanced Due Diligence (EDD) in countries identified as high-risk. Countries must implement counter measures to secure the integrity of global financial system from the risks of terrorist financing, proliferation financing, and money laundering.

As of June 2023, countries falling under FATF black list include:

1. Iran
2. Myanmar
3. Democratic People’s Republic of Korea

What is the FATF Gray List?

The FATF gray list is also known as “Jurisdictions under Increased Monitoring.” This statement identifies jurisdictions that are actively collaborating with the Financial Action Task Force to address deficiencies in their measures to counter terrorist financing, money laundering, and proliferation financing. Whenever the FATF places any country on the gray list, it means the jurisdiction is dedicated to resolving the identified deficiencies swiftly within the agreed duration and is a subject of increased monitoring. 

As of June 2023, the FATF gray list countries include, 

1. Albania
2. Burkina Faso
3. Barbados
4. Cayman Islands
5. Cameroon
6. Croatia
7. Democratic Republic of Congo
8. Haiti
9. Gibraltar
10. Jordan
11. Jamaica
12. Mali
13. Nigeria
14. Mozambique
15. Panama
16. Senegal
17. Philippines
18. South Africa
19. Syria
20. South Sudan
21. Tanzania
22. United Arab Emirates
23. Turkey
24. Vietnam
25. Uganda
26. Yemen

FATF Black List, Gray List, and AML Compliance

The lists maintained by FATF serve as a great resource for compliance teams. Firms must screen their new and existing customers against black and gray lists and should apply a Risk-Based Approach (RBA) when dealing with entities or individuals of these jurisdictions. It is worth noting that the FTF lists change with time as some countries are removed and some are added to them based on FATF assessments. The regulatory authority publishes two public documents thrice a year, one for each list.

Screening

Businesses are required to screen their clients against FATF black list and gray list to ensure compliance with AML regulations. Firms should screen business partners during onboarding or at any time to check that they do not appear on any of the FATF lists. Adhering to the FATF recommendations and ensuring an effective compliance program includes a watchlist and sanctions screening of the corporations your business is entering into a relationship with. 

Customer Due Diligence (CDD)

Having robust customer due diligence processes is essential for businesses to precisely authenticate jurisdictions where the partners are operating. Conducting CDD is a must for firms because, in the case of working in black list or gray list jurisdictions, businesses are required to perform enhanced due diligence to mitigate the risk of financial crimes.  

Transaction Monitoring

After performing screening and due diligence procedures to identify existing and new clients on the FATF black or gray list comes the step of transaction monitoring. The transactions conducted by such entities must be properly monitored by deploying an AML screening program. The program monitors transactions in real-time to identify and report any unusual transactions to the relevant bodies before they wreak havoc on businesses and customers.

Automated Solutions to Screen Against FATF Black List and Gray List

FATF black list and gray list obligations require businesses to handle piles of data to facilitate assessing the risk that entities may pose and to manage efficient  AML and CFT responses. Robust screening solutions check entities against those lists with greater speed and efficiency while reducing human error. Artificial intelligence algorithms enhance the screening capabilities of the automated solution and help firms reduce the risk of being involved in money laundering and other types of financial crimes.