Last week the FATF met for its regular plenary meeting and – as it does three times a year – updated its list of what I call “dodgy countries”, which are more correctly known as “jurisdictions under increased monitoring”. In the interests of frankness, I should explain that I call lots of jurisdictions dodgy – they get the label if they have high levels of corruption or money laundering or terrorist financing, or if their pursuit of money laundering is lukewarm, or if (as is the case with the FATF list) they have an AML/CFT regime that is not yet up to snuff. Quite rightly – given the independence and staying power of the FATF – its list is highly regarded, and this time round they suggested that Burkina Faso, the Cayman Islands, Morocco and Senegal could bear closer monitoring of their AML/CFT regimes. But does it matter? After all, the FATF has no legal or regulatory powers at its disposal: it can’t fine jurisdictions, or bar them from international business. All it can do is recommend that its members take certain action regarding the listed jurisdictions – and it can’t even compel its members to do that.
Of course, I think that it does matter – and so does the FATF, otherwise it wouldn’t bother. Most jurisdictions – and cascading from them, most regulators and most MLROs – use the FATF list as shorthand: the FATF’s work is so detailed and thorough, with its Forty Recommendations, its technical compliance and effectiveness ratings, and its 330+-page mutual evaluation reports, that it would be foolish not to take its conclusions seriously. And with 32 years of experience, the FATF knows what it’s about – what a good AML/CFT regime looks like and how it works. Yes, there might be some regional favouritism, akin to the block voting in the Eurovision Song Contest (according to Eurovision expert William Lee Adams of Wiwibloggs, Russia can count on its former Soviet nations to such an extent that “it could show up without a song and still make the final”). Yes, you might look at the provenance of some of the evaluators and wonder whether they have their own axe to grind. And yes, it is annoying that the reports are always at least a year out of date by the time they’re published. But could you do any better?
And so the AML world waits on tenterhooks for the thrice-yearly pronouncement. And although those who are listed will froth and bluster and say they’ve been misunderstood or misrepresented, they have to take it on the chin. The local press in the Cayman Islands pinpointed exactly why: “While not as severe as the FATF’s blacklist… being placed on the grey list is still a reputational blow for the Cayman Islands [because the FATF] encourages its members to take the noted deficiencies into account in their risk analysis. Cayman will now have to work on implementing an agreed action plan within the next 15 months under the monitoring of the FATF and the Caribbean FATF.” For the time-poor MLRO (is there any other kind?), the FATF list regularly fills and updates a column in his list of high-risk jurisdictions – and gives him an opportunity to remind staff and directors of the importance of keeping AML efforts current with the correct application of EDD.
Time then I suppose for my perpetual scream of rage about FATF, namely that it mostly measures procedures that are nominally in place (And a little bit of compliance with them) rather than results and as such produces a list that sometimes is sort of well, absurd.
For decades the UK consistently gets good marks from FATF for our AML efforts, and yet somehow over the same period, half of London ended up in the hands of Russian oligarchs or Foreign PEP when it is not owned by trusts out of some sunny tax haven. Oh and the City of London found itself a major hub for money laundering. Worse, for a large part of this time HM Government thought all this “foreign investment” was nothing but positive, encouraged it with golden Visas and nodded it all through (I mean should London’s main local paper be owned by a ex-KGB officer with links back the head of a Country we can at best say is not the UK’s best friend…)
No blacklist for the UK though, as long as we keep filing SARS while starving the economic crime units that would deal with them of the funds to do anything about it. Procedures in place, medals handed out, move on, nothing to see here! And this is before we consider whatever horrible post Brexit plans we have to make ourselves even more “business friendly”.
(As an aside I do wonder if once Brexit hits and we are a Island on our own, FATF will be a bit more robust with us).
I use the UK as a example but it is not just us. By all means highlight countries that don’t even make the efforts to pass the laws required to fight Money Laundering, but there is a big difference between having those laws on the books and actually enforcing them. Actually there is a difference between “going through the motions” and actually taking the issue seriously, and that is the difference found in the UK Government…
I hear your frustration, Robert. As I see it, the FATF reports serve to provide the level of detail that would be all but impossible for the MLRO to source independently. There’s no denying that the effectiveness ratings are an imperfect system, but with worldwide communication so easy now, within minutes of a MER being published people can respond along the lines of your comment – telling how it really is. Yes, it is irritating that governments can take credit for a regime that perhaps is not as good as the report suggests, but isn’t that the way of governments?
And I see that the CIA Handbook still describes the UK, as it has for many years, as a ‘money laundering center’.
J Edgar Hoover and I don’t agree on much, but this is an exception!