Are you concerned about the FATF Blacklist? Doing business with individuals or companies based in countries on the FATF blacklist can be risky. To reduce that risk, it is important to adhere to Know Your Customer (KYC), Anti-Money Laundering (AML), and Counter Terrorism Financing (CTF) obligations. In this article, we will look at what are these obligations and why do you need to adhere to them.
The Financial Action Task Force (FATF) is an intergovernmental organisation that develops policies for fighting terrorism financing, money laundering, and proliferation financing for weapons of mass destruction.
Founded at 1989's G7 Summit in Paris, FATF has grown from 16 members to 39 members.
Nowadays, members include 37jurisdictions from global financial centres such as the United Kingdom, the United States,Singapore, Japan, China, and Germany. There are also 2 regional organisations:the European Commission and the Gulf Cooperation Council. Alongside these full members, there is an observer, associate members, and observer organisations.
FATF is an organisation that set standards and promote effective implementation of legal, regulatory, and operational measures. FATF focuses on four main objectives.
First, they set global standards for combatting money laundering, terrorism financing, and other threats to the global financial system. Second, they promote the implementation of those global standards through legal and regulatory measures.
Third, they monitor countries to determine which ones comply with FATF standards and which ones don't. Those that do not will end up on blacklists and greylists (more information provided below).
Fourth, they conduct research on money laundering, terrorist financing, proliferation financing, and emerging threats. This helps FATF to better understand the nature of these threats and to develop effective countermeasures.
To achieve its objectives, FATF has a comprehensive list of recommendations. These range from setting up financial intelligence units within countries to cooperating with other members in order to prosecute fraud.
The FATF blacklist is officially known as the High-Risk Jurisdictions subject to a Call for Action. It is a list of "Non-Cooperative Countries and Territories" (NCCTs) that FATF views as deficient in their AML and CTF obligations.
Through the creation of this list, the FATF aims to pressure these NCCTs into improving their regulatory regimes. It does this through economic sanctions, boycotts, and other measures.
The FATF Blacklist gets updated on an annual or bi-annual basis. If countries improve their AML and CTF obligations, then they are removed from the list. If they do not, they are kept or added.
January 2022's FATF blacklist includes the following two countries:
• North Korea
The FATF greylist is officially known as the Jurisdictions Under Increased Monitoring. It is a less stringent version of the FATF blacklist.
The greylist is also made up of jurisdictions with a high risk of money laundering and terrorism financing. However, these jurisdictions have made a formal pledge to improve their AML and CTF obligations. Often, this is through an action plan aligned with FATF goals.
The FATF closely monitors the greylist countries to determine their progress. Those countries that improve their obligations are removed from the list. Those that don't are kept.
While on the FATF greylist, countries can face economic sanctions, loan problems, and trade reductions.
The March 2022 greylist includes the following 23 countries:
• Burkina Faso
• Cayman Islands
• South Sudan
• United Arab Emirates
When doing business with companies based in blacklist or greylist regions, it's essential to make sure you're complying with KYC regulations alongside AML and CTF regulations.
Three of the most effective ways to do that are PEP/sanction checks, adverse media checks, and ID verifications.
PEP checks assess the risk level of Politically Exposed Persons (PEPs). A PEP is someone who holds a prominent position within a government or international organisation. This can mean government executives, senior politicians, high-ranking military officers, and more.
PEPs usually have major influence over budgets and grants, so they are considered to be more susceptible to bribery, corruption, and fraud. If you are working with PEPs, it's important to determine your risk level before taking them onboard.
Sanction checks make sure you comply with any sanctions that may be placed on individuals, companies, or countries. If you fail to do so and it leads to dealing with sanctioned entities, then you may be liable to criminal penalties.
Adverse media checks look through traditional (newspapers, TV) and non-traditional (social media, blogs)sources of media to determine how much negative information is out there about a particular person, company, or country.
Doing business with entities that have a significant number of adverse media can lead to risks that you will want to know about and manage beforehand.
ID verification helps you comply with KYC, AML, and CTF regulations. It also reduces your risk of being a victim of fraud and corruption.
ID verification involves is a crucial step in onboarding a new customer. The IDV (Identity Verification) process verify both the customers and their documents. Customer verification can come through a facial recognition software and document verification can come through a multi-source checking process.
All these steps aim at keeping you in compliance with required regulations and providing you with tools to manage your risk profile.
Dealing with individuals, companies, and countries on the FATF blacklist can increase your risk of violating KYC, AML, and CTF regulations. Violating those regulations can potentially lead to criminal offences.
To avoid the negative effects of both, it is essential to perform customer due diligence and comply with all required obligations. Although it is possible to do it yourself, it is advisable to hire a professional service provider with years of expertise.
Since 2008, MemberCheck has been providing professional services for organisations to meet their anti-money laundering and counter terrorism financing obligations.
They do this through PEP/sanction checks, adverse media checks, ID verification, and professional consulting services. Request a demo today to see if it is right solution for your organisation.