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FATF Grey List

FATF Grey List: Impact and Paths to Exit

In this article, we will explore the implications of being on the FATF grey list, with a specific focus on countries like Turkey and the United Arab Emirates.

What is FATF?

FATF which stands for Financial Action Task Force was established in 1989 to combat money laundering and terrorism financing.   Currently, there are 37 jurisdictions and two regional organizations part of FATF.  

So far we have assisted over 400 companies.

FATF Grey List Membership and Recommendations

It is beneficial for a country to be a member of FATF Grey List since it creates recommendations and it examines the procedures and policies of each member country. Therefore, it can create trust in doing business with those member countries. The purpose of the examination is to see whether recommendations are followed by countries and it is done by other member countries and FATF secretariat.

Currently, FATF has forty recommendations that are not legally binding however, a lot of international bodies have implemented those recommendations.

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FATF Grey List Classification: Blacklist vs. Grey List

After this examination, FATF Grey List categorizes countries in two lists; black list and grey list. Countries with important strategic deficiencies and highly probability of money laundering are put on the blacklist whereas some countries with strategic deficiencies are under grey list, because, unlike countries on the black list, they show commitment to remove those deficiencies and will be under observation until it is done so.

As an example, Turkey and United Arab Emirates are in the grey list. This article’s main focus will be on grey-listed countries and mostly on Turkey and United Arab Emirates.

 


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Consequences for Businesses in Grey-Listed Countries

 There are some consequences of being in the grey list. If we divide the consequences in two categories for businesses, one would be consequences for businesses established in grey listed country and second would be the consequences for businesses established in grey listed countries that also have a branch in other countries. Firstly, having established business in grey listed country may cause problems.

Foreign investors may hesitate to put money into the business because of not knowing of how other investor will react to this situation therefore, investors may defer to having business in the grey listed country due to risks and use resources in another country. It is also difficult for those business to trade with foreign countries due to risk of money laundering. Foreign banks may even reject transaction from listed countries.  

FATF Grey List
FATF Grey List

Migration Consequences for Grey-Listed Businesses

There are also some consequences for migration of the business established in grey listed country. Businesses from grey listed countries may be under deeper evaluation, might be faced to comply with long administrative procedures by financial institutions and in some cases, banks can revoke bank account. Overall, it can be said that being in the grey listed may damage country’s reputation and can cause bad outcome for businesses.

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Paths to Exit the FATF Grey List: Case Studies of UAE and Turkey

While being listed has its effects, how can countries exit grey list? It is possible to exit by tackling deficiencies stated by FATF and both FATF and listed country should agree that action plan has been fulfilled. As an example, United Arab Emirates was categorized in grey countries in 2022 due to weakness in their AML regime. Since then United Arab Emirates has been taking concrete steps to tackle that problem.

FATF will hold a plenary in February 2024. According to news reports because of the changes made by the United Arab Emirates, it is expected to leave off the grey list in the February meeting. On the other hand, according to FATF Report, Turkey has missed all the deadlines to comply however, FATF continues to encourage Turkey to find ways to tackle its problems.

Aysu Cansel Sen

 

References:

  1. https://www.fatf-gafi.org/en/the-fatf/what-we-do.html
  2. https://www.fatf-gafi.org/en/pages/frequently-asked-questions.html – tabs-36503a8663-item-cacccf71cf-tab
  3. https://www.fatf-gafi.org/en/publications/Mutualevaluations/More-about-mutual-evaluations.html
  4. https://dergipark.org.tr/tr/download/article-file/2311199
  5. https://www.fatf-gafi.org/en/publications/Fatfrecommendations/The40recommendationspublishedoctober2004.html -:~:text=Though not a binding international,by implementing the 40 Recommendations.
  6. https://www.whitecase.com/insight-alert/economic-impact-fatf-grey-listing
  7. https://www.pwc.com/ke/en/blog/fatf-grey-list.html
  8. https://www.elibrary.imf.org/view/journals/001/2021/153/article-A001-en.xml
  9. https://www.researchgate.net/publication/331558767_Blacklists_Market_Enforcement_and_the_Global_Reg
    ime_to_Combat_Terrorist_Financing
  10. https://www.u4.no/publications/the-impact-of-grey-listing-by-the-financial-action-task-force-fatf/fullversion
    – other-ramifications
  11. https://www.treasury.gov.za/comm_media/press/2023/2023022501 FATF Grey Listing Fact Sheet.pdf
  12. https://www.dentons.com/en/insights/alerts/2023/august/31/fatf-improves-uaes-rating-uae-makes-
    progress-in-strengthening-measures-to-tackle-money-laundering
  13. https://www.fatf-gafi.org/content/fatf-gafi/en/publications/High-risk-and-other-monitored-
    jurisdictions/Increased-monitoring-october-2023.html
  14. https://www.fatf-gafi.org/en/calendars/events.html
  15. https://www.fatf-gafi.org/content/fatf-gafi/en/publications/High-risk-and-other-monitored-
    jurisdictions/Increased-monitoring-october-2023.html