FATF plenary June 2023: Greylist additions and upcoming initiatives

The third Financial Action Task Force (FATF) plenary under the two-year Singapore Presidency of T. Raja Kumar took place in Paris on June 21-23, 2023.

Discussions focused on:

• Measures for anti-money laundering and the countering of terrorist financing (AML/CFT) in Luxembourg
• Grey list additions
• Progress in jurisdictions identified as high-risk to the financial system
• Countries’ progress on the FATF’s virtual asset requirements since June 2022
• Work to prevent nonprofits from being abused for terrorist financing

Mutual evaluation report for Luxembourg

Luxembourg’s Mutual Evaluation Report (MER) concluded that the country’s technical compliance with FATF requirements had reached a high level and that its AML/CFT program was delivering good results. The watchdog said the country shows a good understanding of its money laundering and terrorist financing (ML/TF) risks. Given Luxembourg’s role in the regional and international financial sectors, this was noted as especially important.

Luxembourg was found to excel in coordination at both policy and operational levels – especially in the use of financial intelligence, access to information on beneficial ownership, and constructive international cooperation. The FATF recommended that the country focus its improvement efforts on risk-based supervision of the non-financial sector and strengthening the “detection, investigation, and prosecution of more complex ML/TF cases” in alignment with its prominent financial sector role. 

Luxembourg’s MER will be published by September 2023 after completing the internal quality assurance process.

Grey list additions: Cameroon, Croatia, and Vietnam

After FATF regional partners found strategic deficiencies in the countries’ AML/CFT systems, Cameroon, Croatia, and Vietnam have been added to the FATF grey list. All three countries have agreed to implement action plans to address these weaknesses.

Although no countries have been removed from the grey list, the plenary has approved onsite visits to Albania, the Cayman Islands, Jordan, and Panama, who have concluded their respective action plans. During the visits, Kumar explained, a team of experts will “verify the progress each country has made.” Based on their findings, the FATF will decide at the October 2023 plenary whether the four countries qualify for removal from the greylist. On behalf of the FATF, Kumar especially commended Panama for its “substantial progress since the greylisting…in June of 2019,” notably mentioning that the country has demonstrated “a robust system to maintain accurate, up-to-date beneficial owner information and timely access by competent authorities.”

No changes to the FATF black list were announced. Iran, North Korea, and Myanmar are the remaining three countries on the list.

Strategic initiatives

Improve the implementation of FATF requirements in the virtual asset sector 

Kumar noted that implementation of the FATF’s virtual assets sector requirements has been slow. The watchdog has approved a report examining the sector’s implementation progress to address the significant risks created by a lack of necessary regulation. 

The travel rule, which requires virtual asset service providers (VASPs) to include originator and beneficiary information in virtual asset transactions, has been a particular focus. The rule is intended to prevent the abuse of transactions for money laundering and terrorist financing. Despite its importance in preventing financial crime, Kumar pointed out that more than 50 percent of the countries the FATF surveyed had failed to implement the rule, resulting in loopholes that need to be addressed. 

In response to a question by an ACAMS representative, Kumar elaborated on the importance of increased regulation in the sector – and what the FATF is doing to encourage it:

We see the risks posed by virtual assets continuing to increase. Four years after the FATF strengthened its standards to address virtual assets and virtual asset service providers, the global implementation remains relatively poor. Based on our FATF Mutual Evaluation and follow-up reports, almost three quarters of jurisdictions are only partially or not compliant with the FATF’s requirements. …This lack of regulation creates significant loopholes for criminals to exploit…Closing the gaps in global regulation of virtual assets is an urgent priority. And so we are calling on countries to apply the AML/CFT rules to virtual assets without further delay. …We are also working with a global network in the private sector on this front to monitor the risk, share approaches, and also identify challenges. 

T. Raja Kumar, FATF President 

Kumar also noted that the plenary had previously agreed on a roadmap for improving virtual asset regulation. In support of this initiative, in early 2024, the FATF plans to publicly identify which jurisdictions have or have not implemented regulations in the sector, including publishing a table detailing steps taken by key member jurisdictions.

Revisions of FATF guidance on managing nonprofit sector TF risks

Kumar highlighted during the plenary press conference that the FATF has been focused on dealing with unintentional consequences of jurisdictions’ implementations of its standards since 2021. In particular, the watchdog is now working to update its guidance on preventing terrorist financing through the nonprofit sector. The FATF is opening a revision of its related best practices paper to public consultation and opening its eighth recommendation to possible revisions. These updates would serve to avoid the disruption of legitimate nonprofit activity while continuing to protect the sector from TF abuse.

When asked to expound on the FATF’s work in this area, Kumar stated, “This regime is in place not to suppress [the nonprofit sector’s] legitimate and much-needed activities. …Revisions are being made to provide greater clarity and…guidance to avoid the incorrect application of the FATF standards.”

Key takeaways

Compliance staff should ensure they are familiar with the outcomes of the June plenary – particularly relating to any upcoming MERs in countries they operate in. Dates related to forthcoming guidance issued by the FATF should also be noted. Such guidance will help shape and inform national bodies’ future regulatory approaches. 

The next FATF plenary is due to take place in October 2023.  

Previous plenary coverage from ComplyAdvantage can be found here:

• FATF Plenary February 2023
• FATF Plenary October 2022
• FATF Plenary June 2022
• FATF Plenary March 2022
• FATF Plenary October 2021
• FATF Plenary June 2021