Between October 25 and October 27, 2023, the Financial Action Task Force (“FATF”), an international policy-making and standard-setting body dedicated to combating money laundering and terrorist financing, held its third plenary meeting of the year (the “October Plenary”), at which it made important updates to its list of jurisdictions under increased monitoring, often externally referred to as the “Grey List,” adding Bulgaria and removing Albania, the Cayman Islands, Jordan, and Panama. These developments are testament to the significant progress the four delisted countries have made in enhancing their anti-money laundering (“AML”), combating the financing of terrorism (“CFT”), and counter proliferation financing frameworks, but point to strategic deficiencies in the current Bulgarian regime. FATF also determined in the October Plenary that no changes to its list of high-risk jurisdictions subject to a call for action, often externally referred to as FATF’s “Black List,” were warranted.[1]

In this post, we identify the specific strategic deficiencies that Albania, the Cayman Islands, Jordan, and Panama successfully remediated and that Bulgaria must now remediate, and we reflect on the many strides forward the United Arab Emirates (“UAE”) has taken in recent times towards its own delisting. We have written several times before on the proactive initiatives the UAE has undertaken to ensure it possesses an effective AML/CFT regime (see here for example), and we believe that the UAE may be poised to follow Albania, the Cayman Islands, Jordan, and Panama off the Grey List soon. Finally, we explore other key takeaways from the October Plenary that may dictate the need for additional reforms of domestic AML/CFT laws in the near future.

FATF and the Operation of its Lists

FATF is widely recognized as the global AML/CFT “watchdog.” It promulgates internationally endorsed AML/CFT standards that are necessary to protect the world’s financial system from misuse by illicit actors. Countries are encouraged to implement into their national legal frameworks FATF’s standards, which in aggregate provide a robust framework of laws, regulations and operational measures to ensure national authorities can take effective action to detect and disrupt the financial flows that fuel crime and terrorism, and to punish those responsible for illegality. FATF’s standards comprise 40 Recommendations and their interpretive notes. FATF monitors countries to ensure they implement FATF’s standards, and conducts in-depth reviews, or “mutual evaluations,” that analyze a country’s implementation and effectiveness of AML/CFT measures. Assessments focus on both technical compliance with the 40 Recommendations and effectiveness. FATF’s assessments emphasize effectiveness, reviewing eleven key areas, or “immediate outcomes,” to determine effectiveness.[2] A country’s mutual evaluation results can result in placement on FATF’s Grey List.[3] FATF publicly identifies jurisdictions placed on or removed from the Grey List (and Black List) at the end of each plenary session, which are held in February, June, and October.

New Greylisting: Bulgaria

While several countries celebrated their well-earned removal from the Grey List at the October Plenary, FATF announced Bulgaria as its latest addition to the Grey List.

This decision requires Bulgaria to strengthen the effectiveness of its AML/CFT framework to align with international best standards and practices. Bulgaria’s action plan necessitates, among other things: ensuring beneficial ownership information is accurate and up-to-date; completing the implementation of the automated system to ensure more automated prioritization of suspicious transaction reports; implementing risk-based supervision for postal money operators, currency exchange providers and real estate agents; guaranteeing that confiscation is pursued as a policy objective; and ensuring the ability to conduct parallel financial investigations in all terrorism investigations.[4]

Delistings: Albania, the Cayman Islands, Jordan, and Panama

In 2019, Panama found itself back on the Grey List (having previously been removed in 2016). In February 2020, FATF added Albania to the Grey List, followed by the Cayman Islands in February 2021 and Jordan in October 2021.

In order to be delisted, Albania, the Cayman Islands, Jordan, and Panama strengthened the effectiveness of their AML/CFT regimes to meet the commitments in their respective action plans. This means the Grey List now comprises only 23 countries, inclusive of Bulgaria.[5]

Could the UAE be Next Off the List?

In April 2020, FATF published the UAE’s Mutual Evaluation Report (“MER”), which followed an on-site visit in July 2019.[6] The MER noted that, notwithstanding the UAE’s strengthened legal framework, “as a major global financial centre and trading hub, [the UAE] must take urgent action to effectively stop the criminal financial flows that it attracts”.[7]

Since then, the UAE has worked diligently to improve its overall AML/CFT compliance. As of July 6, 2023 (the Third Enhanced Follow-Up Report), FATF determined that the UAE was “compliant” with 15 FATF Recommendations, “largely compliant” with another 24, and “partially compliant” with one.[8] This was an improvement across all Recommendation gradings since the previous Follow-Up Report in January 2022.

FATF’s October Plenary announcement recognized that the UAE has made multiple key reforms, including:

1. Improving its understanding of ML/TF risks;
2. Developing a more granular understanding of the risk of abuse of legal persons and implementing risk-based mitigating measures to prevent their abuse;
3. Increasing outbound Mutual Legal Assistance (MLA) requests to facilitate ML/TF investigations;
4. Providing the UAE Finance Intelligence Unit (FIU) with additional resources to increase its capacity to provide financial intelligence to law enforcement authorities and make greater use of financial intelligence, including from foreign counterparts, to pursue high-risk ML threats;
5. Increasing investigations and prosecutions of ML in line with the country’s risk profile; and
6. Ensuring effective implementation of targeted financial sanctions by sanctioning noncompliance among reporting entities and demonstrating a better understanding of sanctions evasion among the private sector.

FATF’s October Plenary announcement noted that FATF has made an initial determination that the UAE has substantially accomplished its action plan and warrants an on-site assessment “to verify that the implementation of AML/CFT reforms has begun and is being sustained, and that the necessary political commitment remains in place to sustain implementation in the future.”

This is important, since greylisting has been shown to negatively impact a country’s economy by restricting cross-border transactions, limiting foreign investment, reducing market liquidity, creating difficulties obtaining credit, and/or increasing government borrowing.

Additional Considerations

Aside from the decisions made with respect to the Grey List, FATF announced[9] several new strategic initiatives in the October Plenary of which countries should be aware. Those new strategic initiatives include:

• Improving asset recovery – promoting policies and actions that will ensure that asset recovery is a key pillar of every country’s approach to tackling ML and TF and denying criminals the ability to enjoy their ill-gotten gains[10];
• Detecting terrorist financing through crowdfunding – including crowdfunding in national terrorist financing risk assessments and promoting awareness in the crowdfunding sector of the methods by which terrorists such as the Islamic State of Iraq and the Levant (ISIL) and Al-Qaeda have exploited fundraising platforms and related activities on social media to seek funding from a global audience[11];
• Preventing cyber-enabled fraud – promoting awareness of emergent risk indicators and anti-fraud requirements and controls to enable public and private sector entities to better detect and prevent cyber-enabled fraud and related money laundering, crimes that have grown exponentially in recent years and which, owing to their transnational nature, are a truly global concern;
• Requiring due diligence for jurisdictions that offer citizenship and residency by investment programs – incorporating risk mitigation measures such as multi-layered due diligence into the design of investment migration programs to prevent criminals and corrupt officials from evading justice elsewhere and laundering the proceeds of crime[12]; and
• Increasing beneficial ownership transparency – closing loopholes and regulatory weaknesses that allow shell companies or other legal persons and arrangements such as trusts to be used as a cover for criminal activity.

The authors thank Molly McKenna for her contributions to this article.

[1] Iran, Myanmar, and North Korea are currently on the Black List. “For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases, countries are called upon to apply countermeasures to protect the international financial system from the ongoing money laundering, terrorist financing, and proliferation financing risks emanating from the country.” FATF, Black and Grey Lists, https://www.fatf-gafi.org/en/countries/black-and-grey-lists.html.

[2] FATF, Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems, https://www.fatf-gafi.org/en/publications/Mutualevaluations/Fatf-methodology.html.

[3] FATF, High-risk and other monitored jurisdictions, https://www.fatf-gafi.org/content/fatf-gafi/en/publications/High-risk-and-other-monitored-jurisdictions/More-on-high-risk-and-non-cooperative-jurisdictions.html.

[4] FATF, Jurisdictions under Increased Monitoring (October 27, 2023), https://www.fatf-gafi.org/en/publications/High-risk-and-other-monitored-jurisdictions/Increased-monitoring-october-2023.html.

[5] FATF, Black and Grey Lists, https://www.fatf-gafi.org/en/countries/black-and-grey-lists.html.

[6] FATF, Anti-money laundering and counter-terrorist financing measures, United Arab Emirates, Mutual Evaluation Report (April 2020), Mutual-Evaluation-Report-United-Arab-Emirates-2020.pdf .

[7] FATF, United Arab Emirates Mutual Evaluation Report (April 2020), United Arab Emirates’ measures to combat money laundering and terrorist financing .

[8] FATF, The United Arab Emirates’ Progress in Strengthening Measures to Tackle Money Laundering and Terrorist Financing, The United Arab Emirates’ progress in strengthening measures to tackle money laundering and terrorist financing .

[9] FATF, Outcomes FATF Plenary, 25-27 October 2023, https://www.fatf-gafi.org/en/publications/Fatfgeneral/outcomes-fatf-plenary-october-2023.html.

[10] In November 2023, FATF published amendments to the FATF Recommendations “which will provide law enforcement, financial intelligence units, prosecutors, other asset recovery practitioners and competent authorities with a more robust toolkit to target and confiscate criminal assets.” FATF, Amendments to the FATF Standards to Strengthen Global Asset Recovery, https://www.fatf-gafi.org/en/publications/Fatfrecommendations/amendment-FATF-standards-global-asset-recovery.html. It also published a report on asset recovery inter-agency networks. FATF, Recovering International Proceeds of Crime through Inter-Agency Networks, https://www.fatf-gafi.org/en/publications/Methodsandtrends/recovering-international-proceeds-crime-inter-agency-networks.html.

[11] Following the October Plenary, FATF published a report analyzing crowdfunding for terrorism funding. FATF, Crowdfunding for Terrorism.  https://www.fatf-gafi.org/en/publications/Methodsandtrends/crowdfunding-for-terrorism-financing.html.

[12] In November 2023, FATF published a report on the misuse of citizenship and residency by investment programs. FATF, Misuse of Citizenship and Residency by Investment Programmes, https://www.fatf-gafi.org/en/publications/Methodsandtrends/misuse-CBI-RBI-programmes.html.