AML and KYC sticker on a whiteboard

FATF task force doubles down on anti-money laundering oversight

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The Financial Action Task Force (FATF) is preparing to conduct annual checks to ensure countries are enforcing anti-money laundering and terrorist financing rules in relation to digital assets.

According to an Al Jazeera report, the task force’s move is a significant ramping up of its checks, which previously ran on a 10-year cycle of mutual evaluations, but will now require countries covered by the FATF to show annually that they are in compliance with the Anti-Money Laundering (AML) guidelines, or risk being added to a ‘grey list‘ of countries “under increased monitoring.”

The reduction from a 10-year cycle to an annual review will give non-compliant countries far less time to put into practice the standards set by the FATF and increase their risk of dropping into the ever-expanding ‘grey list,’ which already includes 23 countries, including the Philippines, Haiti, and the United Arab Emirates.

FATF is an intergovernmental organization of 37 jurisdictions, set up in 1989 by the G7 to develop anti-money laundering policies and monitor their implementation, expanding its mandate in 2001 to include terrorism financing.

Should a country under observation fall even further foul of FATF standards, it can move beyond the organization’s ‘grey list’ of increased monitoring to the ‘black list,’ signifying “significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation.”

In October, Myanmar became the latest country to be blacklisted and receive the questionable honor of joining North Korea and Iran in the high-risk category.

Being on the black list is not fatal but does mean enhanced due diligence from global financial institutions and increased Know Your Client (KYC) checks, as well as a bad reputation amongst international investors.

This apparent escalation from the FATF has caused some consternation within the digital asset community.

Ron Tucker, co-founder of the International Digital Asset Exchange Association (IDAXA), expressing his concerns to Al Jareeza on Tuesday said, “There is a real risk this will lead countries to unbank crypto exchanges, which will affect the end user—this is serious.”

However, stricter regulation will not be met with universal skepticism from within the industry. Some welcome tighter controls and checks to weed out the bad faith actors and methodologies that tarnish digital assets’ reputation.

As Erik Gibbs explained for Coingeek when the FATF published new regulatory guidelines in 2019: “Contrary to what some may believe, Bitcoin was never meant to operate outside the law. In fact, when Satoshi Nakamoto first conceived it, he explicitly stated that it should be developed to adhere to financial regulations.”

For those that support the FATF’s more proactive approach, there have been recent signs of it bearing fruit.

In October, Japan increased its measures against money laundering using digital assets in response to the FATF’s Travel Rule mandating virtual asset service providers (VASPs) “share relevant originator and beneficiary information alongside virtual asset transactions,” which Japan’s regulators plan to implement.

Despite the FATF not having direct enforcement powers, instead relying on governments to implement its recommendations, being tarred as ‘non-compliant’ and shamed on its grey or black list can cause substantial reputational damage to a country, and risk disrupting investment and access to the global financial system.

With checks becoming more frequent, it will be interesting to see if countries scramble to comply and enforce the guidelines or whether next year’s ‘grey list’ becomes a ‘grey book.’

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