A United Front: Boosting Economic Growth Through Strong Global Defences Against Financial Crime

In the increasingly globalised world we live in, no financial centre can succeed in a vacuum. With the OECD predicting that global trade in goods and services will rise 3.3 per cent this year, it is vital that we can all have confidence in funds flowing in and out of our economies.

That is why the Financial Action Task Force (FATF) sets international standards that are a global benchmark for preventing, detecting, investigating, and prosecuting financial crimes – in particular money laundering, and the financing of terrorism and the proliferation of weapons of mass destruction.

Not only is this the right thing to do, but it also makes economic sense. A 2023 IMF review[1] underscored the macroeconomic impact of money laundering and terrorist financing, noting that dirty money flows are a “barrier to sustainable and inclusive economic growth, benefitting narrow elites, widening inequality, promoting informality, and undermining social cohesion and trust in governments”.

With the FATF Standards now endorsed by nearly every country in the world – more than 200 jurisdictions compose the FATF Global Network – the effects of our work are far-reaching.

Indeed, countries face tangible consequences for failing to implement FATF Recommendations. The 200+ jurisdictions are regularly reviewed, by either the FATF or one of the nine FATF-style regional bodies that compose the FATF Global Network, to assess their effectiveness in protecting their financial systems from illicit flows.

Based on these assessments, countries may find themselves on the FATF’s ‘grey list’ for jurisdictions with strategic deficiencies, or its ‘black list’ for those with particularly severe shortcomings.

The grey-listing process is not a punitive measure. Instead, it is about working with the country to strengthen its legal framework and streamline its effective implementation.

This contributes to boosting the country’s economy by improving their capacity to prevent and detect illicit flows, and, in turn, protects their financial sector and the stability of their economy, and attracts investment. By stemming the flows of crime, terrorism, and corruption, we can stop resources from being diverted away from essential services like schools, hospitals, and sustainable development.

So, if a country finds itself on the grey list, the FATF and the respective FATF-style regional body will work with the jurisdiction to develop an action plan to close the loopholes that are allowing illegal financial flows to thrive.

A More Risk-focused Approach: Important Changes To The FATF Grey-listing Process

In the interests of the global economy, it is important that this process does not disproportionately stymie the development of lower-capacity jurisdictions.

We know that these countries may struggle more with implementing FATF Recommendations, with over a third of the UN’s least developed countries having appeared on the ‘grey list’.

That is why we have shifted to a more risk-based approach.

As of June 2024, the FATF’s listing criteria now prioritises higher-income countries and those with large financial sectors, in recognition of the fact that such failings pose a greater net risk to the international financial system.

As a general rule, least developed countries[2] could have more time to address deficiencies before being listed, and those with limited financial sectors will no longer be automatically listed after one year, but will be subject to ongoing follow-up processes.

The FATF anticipates that these reforms could lead to nearly half as many low-capacity countries being listed in the upcoming evaluation cycle.

Supporting Inclusive Sustainable Economic Development

One of the FATF’s strengths is its cooperative and peer-led approach – countries on the ‘grey list’ are assessed by and collaborate closely with expert authorities from around the world.

These experts offer guidance on where the country should focus its limited resources to make the most significant impact in closing the gaps. The shared goal is to address these strategic deficiencies and consequently remove the country from the grey list.

This cooperative process can yield substantial benefits. Countries exit the list better able to combat tax evasion, corruption, and organised crime, which contributes to the wellbeing of its people. This also frees up resources for essential infrastructure, and makes the country more attractive for public and private investment.

In just a few years, countries can move from having fundamental weaknesses in their systems to having in place measures that are in line with, or even exceeding, global good practices.

Indeed, 29 countries have been removed from the grey list in the past five years. That has included major financial centres lifting the lid on hiding places for financial crime, stepping up investigations of complex, cross-border money laundering cases, putting criminals behind bars, and demonstrating the political will to uphold these stronger systems into the future.

A Global Solution For A Global Problem

Many countries that successfully exit the grey list go on to provide expertise to other listed countries, sharing the knowledge and experience they gained throughout the process.

At the latest FATF Plenary in October, I was pleased to invite the Cayman Islands and Senegal to the table under a ‘guest initiative’, aimed at sharing insights on tackling financial crime and encouraging tough action in their respective regions.

Illicit finance erodes the integrity and stability of the international financial system so countries working together in this way is key. With an estimated $2 trillion in illicit funds flowing through the global financial system last year, the world’s armory is only as strong as our weakest member.

As FATF president, I am determined to increase global representation in the FATF processes by strengthening the role of our partners that enforce FATF Standards among the FATF’s Global Network.

Financial Inclusion For All

Another priority of my presidency is to ensure that vulnerable people are not pushed towards cash and unregulated channels that are outside of our line of sight. We need to combat ‘gold-plating’, where countries and institutions impose overly stringent requirements regardless of the actual risk.

That’s why we have recently been seeking views on proposed revisions to Recommendation 1 of the FATF’s Standards on assessing risk and applying a risk-based approach.

The revisions aim to encourage countries to allow simplified measures where they assess risks to be lower. We want to hear from as many voices as possible on the proposed changes to ensure the revisions are fit for purpose, and I hope we will be able to finalise these revisions and guidance to support this work this year.

In October 2024, the FATF also adopted new guidance on national risk assessments, which will give countries the tools to assess the money laundering and terrorist financing risks they face. Crucially, this incorporates the private sector and civil society, as we need to have a full picture of the risks, while also creating breathing space for Non-Profit Organisations to do their jobs, following up on the work on unintended consequences of the FATF Standards that the FATF has carried out in recent years.

By encouraging simplified and less burdensome measures in low-risk scenarios, the FATF hopes to make financial services more accessible, particularly for marginalised and under-served populations, while keeping them safe.

For all of us to prosper safely, this work is vital, and I hope it will lead to a healthier and more stable international financial system.

As the FATF embarks on its next round of assessments, our recent reforms should send a clear signal to criminals that the world is a united front and that there is nowhere to hide.  

We must all work together. The strength and resilience of all global economies depends on this.

[1] ‘2023 Review of The Fund’s Anti-Money Laundering and Combating The Financing of Terrorism Strategy’, International Monetary Fund, 5 December 2023

[2] Least Developed Countries (LDCs) | Department of Economic and Social Affairs, United Nations

Elisa de Anda Madrazo
Elisa de Anda Madrazo of Mexico began her two-year term as President of the Financial Action Task Force (FATF) on 1 July 2024. She succeeded Mr. T. Raja Kumar of Singapore. Ms. De Anda has over a decade of experience in leadership positions in the anti-money laundering (AML) and countering the financing of terrorism (CFT) sector. Within the FATF, Ms. De Anda has been extensively involved in substantive work and has held most leadership positions, which grants her a deep knowledge of the FATF. Until June 2023, she held the position of Vice-President for three years. Previously she served as head of the Mexican delegation and co-led Mexico’s efforts for its Mutual Evaluation in 2016-2017. She was also Co-Chair of the Global Network and Co-ordination Group, which oversees the collaboration with and within the nine FATF-Style Regional Bodies, as well as with the observers of the FATF. Additionally, she has been a member of the Steering Group and chaired the Contact Group on Malaysia’s Membership Process.