The Financial Action Task Force (FATF) is the global intergovernmental standard-setting body for anti-money laundering and the combating of terrorist and proliferation financing (AML/CFT/CPF). More than 200 jurisdictions globally are committed to complying with its standards. They are subject to peer-based evaluation of the quality of their compliance and to black- and grey-listing, with accompanying negative economic impact, when their systems are found wanting. This has placed considerable burden on smaller, less-developed, countries. The FATF reformed its greylisting processes in 2024 to provide some protection for smaller economies in the fifth round of mutual evaluations, with increased focus on larger economies.
This chapter considers the time and attention that the FATF has focused to date on smaller economies compared to larger economies and whether there is evidence of positive crime-combating and governance benefits resulting from the attention. Applying a FATF Activity Score, it finds that the FATF has focused extensively on lower-middle income countries while devoting the least time to the rich countries that generally hold and process the largest share of global illicit funds. The chapter also considers whether there are correlations between the FATF’s activity and focus and higher governance and crime-combating levels in a country. The study finds little correlation between FATF-related activities aimed at raising country compliance levels, the country’s FATF effectiveness scores, and positive governance and crime prevention outcomes of the country. The FATF activity and pressure to date has resulted mostly in higher levels of technical compliance with the FATF standards. This is out of proportion with other key indicators and development factors for smaller economies, resulting in a ‘rhino horn’ effect in spider diagrams of key indicators, with high technical compliance levels that are not proportionately reflected by achievements in the related indicators.
The lack of impact may be due to incorrect assumptions that compliance with the FATF standards would lead to such positive outcomes. Poor implementation of laws and structures could, however, explain in part the lack of clear correlation with positive governance and crime prevention outcomes. Unfortunately, effective implementation may not improve for low-income countries during the new round of mutual evaluations. Lack of resources and capacity is often a key constraint in these economies and this is unlikely to change. A greater focus on effective implementation of the FATF standards by richer economies in FATF’s fifth round of mutual evaluations commencing in 2025 may in fact deliver better overall governance and crime prevention outcomes. Political will is, however, a key constraint in these economies, and this constraint may become more challenging in the current period of geopolitical fragmentation and repositioning.
