Editorial: When the FATF comes calling

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At its 1989 meeting, the G7 Heads of Government established the Financial Action Task Force (FATF), intended to dampen the growing threat posed by money laundering. As a task force, it was intended to be a temporary measure, but like so many initiatives, it acquired a life of its own. Its permanence was guaranteed when, in the aftermath of the horrific attacks in the USA on September 11, 2001, the G8 choose to add terrorist financing to its mandate. Today, the FATF remains the only international body dedicated to this bifurcated role. The FATF expanded over the years, to include additional nations and to create nine regional bodies, composed of associate FATF members, which have become the lifeblood of the task force. In total, over 200 nations are affiliated to the FATF. In April 1990, the FATF issued Forty Recommendations, intended to serve as minimum international standards [1]. These became synonymous with the FATF, later increased by Special Recommendations dealing with the financing of terror. Collectively, they serve as the normative international standards expected of countries when dealing with the scourge of money laundering and terrorist financing [2]. Adherence to the FATF's Recommendations is voluntary, not directory. Nevertheless, to encourage compliance, the FATF adopted a peer review mechanism, akin to that used by the OECD for its Anti-Bribery Convention [3]. Most peer reviews are now conducted under the auspices of a regional body. There are two aspects to a review, technical compliance with the requirements of the Recommendations and an effectiveness assessment. Technical compliance requires that the necessary laws be in place. Effectiveness speaks to these laws having their intended effect, through education, compliance and enforcement. In its early years, the FATF resorted to a "name and shame" policy to force nations into compliance. Originally, this took the form of a list of Non-Cooperative Countries and Territories (NCCTs). At one time or another, this list included Egypt, Israel, Nigeria, Philippines and Russia, among others. Over time, countries fell into line and were removed from the list. It evolved into one composed almost entirely of small island nations. The FATF received withering criticism for what was perceived to be a ganging up against less fortunate nations, thereby placing them at an economic disadvantage to their more advantaged colleagues. In October 2006, all nations were delisted. In place of the NCCT, the FATF now has both a black list of high-risk countries and a grey list of countries that require increased monitoring. Being named and shamed by inclusion on either the grey or black list, is a worst-case scenario for a country, however criticism by the FATF short of shaming can also have considerable impact. Nations, like people, hate being singled out of the pack for criticism. Easier to go with the flow, do what must be done, than suffer the ignominy of criticism which may impact a country in many ways, not the least, economically. The FATF developed a coding system to signify the degree to which a nation adheres to the Recommendations: compliant, largely compliant, partially compliant and not compliant. In early peer reviews, good marks were accorded to countries which created the necessary legal and enforcement frameworks to deal with money laundering and terrorist financing. Today, peer reviews look past the bald statute to ascertain whether the laws are being enforced, is improvement being made and is a country truly committed to dealing with these crimes. The schedule of peer reviews can be maddeningly slow, extending for years between