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The Financial Action Task Force (FATF) has announced significant changes to its criteria for greylisting countries, shifting its focus towards nations that pose greater risks to the global financial system while providing relief to the least developed countries (LDCs).

The new greylisting  are intended to better target countries that present the highest risks to the global financial system while extending more support to low-capacity countries.

FATF's greylist identifies countries with strategic shortcomings in their systems for combating money laundering, terrorist financing and proliferation financing. 

“The FATF, together with the relevant FATF-style Regional Body, if applicable, works with these countries via a peer-led process to close the loopholes that allow illegal financial flows, which in turn fuel life-destroying crimes, including abhorrent acts like human trafficking or child sexual exploitation, as well as acts of terror which by nature are meant to cause death and suffering,” FATF said in a press statement.

Despite the laudable aims, FATF has courted controversy in recent years for the fact that the states that languish longest on its greylist are often poorer countries. 

The impact of greylisting

Membership of the greylist can result in a negative impact that goes beyond bad press coverage and embarrassed government departments. 

Greylisting does not trigger any international sanctions, unlike blacklisting, which is reserved only for Iran and North Korea currently. 

However, it can be perceived by other countries and jurisdictions as indicative of high financial crime risks and trigger economic consequences.

It can also affect the greylisted country’s financial sector and result in a decrease in international financial assistance and aid due to de-risking.

This has a detrimental effect on lower income countries that rely on overseas development assistance and foreign aid the most.

������ published in 2021 analysed the monthly numbers of cross-border payments between customers in every country connected to the Swift network between 2004 and 2014 and linked these numbers with data on the timing of greylisting.

It found that being added to the greylist results in a 7-10 percent reduction in the number of payments sent to an affected country by the rest of the world, although it also found that greylisting has no consistent effect on the number of payments sent from an affected country.