The Financial Action Task Force (FATF) is an international organisation that sets standards and promotes the effective implementation of measures to combat money laundering, terrorist financing, and other related threats to the integrity of the international financial system.
FATF's Core Mission encompasses three fundamental areas:
- Anti-Money Laundering (AML): Preventing criminals from disguising illegally obtained funds as legitimate income
- Counter-Terrorist Financing (CTF): Blocking financial flows that support terrorist activities and organisations
- Counter-Proliferation Financing (CPF): Preventing the financing of weapons of mass destruction
With its headquarters in Paris and a network spanning over 200 jurisdictions globally, FATF operates through a unique combination of standard-setting, monitoring, and enforcement mechanisms that make it arguably the most influential financial regulatory body worldwide.
They create the rules to keep the bad guys from using our financial systems for their dirty work.
Why Is FATF Important?
Financial crime is a huge problem globally. According to some estimates, money laundering transactions make up roughly
2-5% of the global GDP, which translates to billions of dollars annually. Yikes!
That’s where FATF comes in.
Since its inception, FATF's scope has continuously expanded to address emerging threats. The organisation began primarily focused on money laundering but has systematically broadened its mandate. By setting standards and conducting evaluations, FATF helps countries strengthen their financial systems against abuse.
Historical Evolution Timeline:
- 1989: Founded to combat money laundering
- 2001: Expanded to include terrorist financing following 9/11
- 2012: Added proliferation financing to address WMD threats
- 2025: Enhanced focus on financial inclusion and proportionate risk-based approaches
Examples of FATF’s Work
One of the tools FATF uses is the “
grey list”, a list of countries that have deficiencies in their anti-money laundering (AML) and counter-terrorist financing (CTF) regimes but have committed to addressing them.
Being on this list isn’t great, as it can lead to a lot of pressure on a country's economy.
An example is Pakistan, which was placed on the grey list and faced various economic challenges as a result.
Football, the beautiful game, has not been immune to financial crime. FATF’s guidelines help prevent money laundering in sports, too.
For instance, the case of
money laundering in football clubs highlights how criminals have used club transactions to launder money. Investigations revealed that shady deals in player transfers were used to clean dirty money.
The year 2025 marks a watershed moment for FATF with groundbreaking updates to its standards and guidance. With approximately 1.4 billion people around the world still without a bank account, the amendments aim to better promote financial inclusion through increased focus on proportionality and simplified measures under the risk-based approach.
Key 2025 Updates
Enhanced Risk-Based Approach (RBA): Replacement of the term "commensurate" with "proportionate", defined as a measure or action that appropriately corresponds to the level of identified risk and effectively mitigates the risks, throughout the Recommendations, to provide clarity.
Mandatory Financial Inclusion Considerations: Explicit requirement for countries to allow and encourage simplified measures in lower risk scenarios. This induces clarity in the countries' obligations in enabling simplified measures in their AML/CFT regimes, and further incentivises countries to be more active in advocating their implementation.
Proportionate Supervision Requirements: Financial institutions and supervisors must now consider differentiated measures depending on risk levels, with supervisors required to review risk mitigation measures to avoid overcompliance.
Beyond Banking: FATF's Broader Impact
Sports and Entertainment
Financial crime has infiltrated various sectors, including sports. The case of money laundering in football clubs highlights how criminals have used club transactions to launder money. Investigations revealed that shady deals in player transfers were used to clean dirty money.
Terrorism Financing: A Persistent Threat
A new report by the Financial Action Task Force (FATF) highlights serious and evolving terrorist financing risks and warns of gaps in countries' abilities to fully understand terrorism financing (TF) trends and thus respond effectively.
Critical findings include:
- 69% of jurisdictions show major deficiencies in TF case investigations
- Terrorists demonstrate persistent adaptability in exploiting financial systems
- Need for enhanced risk-based counter-terrorist financing measures
Criticism: The Uncomfortable Truth About AML Impact
Despite FATF's global influence and widespread adoption of its standards, the organisation faces significant criticism from academic researchers and policy experts regarding the actual effectiveness of anti-money laundering measures.
In a 2020 paper, Ronald Pol stated that while the FATF has been very successful in getting its policies adopted worldwide, the actual impact of those policies has been rather small: according to his estimates,
less than 1% of illegal profits are seized, with the costs of implementing the policies being at least one hundred times larger.
Research finds that the anti-money laundering policy intervention has less than 0.1 per cent impact on criminal finances, compliance costs exceed recovered criminal funds more than a hundred times over, and banks, taxpayers and ordinary citizens are penalised more than criminal enterprises.
The cost to banks in the U.S. could be estimated at $26 billion annually, while global compliance costs are estimated in the hundreds of billions.
Not only this: the data are poorly validated, and methodological inconsistencies are rife, so findings cannot be definitive, but there is a huge gap between policy intent and results. Critics argue that industry and policymakers consistently ignore this, instead evaluating the policies based on largely irrelevant success metrics.
Actionable Best Practices for Compliance
For Financial Institutions, here's a quick checklist:
- Embrace Proportionate Risk Assessment
- Implement simplified due diligence for lower-risk customers
- Develop policies supporting underserved populations
- Balance compliance costs with risk levels
- Leverage AI and digital identity verification
- Create streamlined processes for legitimate low-risk customers
- Maintain robust monitoring for higher-risk scenarios
- Regular Policy Updates
- Review and update AML/CFT frameworks to reflect RBA principles
- Engage with supervisory authorities for clarity on expectations
- Assess financial exclusion risks in institutional risk assessments
For Compliance teams:
- Monitor Regulatory Changes
- Stay current with FATF guidance updates and national implementations
- Prepare for enhanced mutual evaluation procedures
- Track grey and black list changes affecting business relationships
- Technology Integration
- Implement regulatory technology solutions for compliance monitoring
- Use AI-powered risk analysis for proportionate responses
- Develop machine-readable rule libraries for efficient policy mapping
- Regular staff training on updated FATF standards
- Focus on the risk-based approach implementation
- Emphasise financial inclusion considerations in compliance decisions
Other Key Players in Financial Crime Compliance
FATF isn’t alone in this battle. There are other important organisations you should know about:
OFAC (Office of Foreign Assets Control)
OFAC, which is a part of the U.S. Department of the Treasury, is responsible for administering and
enforcing economic and trade sanctions based on U.S. foreign policy and national security goals.
They target threats such as terrorism, narcotics trafficking, and the proliferation of weapons of mass destruction. OFAC’s sanctions list is something every financial institution must check to ensure they’re not doing business with bad actors.
OCC (Office of the Comptroller of the Currency)
The OCC is an independent bureau within the U.S. Department of the Treasury. They have the responsibility to charter, regulate, and supervise all national banks and federal savings associations.
They ensure that these institutions operate safely and soundly, provide fair access to financial services, treat customers fairly, and comply with applicable laws and regulations, including those related to financial crime.
BIS (Bureau of Industry and Security)
BIS, part of the U.S. Department of Commerce, controls the export of sensitive goods and technologies to protect U.S. national security and advance foreign policy objectives.
They enforce regulations that prevent the proliferation of weapons of mass destruction, restrict exports to rogue states and terrorist organisations, and ensure compliance with anti-money laundering measures.
How the FATF Affects You
If you’re in the finance world, you’re likely already feeling the impact of FATF’s regulations.
They influence everything from how banks operate to the due diligence processes companies must follow. For finance professionals, understanding FATF guidelines is crucial for compliance and helping your organisation avoid penalties.
Remember, staying informed and compliant not only protects your organisation but also contributes to a safer global financial system.
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Let's keep those bad guys out of our banks!
FAQ
What is AML in financial crime?
AML, or Anti-Money Laundering, refers to the measures, laws, and regulations implemented to prevent criminals from disguising illegally obtained funds as legitimate income. AML procedures involve monitoring financial transactions, reporting suspicious activity, and ensuring compliance with legal standards to combat money laundering, terrorist financing, and other financial crimes. Organisations like the Financial Action Task Force (FATF) set guidelines for AML practices globally, helping to maintain the integrity of financial systems and prevent illicit activities.
How does FATF's 2025 guidance differ from previous standards?
The 2025 guidance represents a fundamental shift toward proportionate, risk-based implementation with explicit requirements for financial inclusion. Key differences include replacing "commensurate" with "proportionate" measures, mandatory simplified due diligence for lower-risk scenarios, and supervisory requirements to prevent overcompliance. This evolution reflects FATF's recognition that effective AML/CFT measures and financial inclusion are mutually supportive rather than competing objectives.
What are the consequences of being on FATF's grey or black lists?
Being on FATF's lists carries significant economic and reputational consequences. Grey-listed countries face increased scrutiny and may experience reduced foreign investment, higher transaction costs, and strained correspondent banking relationships. Black-listed countries face even more severe measures, including mandatory enhanced due diligence and potential countermeasures that can effectively isolate them from the international financial system.