What is the Financial Action Task Force (FATF)?

Key Takeaways:

• The Financial Action Task Force (FATF) is an intergovernmental organization that develops and promotes policies to combat money laundering and terrorist financing. It plays a critical role in creating global guidelines for countries to follow in the fight against financial crimes.
• FATF evaluates countries’ anti-money laundering (AML) and counter-terrorist financing (CFT) measures and provides recommendations for improvement.
• The organization’s policies influence global financial institutions and shape international cooperation against financial crimes, ensuring that countries implement effective measures to curb money laundering and terrorist financing.

 

Money laundering and terrorism are deeply intertwined. Money laundering is the process of disguising illegal funds as legitimate, and when these funds are used to finance terrorism, the consequences can be devastating. Terrorism has caused widespread destruction and loss of life, creating instability and chaos in peaceful nations. The international community has taken a firm stance against terrorism, recognizing its destructive impact.

Money laundering plays a central role in financing terrorism, with the illicit movement of funds crossing borders to fuel criminal activities. Tracking and intercepting these funds becomes even more complex when they are transferred across different countries, which makes international cooperation vital. FATF facilitates this global collaboration, helping nations come together to tackle these critical issues.

In fact, according to the United Nations, an estimated $1.6 trillion is laundered globally each year, equating to 2.7% of the world’s GDP. A significant portion of these funds may be used to support criminal networks, including terrorism.

However, the rise of cryptocurrency and virtual assets presents a new challenge in the fight against money laundering. The anonymity of these digital assets makes it harder to trace illicit transactions. As a result, FATF is closely monitoring the crypto industry to ensure it aligns with anti-money laundering and counter-terrorism regulations. This focus has sparked concerns within the crypto community, with users questioning the legitimacy of FATF’s authority over their industry.

What Is the Financial Action Task Force (FATF)? 

The Financial Action Task Force (FATF) is an intergovernmental organization that develops and promotes policies to combat money laundering, terrorist financing, and other threats to the international financial system. Established by the G7 countries in 1989, FATF’s primary mission is to create and promote national and international policies to regulate the financial industry effectively.

FATF plays a crucial role in helping authorities identify, freeze, and confiscate the assets and funds of criminals. Headquartered in Paris, France, the organization has grown significantly since its inception. As of January 2025, FATF comprises 39 members, including 37 countries and two regional organizations: the European Commission and the Gulf Cooperation Council. These members represent major financial centers globally and collaborate to combat money laundering, terrorist financing, and other related threats.

What Are FSRBs?

FSRBs, or FATF-style Regional Bodies, are critical in promoting and implementing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) policies in their respective regions. Each FSRB serves as a regional counterpart to the global Financial Action Task Force (FATF).

Although independent, each FSRB is modeled after the FATF and encourages and enforces the FATF’s 40+9 recommendations. Through these regional bodies, FATF’s influence on the financial sector extends beyond its 39 member jurisdictions to over 200 countries globally. The collaboration between FATF and FSRBs strengthens the implementation of effective financial regulations worldwide.

In 1990, the FATF published its initial 40 Recommendations, which laid out comprehensive plans to combat money laundering. While the FATF initially focused on money laundering, its mission expanded in 2001 to include combating terrorism financing.

What Are The FATF’s Recommendations?

The FATF’s recommendations are designed to combat illicit financial activities, including money laundering, terrorism financing, and other criminal activities. These 40 recommendations provide actionable steps and guidelines for Financial Intelligence Units (FIUs) and other AML/CFT agencies to address the growing challenges of criminal financial actions.

After ten years of the initial recommendations, the FATF began focusing on terrorism financing, adding it to its mission in 2001. The rise of new technologies and evolving money laundering techniques necessitated updates to the original recommendations. In 2004, the FATF introduced nine additional recommendations, bringing the total to the 40 + 9 framework, which enhanced global efforts to combat money laundering and terrorism financing. Further efforts have been made since, including the addition of measures to counter the financing of weapons of mass destruction in 2012.

These recommendations are non-binding, offering guidance to governments, but the FATF does not directly pursue criminals. Instead, national law enforcement agencies and FIUs, such as FinCEN (U.S.), NCA (U.K.), and Tracfin (France), are responsible for prosecution.

What Does It Mean To Be Blacklisted by FATF?

FATF’s blacklist is composed of Non-Cooperative Countries or Territories (NCCTs), which fail to meet the FATF’s standards for combating money laundering and terrorist financing. A country that is blacklisted is considered a “High-Risk Jurisdiction subject to a Call for Action.”

Countries on the FATF blacklist face enhanced due diligence (EDD) requirements from FATF members, and in some cases, they are required to implement countermeasures to protect the global financial system. Being on the blacklist can result in economic sanctions and significant reputational damage, as FATF members and international organizations apply restrictive measures to mitigate risks.

The FATF’s blacklist is updated regularly, and countries can be removed from the list once they align their AML and CFT policies with the FATF’s recommendations. As of October 2024, Iran, North Korea, and Myanmar are the countries on the blacklist.

What Does It Mean To Be Greylisted by FATF?

While the FATF blacklist identifies countries failing to meet expectations in combating money laundering and terrorist financing, the greylist acts as a warning. Being placed on the greylist means that a country may face blacklisting in the future if it does not strengthen and properly implement the FATF’s recommendations on anti-money laundering (AML), combating the financing of terrorism (CFT), and preventing the proliferation of weapons of mass destruction. A country on the greylist is also typically in the process of addressing identified deficiencies and is subject to increased monitoring.

The greylist is officially called “Jurisdictions Under Increased Monitoring.” Countries on this list are actively collaborating with the FATF to resolve strategic gaps in their AML and CFT frameworks. During this period, these countries are subject to closer scrutiny, either directly by the FATF or through the FATF-style regional bodies (FSRBs).

While the greylist’s consequences are less severe than those of the blacklist, countries on the greylist may still face economic sanctions from organizations like the World Bank and the International Monetary Fund (IMF), which can negatively impact trade relations.

The FATF’s greylist is updated regularly as countries are added or removed based on their progress in addressing the FATF’s concerns. As of October 2024, the countries on the greylist include Algeria, Angola, Bulgaria, Burkina Faso, Cameroon, Côte d’Ivoire, Croatia, the Democratic Republic of Congo, Haiti, Kenya, Lebanon, Mali, Monaco, Mozambique, Namibia, Nigeria, the Philippines, South Africa, South Sudan, Syria, Tanzania, Venezuela, Vietnam, and Yemen.

Notably, Senegal has been removed from the greylist due to significant progress in combating money laundering and terrorism financing. Additionally, Turkey was removed from the greylist in June 2024 after strengthening its anti-money laundering and counter-terrorism financing measures. Conversely, Lebanon was added to the greylist in October 2024 due to concerns over terrorism financing and a lack of judicial independence.

FATF Supporting Countries

While the FATF’s impact is global, not all countries are directly members. Below are the official FATF members, excluding those indirectly represented through FSRBs:

Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, European Commission, Finland, France, Germany, Greece, Gulf Co-operation Council, Hong Kong, Iceland, India, Ireland, Israel, Italy, Japan, Republic of Korea, Luxembourg, Malaysia, Mexico, Kingdom of Netherlands, New Zealand, Norway, Portugal, Russian Federation, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States.

FATF-Style Regional Bodies (FSRBs) Across The Globe

Nine FATF-style regional bodies (FSRBs) were established to disseminate the International standards on combating money laundering, financing of terrorism & proliferation (FATF Recommendations) throughout the world.

S/N	Full Name	Acronym	Region	HQ City
1	Asia/Pacific Group on ML	APG	Asia-Pacific	Sydney
2	Caribbean FATF	CFATF	Caribbean	Port of Spain
3	Eurasian Group	EAG	Eurasia	Moscow
4	Eastern & Southern Africa AML Group	ESAAMLG	Africa	Dar Es Salaam
5	Central Africa AML Group	GABAC	Africa	Libreville
6	Latin America AML Group	GAFILAT	Latin America	Buenos Aires
7	West Africa Money Laundering Group	GIABA	Africa	Dakar
8	Middle East and North Africa FATF	MENAFATF	Middle East & Africa	Manama
9	Committee of Experts on the Evaluation of AML Measures and the Financing of Terrorism of the Council of Europe	MONEYVAL	Europe	Strasbourg

 

Objectives Of The FATF (and FSRBs in extension)

Here are the primary objectives of the FATF, simplified for clarity:

1. Set Global Standards: Publishes best practices and guidance to prevent illicit finance and establishes international standards.
2. Combat Money Laundering: Targets money laundering activities related to drug trade, smuggling, illicit cash integration, fraudulent goods and services, and multiple invoicing.
3. Address New Technologies: Explores the use of emerging technologies to prevent money laundering.
4. Examine Terrorism Financing: Investigates how terrorism is funded and how money laundering supports terrorist activities.
5. Provide Training: Trains officials in anti-money laundering (AML) and counter-terrorism financing (CFT) techniques.
6. Assess Countries’ Efforts: Evaluates countries’ progress in combating financial crimes and recommends improvements.
7. Prevent Proliferation Financing: Focuses on blocking funding for weapons of mass destruction (WMD).
8. Support Environmental Crime Investigation: Helps authorities trace funds involved in environmental crimes.
9. Fight Human Trafficking: Works to eliminate illicit profits derived from human trafficking.

FATF’s Role in the Cryptocurrency Industry

Since Bitcoin’s release in 2009, the cryptocurrency industry has grown exponentially, catching the attention of global financial regulators like the Financial Action Task Force (FATF). In 2019, the FATF introduced regulations aimed at preventing cryptocurrencies from being used for money laundering, terrorist financing, and the proliferation of weapons of mass destruction. These regulations primarily impact cryptocurrencies and virtual asset service providers (VASPs)—businesses and platforms that facilitate the exchange of virtual assets, such as Bitcoin, Ethereum, and NFTs.

The FATF’s regulations, particularly the “Travel Rule,” require VASPs to collect and share personal information of customers during transactions. While this is intended to prevent illicit financial activities, it has raised privacy concerns within the crypto community. Many crypto enthusiasts, including organizations like Coin Center, argue that such regulations infringe upon privacy rights, as they require VASPs to track and store personal data, a practice that goes against the decentralized ethos of many cryptocurrency projects. Privacy advocates fear that these requirements could stifle the anonymity and decentralization that many see as foundational to cryptocurrency.

Furthermore, the decentralized nature of many blockchain-based projects makes it challenging for these systems to comply with traditional Know Your Customer (KYC) processes. This is particularly true for decentralized finance (DeFi) platforms and self-hosted wallets, which often don’t have a central authority that can enforce KYC. While FATF’s regulations aim to make cryptocurrencies more mainstream and compliant with international anti-money laundering standards, they present a challenge to the industry’s decentralized structure and privacy features, leading to concerns about the future of these technologies.

What You Should Know About the FATF’s Travel Rule

In 2019, the FATF made a significant update to Recommendation 16 through an interpretive note to Recommendation 15. Previously, Recommendation 16 required the traditional finance sector to collect and share information about the sender and beneficiary of a transaction. The updated standard now mandates that Virtual Assets Service Providers (VASPs) follow the same process, ensuring that real-name and user information is exchanged whenever funds are transferred between VASPs. These user details must be submitted to authorities upon request.

The originator VASP must provide the following sender information to the beneficiary VASP during a transaction:

• Sender’s name
• Sender’s account number used for the transaction
• Unique identifiable information (e.g., national identity number, passport number, social security number, driving license number, residential address)

The beneficiary VASP must provide the following recipient information to the originator VASP in return:

• Recipient’s name
• Recipient’s account number used for the transaction.

Conclusion

The FATF plays a vital role in global efforts to combat money laundering, terrorist financing, and the proliferation of weapons of mass destruction. Its 40 + 9 recommendations set international standards for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT), influencing countries and industries worldwide. With the introduction of the Travel Rule, the FATF is also regulating cryptocurrencies and Virtual Asset Service Providers (VASPs) to ensure compliance with these standards.

However, these regulations have sparked concerns within the cryptocurrency community. Many crypto enthusiasts argue that requirements like sharing personally identifiable information (PII) during transactions may undermine privacy and decentralization, core principles of cryptocurrency. As a result, solutions like Decentralized Identities (DIDs) are being explored to allow users to maintain control over their data while complying with FATF standards.

About Identity.com

Identity.com offers an open-source ecosystem that provides secure and on-chain identity verification, making the identity verification process hassle-free for many businesses. Our solutions improve user experience and reduce onboarding friction by offering reusable and interoperable Gateway Passes. If you require assistance with identity verification and general KYC processes, please refer to our docs for more information on how we can help.