FATF grey list updates: Why was Bulgaria added?

Panama removed and UAE makes progress

On 27 October 2023, the Financial Action Task Force (FATF) met in Paris and added EU member state Bulgaria to the grey list. This has been described as a shock to many, but the country has been mired in political corruption scandals in recent years. The UAE was also commended for its progress in improving its AML deficiencies, and seems set to be removed from the grey list at the next plenary in February 2024.

What happened at the plenary?

During the plenary, the discussions covered topics such as the situation in the Middle East, the publication of a significant report on Crowdfunding for Terrorism Financing, updates to the Best Practices Paper for Combating the Abuse of Non-Profit Organisations, and a substantial set of amendments to the FATF Recommendations.

Additionally, the FATF adopted reports addressing Illicit Financial Flows resulting from Cyber-Enabled Fraud and the Misuse of Citizenship and Residency via Investment Programmes.

Delegates also agreed to release the updated FATF Risk-Based Guidance on Recommendation 25 concerning Beneficial Ownership and Transparency of Legal Arrangements for public consultation. The FATF welcomed Indonesia as its 40th Member and discussed the joint FATF-GAFILAT assessment of Brazil. It was noted that the suspension of the Russian Federation’s membership remains in effect.

Added:

❌️ Bulgaria

Removed:

✅️ Albania

✅️ Cayman Islands

✅️ Jordan

✅️ Panama

Suspended:

⛔Russia

Why was Bulgaria added to the FATF grey list?

An evaluation had determined strategic deficiencies in Bulgaria’s AML regime The jurisdiction will be under increased monitoring while it completes the action plan. Although this has been described as a shock decision, for those following Bulgarian politics, it was an inevitability. 

The country’s political class has been ensnared by the Barcelona-gate scandal, involving a former prime minister, Boyko Borisov, who purchased a villa in Barcelona for his mistress with EU funds that were purportedly diverted for this purpose. 

Several high profile Bulgarian politicians were also sanctioned in February this year under the Global Magnitsky Act, as well as by the UK authorities. 

Among those designated by the US are Vladislav Goranov, a former finance minister in the cabinet of the disgraced former PM Boyko Borissov. Also sanctioned are Russophile Movement party leader Nickolay Malinov, who in 2019 was also charged with espionage; Bulgarian Socialist Party MP Ivan Kirov; Rumen Ovcharov, Minister of Economy and Energy from 2005 to 2007, and Alexander Nikolov, former general director of Bulgaria’s nuclear power plant Kozloduy. 

The Bulgarian Socialist Party, successor to the ruling Communist Party, is traditionally aligned with Russia. Designated entities include Bulgaria’s pro-Russian far-right Revival party, embroiled in numerous controversies, most recently in an anti-euro campaign and allegations of intimidating journalists.

Reformist parties and NGOs in Bulgaria have accused the Bulgarian prosecution of not enforcing sanctions. Chief Prosecutor Ivan Geshev has been dubbed a protector of Boyko Borissov,

International criticism of Bulgarian corruption has intensified lately. US ambassador Hero Mustafa said in January:

“In Bulgaria, the oligarchs have an extremely strong grip. They amass power through the politicians and keep it through economic means to keep their image clean. Real reform will happen only when there is a reform in the judicial sector and in the Prosecutor’s office as well.” 

Another reason Bulgaria has been grey listed is due to the fallout from the OneCoin scam, a multi-billion dollar cryptocurrency pyramid scheme initiated, operated, and concealed by Bulgarians. 

The bank Credit Suisse was found guilty last year by Swiss authorities after a court found the lender failed to stop the laundering of Bulgarian drug money. An ex-Bulgarian tennis star, Elena Pampoulova-Bergomi, who was a former relationship manager at the bank, was also found guilty of money laundering offences.

The ‘surprise’ of Bulgaria being added to the grey list highlights the importance of closely monitoring adverse media news, even for countries assumed to be ‘safe.’ Tools such as the Moneyval Report on Bulgaria, Rule of Law and CVM Reports issued by the EU Commission, and the comments of the Venice Commission which have recommended legislative and constitutional changes to Bulgaria to strengthen the fight against financial crime. 

Which countries were removed from the FATF grey list?

✅️ Albania

✅️ Cayman Islands

✅️ Jordan

✅️ Panama

While removal from the grey list means the country is no longer automatically higher risk, there are still other risk factors which need to be taken into account. For example, Panama is still on the EU Tax Blacklist, US  ML Assessment, and the Corruption and Criminal Markets (GI Index).

The United Arab Emirates (UAE) is on the path to being removed after demonstrating significant progress in adopting compliance measures to combat money laundering. The plenary praised the UAE for its efforts in facilitating money-laundering investigations, imposing sanctions on non-compliance at financial institutions, and increasing prosecutions. 

The FATF will conduct on-site visits to ensure the sustainability of these changes, and if successful, this could lead to the UAE’s removal from the grey list during an upcoming plenary session in February. This marks a positive development for the UAE, which has been striving to enhance its financial compliance reputation.

Panama, Albania, Jordan, and the Cayman Islands were all taken off. Panama’s government had been working to shed its reputation as a haven for illicit financial activities and promote its environmental initiatives, similar to Costa Rica. In 2016, Panama gained notoriety due to leaked documents from a local law firm, revealing its role in facilitating offshore tax strategies for the global elite. The removal from the grey list is a significant step in improving Panama’s image.

The inclusion of both the UAE and Panama on the FATF’s grey list had consequences for financial activities in these regions. The UAE faced increased scrutiny due to an influx of Russian money seeking to avoid western sanctions amid the conflict in Ukraine. Some Russians turned to informal exchanges and cryptocurrencies to move money into the UAE, driving up real estate values. In a sign of progress, the UAE also revoked a licence it had granted to a Russian lender, MTS, following US and UK sanctions. Despite these challenges, the UAE maintained its stance on preventing money flows from sanctioned individuals while not discriminating against non-sanctioned Russians.

What does your firm need to do now?

  1. Risk Assessment: Conduct a thorough risk assessment of the countries in which your firm operates or conducts business. This assessment should consider various factors, including political stability, economic conditions, legal and regulatory environment, corruption levels, and the presence of high-risk industries or sectors.
  2. Data Collection: Gather relevant information on the countries you are assessing. This may include information from government sources, international organisations, financial intelligence units, and private sector data providers. Consider factors such as economic indicators, sanctions lists, and money laundering/terrorism financing risks.
  3. Internal Expertise: Engage individuals within your organization who are knowledgeable about international risk and money laundering. Seek input from compliance officers, financial analysts, legal counsel, and other relevant experts.
  4. Third-Party Data and Tools: Utilize third-party data and risk assessment tools to supplement your internal research. Many financial institutions subscribe to services that provide country risk ratings and assessments, which can be a valuable resource.
  5. Risk Rating Methodology: Develop or refine a risk rating methodology that quantifies the level of risk associated with each country. This may involve assigning scores to various risk factors and then aggregating those scores to derive an overall risk rating.
  6. Review and Update: Regularly review and update your country risk guidelines. This should not be a one-time exercise but an ongoing process to ensure that your risk assessments remain current.
  7. Stakeholder Involvement: Involve relevant stakeholders in the review and update process. This may include senior management, compliance officers, legal teams, and risk management professionals.
  8. Documentation: Document the process of updating the country risk guidelines, including the data sources, methodologies, and any changes made to the assessment criteria. This documentation will be crucial in demonstrating compliance with regulatory requirements.
  9. Training and Awareness: Ensure that relevant employees are trained and aware of the updated country risk guidelines. This includes staff involved in due diligence, customer onboarding, and ongoing monitoring.
  10. Implementation: Put the updated guidelines into practice across your firm. This includes integrating the new risk ratings into your customer due diligence processes, transaction monitoring, and reporting mechanisms.
  11. Monitoring and Reporting: Continuously monitor the effectiveness of your country risk guidelines and be prepared to report on any issues or changes to relevant regulatory authorities as required.

Full FATF Grey List as of 27th October 2023:

1. Barbados

2. Bulgaria

3. Burkina Faso

4. Cameroon

5. Croatia

6. Democratic Republic of Congo

7. Gibraltar

8. Haiti

9. Jamaica

10. Mali

11. Mozambique

12. Nigeria

13. Philippines

14. Senegal

15. South Africa

16. South Sudan

17. Syria

18. Tanzania

19. Türkiye

20. Uganda

21. United Arab Emirates

22. Vietnam

23. Yemen

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