What does being in the FATF’s ‘gray list’ mean?

Picture of VERA Files


Filipinos abroad may have to pay more to send money to their families in the Philippines and foreign money coming into the country may drop if the government does not improve its fight against money-laundering and funding of terrorism.

This, as all deadlines lapsed in January 2023 for the Philippines to leave the gray list of the Paris-based Financial Action Task Force (FATF).

President Ferdinand Marcos Jr. met with concerned government agencies on Jan. 2 and directed authorities to act on the eight remaining action items that the FATF had flagged. The Philippine government aims to leave the list by October 2024.

In June 2021, the Philippines was placed on the gray list after the international watchdog identified 18 deficiencies that the government must resolve to effectively counter money laundering and terrorism financing in the country. 

What is the FATF and what does it mean to be on its gray list? How will this affect Filipinos’ financial transactions? Here are three things you need to know:

  1. What is the FATF? 

The FATF is an independent 38-member body that sets international standards to counter money laundering and the financing of terrorism. These are called the FATF Recommendations.

These 40 recommendations help countries combat the movement of funds for criminal activities, such as human trafficking, illegal drug trading, or acquisition of weapons for mass destruction. Over 200 countries, including the Philippines, have committed to adapt the FATF Recommendations.

To assess a country’s compliance with the recommendations, the FATF follows a mutual evaluation system, in which members check their effectiveness and identify risks to their financial system.

When the Philippines was placed on the gray list in 2021, it was given until January 2023 to address the eight remaining deficiencies identified in the 2019 mutual evaluation report of the Asia/Pacific Group (APG) on Money Laundering. Another evaluation is expected in 2026. 

The FATF will soon announce updates on countries in the gray list on Feb. 23, said FATF media relations manager Spencer Wilson to VERA Files Fact Check.

  1. What does it mean to be on the gray list?

A country included in the FATF’s gray list must implement an action plan within a prescribed period to address strategic deficiencies in countering money laundering and terrorism financing. If the Philippines remains on this list, the country could end up on FATF’s black list, which would hamper the financial transactions of overseas Filipino workers, said Matthew David, executive director of the Anti-Money Laundering Council, in a Jan. 2 press briefing. 

“For example, through remittances of OFWs, there will be [an] increase in cost, more requirements, stringent requirements […] Sometimes the transactions may be denied or disapproved,” David explained. 

Filipinos abroad pay higher transaction fees as banks practice customer due diligence and spend more resources in checking these transactions, said lawyer Dave Fermin J. Sevilla, assistant vice president of the Philippine Amusement and Gaming Corporation’s Anti-Money Laundering Supervision and Enforcement Department, in a November 2023 interview on OneNews.PH.

“As long as we are on the gray list, those fees could get higher, and our OFWs may suffer more,” explained Sevilla in a mix of English and Filipino. He also noted that if a country is blacklisted, financial transactions and trade by the individual and the country itself may no longer be allowed. North Korea, Iran, and Myanmar are countries currently in the FATF’s black list. 

In the Jan. 2 press briefing, David also mentioned that fewer foreign investors would be interested in the Philippines.

“If [we] don’t exit the gray list, they might think that our AML/CTF (anti-money laundering/counter-terrorism financing) system is not adequate enough or sufficient enough or strong enough,” added David.

Capital inflows, such as money from foreign investors, fall by 7.6% of gross domestic product when a country is gray listed, based on a 2021 study from the International Monetary Fund (IMF).

  1. What is the government doing to address the deficiencies?

In July 2023, the Marcos administration adopted the National Anti-Money Laundering, Counter-Terrorism Financing and Counter-Proliferation Financing Strategy 2023-2027 to address remaining issues identified by the FATF. It noted that concerned government agencies lacked “material time” to implement effective policies which had resulted in the country’s inclusion in the gray list. 

Based on the government’s latest report on terrorism financing assessment, 133 terrorism financing cases were investigated from 2021 to August 2022, some of which were filed in court where they remain pending. VERA Files Fact Check reached out to AMLC for the exact number of cases filed, but it has yet to share its data as of writing. 

There are also pending measures in Congress to increase government intervention in both bank and non-bank sectors.

On Feb. 13, the House Committee on Games and Amusements approved House Bill No. 5082 and House Resolution No. 1197, banning offshore gaming operators and casinos, which, according to a 2021 AMLC report, are prone to involvement  in illegal activities. 

The Bangko Sentral ng Pilipinas (BSP) also supports two bills to boost its capacity to investigate financial crimes. One amends the country’s Bank Secrecy Law to “enhance” its supervisory powers against money laundering and terrorism financing. The second is the proposed  Anti-Financial Account Scamming Act (AFASA) which allows the BSP to investigate online and offline financial accounts suspected of engaging in illicit activities. 

Both are on the Legislative-Executive Development Advisory Council’s list of priority bills. Currently, the AFASA bill is up for second reading in the Senate.

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Sources

Philippine News Agency, PH gets 1-year extension to get out of FATF’s gray list, Jan. 10, 2023

GGR Asia, Philippines extra year to exit FATF grey list: official, Jan. 11, 2023

Manila Bulletin, FATF to PH: Exit ‘grey list’ ASAP, Oct. 30, 2023

RTVMalacañang, Meeting on the Status of the Philippines in the Financial Action Task Force (FATF) Greylist, Jan. 2, 2024

Bongbong Marcos Official Facebook Page, We’re targeting our exit from the FATF grey list by October 2024…, Jan. 2, 2024

Financial Action Task Force, Jurisdictions under Increased Monitoring – June 2021, June 25, 2021

What is FATF?

What does it mean to be on its gray list?

What is the government doing to address this?

LEDAC, 19th Congress LEDAC, Sept. 20, 2023



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