The global Financial Action Task Force (“FATF”) on 21 October 2022 placed Myanmar in the category of “High-Risk Jurisdictions Subject to a Call for Action,” commonly referred to as the “blacklist,” due to its failure to implement its action plan that expired in September 2021.
The international watchdog has called upon its members and non-members to apply enhanced due diligence to business relations and transactions with Myanmar. Essentially, the impact would not extend beyond the existing impediments to business activities in the country and the investments made by foreign entities.
Theoretically, the blacklisting would mean exercising caution when starting business transactions, but it does not effectively put the country’s financial institutions outside the international financial system. Neither will this measure further complicate the ability of banks to operate within the country.
In effect, financial institutions may ask for additional paperwork to be produced pertaining to customer identification and verification. This article provides an analysis of the practical implications of the FATF blacklisting.
FATF and Combating Money Laundering and Terrorist Financing
The FATF is an inter-governmental body established by the G-7 Summit in Paris in 1989 as a response to heightened money-laundering activities that were a major threat to the international banking system and financial institutions.
The global financial watchdog primarily sets international standards to prevent money laundering, corruption and terrorist financing by way of developing FATF Recommendations and Standards, while promoting the effective implementation of legal, regulatory and operational measures.
The FATF currently has 39 member states, observers, associate members and observer organizations. Although Myanmar is not an FATF member state, it is still a member of the Asia Pacific Group on Money Laundering, an FATF-style regional body, which is an associate member.
Based on strategic deficiencies in the regimes of various jurisdictions with respect to their framework to combat money laundering and the financing of terrorism, the FATF broadly classifies states into two lists:
- Jurisdictions Under Increased Monitoring, referred to as “greylist.”
- High-Risk Jurisdictions Subject to a Call to Action, referred to as the “blacklist.”
Blacklist and Implications
Myanmar, in the past, has been placed on the greylist and blacklist on multiple occasions. Myanmar was placed on the blacklist from June 2001 to October 2006 and from October 2011 to February 2016. It was placed on the greylist from February to October 2016. In all of these cases, Myanmar managed to get itself de-listed from these FATF categories.
Myanmar was again placed on the greylist in February 2020 because of strategic deficiencies identified by FATF. Due to the partial implementation of its action plan within the mandatory deadline, the FATF on 21 October 2022 moved Myanmar to the blacklist.
What Blacklisting Entails
Blacklisting calls for enhanced due diligence proportionate to the risk arising from Myanmar to be observed by members and all other jurisdictions while entering a business transaction with Myanmar.
In light of this, it is pertinent to note that Myanmar, even though blacklisted, has not been placed in the “List of Jurisdictions Subject to a FATF Call on its Members and other Jurisdictions to Apply Countermeasures,” alongside Iran and North Korea.
This essentially means there will be restrictions/countermeasures only in situations in which Myanmar further fails to implement the items in its action plan. However, Myanmar has already implemented over 24 recommendations out of 40 and is in the process of executing the entire action plan in order to be de-listed.
In essence, the steps the FATF wants Myanmar to implement in order to address the deficiencies are as follows:
- demonstrate an improved understanding of money-laundering risks in key areas;
- demonstrate that on-site/off-site inspections are risk-based, and hundi operators are registered and supervised;
- demonstrate enhanced use of financial intelligence in Law Enforcement Agency investigations, and increasing operational analysis and disseminations by the FIU;
- ensure that money laundering is investigated and prosecuted in line with risks;
- demonstrate investigation of transnational money laundering cases with international cooperation;
- demonstrate an increase in the freezing/seizing and confiscation of criminal proceeds, instrumentalities, and/or property of equivalent value;
- manage seized assets to preserve the value of seized goods until confiscation; and
- demonstrate implementation of targeted financial sanctions related to proliferation financing.
Furthermore, the enforcement of enhanced due diligence measures in no way implies that the business transactions will be forbidden or restrictive. It simply calls for member states to be vigilant in a risk-sensitive and proportionate manner.
The same due diligence should be carried out to ensure that flows of funds for humanitarian assistance, legitimate non-profit organization activities and remittances are not disrupted. This is a significant carve-out made for these categories to ameliorate the pressure created by such Blacklisting.
Furthermore, measures to be taken to apply enhanced due diligence have been encapsulated in Paragraph 20 of the Interpretive Note to Recommendation 10. These primarily include:
- Obtaining additional information on the customer (e.g., occupation, volume of assets, information available through public databases, internet, etc.), and updating more regularly the identification data of customer and owner;
- Obtaining additional information on the intended nature of the business relationship;
- Obtaining information on the source of funds or source of wealth of the customer;
- Obtaining information on the reasons for intended or performed transactions;
- Obtaining the approval of senior management to commence or continue the business relationship;
- Conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination;
- Requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar Customer Due Diligence standards.
- Contrary to what is being widely reported, the blacklisting is unlikely to have any additional far-reaching consequences on the business environment.
History is evidence enough that there have been no major impacts in terms of inward and outward cash flows in the event of blacklisting.
While local banks will be under scrutiny by foreign corresponding banks participating in financial transactions, there is no cause for major alarm. The usual course of activities will be performed by the banks with the minor additions of procuring some extra documents in relation to business transactions.
While the FATF is an international intergovernmental body, its standards and recommendations are non-binding. The blacklisting certainly ensues reputational damage to Myanmar, including the uncertainty around the application of enhanced due diligence by other jurisdictions – in addition to present sanctions against Myanmar.
The negativity lingers and the overall impact can only be ascertained in days to come. By learning from similar events in the past, it is likely that Myanmar will soon implement the items on its action plan and get itself removed from the FATF blacklist.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.