FATF black list
Also written Black list · FATF blacklist
The informal name for FATF's public statement of jurisdictions with serious strategic AML/CFT/PF deficiencies, on which FATF calls for enhanced due diligence and, in the most serious cases, counter-measures.
In plain language
The Financial Action Task Force cannot fine a country or close its banks. What it can do is tell the rest of the world, publicly, that a country's defences against money laundering are seriously deficient — and that turns out to be a powerful sanction.
The "black list" is the popular name for that warning. It is not FATF's own term. The workbook describes it as the statement, previously called the "Public Statement", that identifies countries or jurisdictions with serious strategic deficiencies to counter money laundering, terrorist financing and proliferation financing, and which is often externally referred to as the Black list.
For an intermediary in India the practical question is not which countries are on it this year, but what it must do differently when a client, a counterparty or a third party is connected to one.
How it works
How the lists are published. FATF identifies jurisdictions with weak AML/CFT measures in two public documents or statements issued three times a year. The workbook notes that this process of publicly listing countries with weak regimes has proved effective, and Chapter 1 traces the relevance of FATF standards to 2000 and 2001, when FATF began publicly identifying deficient countries.
What FATF asks for. For all countries identified as high-risk, FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and in the most serious cases countries are called upon to apply counter-measures to protect the international financial system from the ML, TF and PF risks emanating from the country.
Where it lands in the SEBI framework.
| Rule | Effect for a high-risk jurisdiction |
|---|---|
| Clients of Special Category | Clients in high-risk countries are CSC — enhanced due diligence |
| CSC counter-measures | Further enhanced scrutiny of transactions, enhanced relevant reporting mechanisms or systematic reporting, and enhanced due diligence while expanding business relationships with the identified country or persons in that country |
| Suspicious circumstances | Clients based in high-risk jurisdictions is on SEBI's illustrative list |
| Third-party reliance, Rule 9(2)(d) | The third party relied on for CDD must not be based in a country or jurisdiction assessed as high risk |
| Risk assessment | Must take into account country specific information circulated by the Government of India and SEBI |
A worked example
Illustrative. The workbook does not name listed countries, so "Country X" stands for any jurisdiction on the black list.
Suraksha Portfolio Managers Pvt Ltd is approached by a prospective client, Mr D, an Indian-origin businessman resident in Country X, who wants a discretionary portfolio of Rs 12 crore.
Step 1 — classification. Mr D is a client in a high-risk country and an NRI — a Client of Special Category on two grounds. Enhanced due diligence applies, and the firm places him in its high risk category.
Step 2 — the introducer. Mr D proposes that his KYC be done by a financial firm in Country X that "already knows him". Rule 9(2)(d) does not allow reliance on a third party based in a jurisdiction assessed as high risk. The firm must do the CDD itself.
Step 3 — the money. The Rs 12 crore is to arrive in four tranches of Rs 3 crore from a company in Country X. The firm documents the source of funds, applies enhanced scrutiny to each tranche, and records its findings in writing.
Step 4 — the decision point. In the second month Mr D asks for Rs 2.5 crore of proceeds to be paid to an unrelated company in a third country. Attempted transfer of investment proceeds to an apparently unrelated third party, by a client based in a high-risk jurisdiction, is two items on SEBI's illustrative list at once. If the Principal Officer concludes it is suspicious, an STR follows — and the client is not told.
Why NISM asks about it
The definition is in Chapter 5 (AML, CFT and PF Guidelines), section 5.2.4, and the consequences are scattered through Chapter 6: the CSC list in 6.2.2, the counter-measures and illustrative suspicious circumstances in 6.2.7, and the country information input to risk assessment in 6.2.5. Chapter 3 supplies the third-party reliance bar in Rule 9(2)(d). The paper's own sample question pairs it with the grey list, so expect to be asked which list means what.
Common exam traps
- Black list means high risk with serious strategic deficiencies; grey list means increased monitoring. The grey-list country is actively working with FATF to fix its deficiencies.
- "Black list" is an informal, external name. The workbook says the statement was previously called the "Public Statement".
- Two statements, three times a year — not one annual list.
- Enhanced due diligence for all listed countries; counter-measures only in the most serious cases.
- A listing is not a prohibition on the client. The SEBI rules prescribe enhanced due diligence and counter-measures, not automatic refusal.
- Third-party reliance is the exception that is absolute: a third party based in a high-risk jurisdiction cannot be relied on for CDD at all.
Where this is taught
Free preparation for NISM Series XXIVRelated terms
- FATFThe intergovernmental body founded in 1989 that writes the global AML/CFT standards — the 40 Recommendations plus IX Special Recommendations — and grey-lists or black-lists countries that fail them.
- Clients of Special CategoryA named list of client types — NRIs, HNIs, trusts, NGOs, PEPs, non-face-to-face clients and others — on whom SEBI requires enhanced due diligence rather than the ordinary standard.
- Client Due DiligenceScreening and verifying a client using reliable, independent sources — identity, beneficial owner, purpose of the relationship — and then continuing to scrutinise it for as long as it lasts.
- FATF grey listThe informal name for FATF's list of jurisdictions under increased monitoring — countries working with FATF that have committed to fix identified strategic deficiencies swiftly within agreed timeframes.
- Suspicious Transaction ReportA report a SEBI intermediary must file with FIU-IND within 7 days of concluding that a transaction or connected series of transactions is suspicious — and must never disclose to the client.
- Risk assessmentAn intermediary's documented, up-to-date assessment of its own money-laundering and terrorist-financing risk across clients, geographies, transactions and payment channels — and of new products before launch.
- FATF PlenaryThe FATF's decision-making body, meeting three times a year, which holds countries to account for non-compliance and can name them Jurisdictions under Increased Monitoring or High Risk Jurisdictions.
- FATF PresidentThe senior official the FATF Plenary appoints from among its members to chair the Plenary and the Steering Group, serving a two-year term that runs from 1 July to 30 June.