FATF Threatens Countries with Greylisting over Crypto Compliance

By Oliver
Published 08/11/2022
FATF Threatens Countries with Greylisting over Crypto Compliance

The Financial Action Task Force (FATF) has warned that countries failing to implement strict anti-money laundering (AML) rules for crypto assets could be greylisted. 

According to an Al Jazeera report, the FATF is set to carry out annual reviews of countries’ crypto regimes, in addition to the usual mutual reviews that run on 10-year cycles. Worryingly, this would give affected countries very little time to make the changes necessary to avoid penalisation.

Will new crypto rules push more countries over the edge?

Valletta and Grand Harbour, Malta
Valletta, the capital of Malta. Malta was on the FATF greylist in 2021/22.

Although failing to meet FATF crypto standards wouldn’t automatically lead to a country being greylisted, it would likely push borderline countries over the edge and land them on the list. 

Whilst being on the grey list isn’t as bad as being blacklisted, like North Korea and Iran, it does make life very difficult for businesses, with increased scrutiny and procedures adding considerable friction and cost – something Malta found out while it was briefly greylisted in 2021-22.

While Malta, along with Nicaragua and Pakistan, managed to extricate themselves from the grey list recently, the countries currently listed as having ‘strategic deficiencies’ are:

The Burj Khalifa, Dubai, UAE
Dubai, United Arab Emirates. The UAE is currently greylisted.
  • Albania
  • Barbados
  • Burkina Faso
  • Cambodia
  • Cayman Islands
  • Democratic Republic of the Congo
  • Gibraltar
  • Haiti
  • Jamaica
  • Jordan
  • Mali
  • Morocco
  • Mozambique
  • Panama
  • Philippines
  • Senegal
  • South Sudan
  • Syria
  • Tanzania
  • Türkiye
  • Uganda
  • United Arab Emirates
  • Yemen

Crypto industry response

Many in the crypto space see the FATF’s stance as just another attempt by the global political and financial establishment to stifle the growth of digital assets. They, quite accurately, argue that the vast majority of illicit transactions use fiat currencies, especially the US dollar

Armed police in Uganda, in fight against Islamic terrorists
Armed police in Uganda – a front line against Islamic terror. But, is crypto or fiat really funding terror?

Indeed, despite the focus on crypto compliance, even the Countering Financing of Terrorism Coordinator at the United Nations (UN) noted, in October, that cash and hawala (an informal value transfer system, reliant on performance and honour, popular in the Islamic world), are still the primary ways terror groups are financed. 

In particular, centralised crypto exchanges are worried about the prospect of being unbanked in countries subject to FATF pressure like greylisting. So, in an effort to head off draconian regulatory action, some crypto industry leaders are set to put forward new proposals at the G20 leaders’ summit in Bali later this month.

Of course, whether or not these proposals are sufficient to address the FATF’s concerns, and whether or not individual countries actually implement them, remains to be seen. But, it seems clear that, unless a solution can be found, it’s going to become even harder for legitimate crypto businesses to operate efficiently.

Is crypto fundamentally incompatible with FATF rules?

The FATF’s stance once again highlights a big question. That is, are the core fundamentals of crypto simply incompatible with FATF rules? 

Many would argue it is a resounding ‘yes’. Why? Because two of the main reasons for the development of crypto, going right back to Satoshi Nakamoto’s Bitcoin whitepaper, were privacy and inclusion. These two core principles are sacrosanct to most cryptocurrency projects and much of the crypto community. 

An armed, masked police officer
How can we trust governments and authorities after the way they acted during the pandemic?

How can intrusive know-your-customer (KYC) checks, which require people to provide sensitive personal and financial information to centralised third-party companies, and by association, government authorities, respect privacy? And, how can any system that requires users to provide such information to centralised authorities be truly inclusive? By default, providing the information gives those authorities the opportunity to exclude users. 

Of course, some will trot out the usual argument of “if you’ve got nothing to hide, why are you worried?” But, surely, after the unprecedented governmental overreach displayed in even supposedly ‘liberal and free’ countries during the pandemic (Australia, Canada, the UK and US spring to mind), few can really still believe governments and official institutions can be trusted to do the morally right thing.

So, what is left in the FATF’s vision of the crypto world? Bitcoin as just another institutionally dominated asset to be traded as a speculative investment? Maybe blockchain tech as a better form of bookkeeping? And, central bank digital currencies (CBDCs), to give centralised authorities absolute control over everyone’s lives – including the ability to cancel dissenters and crush any form of opposition immediately?

The time has come when the crypto community at large needs to decide what it wants, and if it will fight for it. Will it continue to incrementally appease the existing corrupt and discredited authorities and elites, cosying up to them SBF-style in order to line their pockets? Or, will it stand up for its core, fundamental reasons for existing in the first place, turn the tables, and fight for the abolishment of those very authorities trying to control it? 

Could we actually see both happen, with one camp selling out and merging into the traditional financial system, while the other goes ever more decentralised and underground?

Things are already getting tense: