Gibraltar's Increased Monitoring by the FATF Image

Gibraltar's Increased Monitoring by the FATF

29 June 2022

Overview

On 17th June 2022 the Financial Action Task Force (FATF) included Gibraltar in its list of jurisdictions under increased monitoring, commonly referred to as the grey list. The classification will remain in place until a reassessment is made when the FATF next meets on the matter in May 2023. The decision by the FATF was widely unexpected considering the comprehensive efforts and progress Gibraltar has made in recent years in enhancing its regime and controls for fighting money laundering, terror and proliferation financing.

What is the FATF?

The Financial Action Task Force (or FATF) is an international watchdog for money laundering and terrorist financing that was established in 1989. The FATF makes recommendations to prevent financial abuse and it monitors the implementation of these recommendations globally. Non-cooperating jurisdictions are blacklisted, while partially compliant jurisdictions actively cooperating with the FATF to improve their performance are grey listed. The FATF grey list currently comprises 23 jurisdictions, including Barbados, the Cayman Islands, Morocco, Pakistan and the UAE.

It is important to note that the FATF grey list stands apart from the list maintained by the OECD and the European Union in respect of tax havens. We note that in respect of taxation, Gibraltar remains in full compliance with international standards and no reclassification has been made in this regard.

Why was Gibraltar grey listed?

The FATF conducts regular reviews through its MONEYVAL arm which is the Council of Europe’s committee of experts on money laundering and terrorist financing. Following Gibraltar’s MONEYVAL Evaluation Report (MER) published in 2019, the FATF evaluated Gibraltar’s progress in addressing the 78 Recommended Actions detailed in the MER. The FATF confirmed that Gibraltar made substantial improvements in its legislative and operational frameworks. Since MONEYVAL’s 2019 MER, Gibraltar completed a new National Risk Assessment, improved beneficial owner-related record keeping, introduced improved transparency for nominee shareholders and for directors, strengthened its financial intelligence unit and refined its money laundering investigation policy. In December 2021, MONEYVAL confirmed Gibraltar had taken “positive steps” to address “most, if not all” issues it had identified during a detailed review.

Of the 78 Recommended Actions, the FATF found that Gibraltar had made good progress and satisfied all but 2 points. In addition, the FATF found that Gibraltar was “compliant” or “largely compliant” with 39 out of the 40 FATF Technical Recommendations. This serves as an important testament to Gibraltar’s robust commitment to preventing financial abuse and positions Gibraltar as one of the most technically compliant jurisdictions globally.

The FATF placed Gibraltar on its grey list because it concluded that the following 2 Recommended Actions remain to be fully addressed:

  • The imposition of appropriate regulatory sanctions by supervisors, in particular of the legal and gambling sectors; and
  • Obtaining appropriate final asset restraints arising from money laundering investigations by law enforcement agencies.

The FATF concluded that at the moment Gibraltar supervisors are not issuing proportionate fines or penalties for money laundering or terrorist financing breaches. In particular for the gambling operators servicing gamers outside of Gibraltar and within the legal profession. It is important to note that the FATF concluded that all key recommended actions in respect of other industry sectors, including the banking sector and the company and trust management sector, as well as their respective regulator, the Gibraltar Financial Services Commission, had been completed successfully.

What is Gibraltar’s response?

Following announcement of the FATF decision, Gibraltar has re-affirmed its commitment to bolstering its regulatory architecture and enforcement. In particular, the Government of Gibraltar re-affirmed its high-level political commitment to work closely with the FATF and MONEYVAL to strengthen the effectiveness of Gibraltar’s anti-money laundering and counter terror financing regimes. Enormous work has been successfully completed to date for which the Government of Gibraltar, local regulators and the private sector are very proud of. Gibraltar will continue building upon this work, strengthening the foundations that make Gibraltar a competitive, responsible and compliant player in the global financial arena.

FATF issued an Action Plan to Gibraltar on the 2 Recommended Actions. This is the first time a jurisdiction has been given an Action Plan with only two items to address. The Action Plan timeline envisages completion within 12 months. Both the FATF and the Government of Gibraltar are confident of Gibraltar’s ability to satisfy the FATF’s 2 remaining points within the twelve-month timeframe given. The Government of Gibraltar stated that it is committed to complying with the FATF action plan “in the shortest possible timeframe.”

What is the international context?

FATF grey listing is certainly not unprecedented among thriving global financial centres. Countries such as Malta, Iceland, Mauritius, the Cayman Islands and many more have been previously listed and, in many cases, delisted as international standards change and local regulations catch up. In Gibraltar’s case, grey listing was the result of the FATF specifically identifying two points that the jurisdiction should address, namely (i) pursuing appropriate regulatory sanctions and (ii) pursuing final confiscation judgements. The recommendations in particular relate to the jurisdiction’s gaming operators and legal advisors, rather than being a broadscale deficiency.

It is worth noting that compliance with FATF recommendations is to a certain extent subjective and international recognition of compliance is unfortunately not entirely detached from political pressure. The grey listing of Gibraltar was made in the context of tensions surrounding Brexit and Gibraltar’s departure from the EU. Conversely, it has been argued that sustained pressure from the EU was successful in helping to remove Malta from the FATF grey list in June 2022, following a twelve-month stint on the list.

What are the potential repercussions?

Grey listing by the FATF does not translate to any sort of sanctions whatsoever. Changes as a result of the FATF classification primarily come in the form of increased monitoring by the FATF. In addition, certain measures may be introduced by international organizations and banks. External financial institutions may for example increase their scrutiny of banking transactions. Although banks may enhance certain diligence requirements involving Gibraltar related payments, business operations are not expected to be negatively affected to a material degree. Whilst on the grey list, Gibraltar residents and local businesses may also face increased scrutiny when conducting international business. However, we note that to date, Finsbury has not experienced increased transaction scrutiny from local or international banks. 

It is the responsibility of the Government of Gibraltar to work closely with the FATF to ensure compliance of the two unresolved recommendations which relate to supervision. This will likely mean that Gibraltar will strengthen oversight and enforcement by local regulatory bodies, particularly over the online gambling and the legal sectors, which were the subject matters of the recommendations made by the FATF. As a result we expect to see a further tightening of enforcement activity by the Gibraltar authorities in advance of the resolution of the two recommendations which remain outstanding.

Looking forward

Considering that Gibraltar only has 2 Recommended Actions outstanding, Finsbury firmly believes that Gibraltar will be successful in addressing the outstanding points and will thereby be removed from the FATF grey by the next meeting in May 2023. Our confidence centres around Gibraltar’s success to date in addressing all other FATF recommendations, as well as Gibraltar’s concerted and continued willingness to comply with international standards.

While we do not necessarily agree that Gibraltar’s FATF classification is warranted, Gibraltar will use this opportunity to bolster its supervisory regimes and emerge as a financially more robust and compliant jurisdiction, favourably benchmarked against the leading economies of the world. Gibraltar has always prided itself on its robust compliance with international standards and has time and again demonstrated that it will work to embrace compliance as a positive way in which to conduct business.

If you have any queries over this matter or would like to discuss it further, please let us know.


LATEST NEWS

2022 Budget Changes

4 July 2022

Post-Covid Economy[...]

READ MORE

Tenth Principle added to Gibraltar's Virtual Asset Legislation

27 April 2022

Securing market integrity[...]

READ MORE

The Passing of David Hassan

8 April 2022

In Loving Memory[...]

READ MORE