Saudi Arabia Joins FATF as the First Arab Nation to Do So
In a significant move towards combating money laundering and terrorist financing, Saudi Arabia has joined the Financial Action Task Force (FATF), becoming one of its 38 members. This decision not only positions Saudi Arabia to contribute to global efforts against financial crimes but also serves as an example to other Arab countries.
Saudi Arabia's adherence to FATF guidelines has reduced its perceived risks for global entrepreneurs and companies, leading to an increase in international interest. International companies are increasingly interested in conducting financial transactions with Saudi Arabia, resulting in an expansion of their reach and the establishment of new branches in the country.
Compared to Saudi Arabia, many other countries have made notable progress in Anti-Money Laundering (AML) compliance, especially in stricter regulatory frameworks and broader enforcement measures. For instance, the United States enforces the USA PATRIOT Act, which mandates detailed Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), and Suspicious Activity Reporting (SARs). The European Union's AMLD6 directive expands the scope of AML to cover cyber fraud and tax crimes, with tougher penalties and increased criminal liability for institutions involved in financial crime.
However, the FATF continues to play a critical role by updating standards, enhancing enforcement frameworks, and applying pressure on non-compliant countries through international coordination and public identification of risks. Countries like Iran and North Korea, for example, have been subject to FATF's high-risk and non-cooperative designations due to serious AML/CFT deficiencies. The FATF typically addresses non-compliance by publicly identifying jurisdictions with strategic deficiencies, urging them to develop action plans to combat money laundering and terrorist financing.
The FATF's approach includes continuous monitoring through mutual evaluations and targeted reports, and it promotes international cooperation to limit illicit financial flows from such states. Countries like Iran and North Korea often face countermeasures such as restrictions on correspondent banking, increased due diligence requirements by financial institutions worldwide, and inclusion on various sanction lists to isolate rogue actors from the global financial system, thus pressuring improvements in AML compliance.
In the broader AML landscape, progress varies significantly across countries and sectors. For example, FATF’s recent targeted reviews on virtual assets show that about half of jurisdictions regulating Virtual Asset Service Providers (VASPs) are still struggling with full compliance, highlighting ongoing challenges even in advanced frameworks.
Saudi Arabia’s AML progress is generally aligned with global standards, but countries like the US and EU have implemented more comprehensive and multifaceted rules that tackle evolving financial crime threats aggressively. The FATF's stance on North Korea as a threat to the international financial system underscores the importance of global cooperation in combating financial crimes.
In summary, while Saudi Arabia has made significant strides in AML compliance, countries like the US and EU have established more mature systems with rigorous enforcement. The FATF continues to address AML risks from non-compliant states like Iran and North Korea through a combination of public pressure, international cooperation, and sanction-based countermeasures. This focus on AML compliance and financial security may encourage other countries to follow Saudi Arabia's lead in strengthening their defenses against financial crimes.
References: [1] FATF, (2021). FATF Public Statement - Plenary meeting, February 2021. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/communications/2021-02-23-fatf-plenary-statement.html [2] FATF, (2021). Virtual Assets - Review of the Travel Rule. Retrieved from https://www.fatf-gafi.org/publications/fatfgeneral/documents/virtual-assets-review-of-the-travel-rule.html [3] FATF, (2021). FATF Public Statement - Plenary meeting, October 2020. Retrieved from https://www.fatf-gafi.org/media/fatf/documents/communications/2020-10-16-fatf-plenary-statement.html
Businesses are increasingly interested in conducting financial transactions with Saudi Arabia, given its adherence to the Financial Action Task Force (FATF) guidelines, which have reduced the country's perceived risks. In contrast, the United States enforces stricter regulatory frameworks and broader enforcement measures, such as the USA PATRIOT Act, mandating detailed Customer Due Diligence (CDD), Enhanced Due Diligence (EDD), and Suspicious Activity Reporting (SARs).
