Rethinking The Logic Behind FATF’s Grey List: Between Compliance and Capacity

What the Grey List Is and Isn’t

Each time the FATF updates its grey list, headlines fly, but context rarely follows.¹ ‘Country X added to the grey list’ is treated as shorthand for failure, corruption, or risk. The nuance that this is a reform signal (not a sanction) is often lost. The result? A technical process meant to guide reform is misread as a judgment of failure.

The grey list is not a blacklist. It is not a designation of failure or delinquency. Rather, it reflects a jurisdiction’s political commitment to reform and its ongoing engagement with FATF or a regional body. It’s a statement that a jurisdiction is dedicated to fixing strategic deficiencies in its anti-money laundering and counter-terrorism financing (AML/CFT) regime.

Let’s be precise:

Despite its reform-oriented purpose, the grey list still triggers very real reputational and operational consequences.

Reform Under Pressure: What the Grey List Reveals

FATF’s grey list has occasionally drawn criticism from observers who question why jurisdictions with significant exposure remain unlisted while others with visible progress are still monitored. Despite a robust technical framework, FATF’s grey-listing decisions often lack transparency, particularly when it comes to what constitutes systemic or international financial risk. The assessment methodology emphasizes reform needs but says little about global exposure. That gap matters as the analytical silence can distort the very purpose of the grey list.

Still, jurisdictions on the grey list are not exempt from scrutiny. Many of them face long-standing structural weaknesses in regulation, supervision, enforcement, or political will that expose global financial systems to risk. While FATF’s mandate is global, its methodology needs to define what constitutes ‘systemic or global risk’, so it does not leave room for interpretation when assessing countries with limited financial interconnection.

So, why were Bolivia and the British Virgin Islands (BVI) added to the grey list in June 2025? Let’s take a closer look.

Bolivia: Real Progress, Persistent Structural Gaps

In June 2025, Bolivia committed to work with the FATF and GAFILAT to improve its AML/CFT system. Bolivia, evaluated by GAFILAT in 2023, has shown progress in understanding its risks, improving asset seizure, and sharing financial intelligence (FININT). Yet it remains under monitoring due to persistent structural gaps, in investigative tools, DNFBP supervision, and enforcement of beneficial ownership rules. These issues reflect not denial, but institutional capacity constraints. And, this raises a deeper question: when does limited capacity become a systemic concern?

Bolivia is under monitoring due to several outstanding deficiencies that continue to affect the effectiveness of its AML/CFT regime. The country is expected to:

• Ensure special investigative techniques (like undercover operations or wiretaps) can be applied to ML cases
• Supervise real estate agents, lawyers, accountants, and dealers in precious metals and stones (DPMS) using a risk-based approach
• Enforce beneficial ownership transparency, with sanctions for breaches
• Increase ML investigations and prosecutions

Between Commitment and Constraints

Bolivia’s inclusion in the list highlights a difficult reality: even committed jurisdictions can remain vulnerable, especially when resources are scarce and implementation is uneven. Its deficiencies are not about denial or inaction, but they reflect deeper issues of institutional capability. This is where the grey list process becomes blurred: When does a country’s need for reform also become a global concern?

Bolivia is not a financial center. It is not a hub for legal entity creation or offshore banking. Its financial flows are largely domestic or regional. So, what makes it a risk to the international financial system?

These questions don’t excuse existing gaps; they aim to clarify expectations. If systemic exposure plays a role in listing decisions, then it should be explicitly defined and transparently assessed.

British Virgin Islands: High-Volume Jurisdiction Navigating Reform Pressures

Also in June 2025, the BVI made a political commitment to work with the FATF and CFATF. Since its evaluation in 2023, the jurisdiction has:

• Increased international cooperation
• Strengthened its terrorism financing strategy
• Assessed TF risks in the non-profit sector
• Enhanced supervision related to targeted financial sanctions

Despite this, it is expected to:

• Improve risk-based supervision of trusts and company service providers (TCSPs), investment businesses, and virtual asset service providers (VASPs);
• Ensure beneficial ownership information is available, accurate, and enforceable;
• Enhance the quality and relevance of suspicious activity reports (SARs);
• Investigate and prosecute ML cases proportionate to its risks;
• Confiscate more criminal assets;
• Operationalize a new asset management framework.

A Small Jurisdiction with a Global Footprint

With a population of around 30,000, hosting over 300,000 active companies and adding approximately 30,000 new incorporations each year (CFATF, 2023), the BVI has long been in the spotlight as an offshore financial center. Its inclusion on the grey list is less about whether it’s taking action, and more about the FATF’s raising the bar. The expectations placed on the BVI reflect the global weight of its financial services sector, not just its technical compliance.

Nevertheless, real vulnerabilities remain:

• The scale of company and trust services offered from the BVI means massive exposure to front companies and shell entities.
• Supervision of complex intermediaries, including crypto platforms and high-end financial services, is still catching up to the risk.
• Information-sharing with other countries may be improving, but asset recovery and ML prosecutions remain rare relative to the jurisdiction’s exposure.

Rethinking Risk and Reform

This analysis proposes a shift in perspective and reframes the grey list not as failure, but as a reform milestone; a moment to scrutinize the quality of reforms, examine the actual risks involved, and ask tougher questions about impact, capacity, sustainability, and equity in global compliance.

FATF’s methodology recognizes that AML/CFT effectiveness must be assessed in light of a country’s context, i.e., its economic structure, institutional maturity, and risk profile. In practice, however, some inclusions in the grey-list may raise questions about how these principles are applied, especially when jurisdictions listed are not a financial center or offshore hub. This invites a deeper conversation: How should the principle of proportionality shape monitoring decisions, particularly for lower-capacity states with limited global financial interconnection?

The grey list remains a potentially powerful tool, but only if it is applied with clarity, proportionality, and consistency. If FATF expects jurisdictions to implement reforms under pressure, it must apply the same rigor to defining systemic or global risk. Without that, inclusion decisions risk conflating domestic capacity constraints with international financial threats. In that regard, it would be desirable to:

• Define systemic or global exposure using measurable criteria.
• Ensure transparency in the listing and delisting process.
• Recognize progress with interim or graduated acknowledgment mechanisms.
• Provide technical support to jurisdictions facing capacity gaps.

Defining systemic risk could include metrics such as cross-border transaction volume, correspondent banking exposure, number of foreign-registered legal entities, and use of offshore services. None of these are currently articulated in the grey-listing process.

The challenge is to maintain pressure for reform without reinforcing punitive or simplistic narratives.

At FININTEGRA, we believe global compliance must be as smart as it is strong. Join the conversation and help reframe how we think about risk, reform, and responsibility.

Sources:

• CFATF. (2023). Anti-Money Laundering and Counter-Terrorist Financing Measures: Mutual Evaluation Report – Virgin Islands (British). Retrieved from FATF-GAFI.
• FATF. (2022, updated 2024). Methodology for Assessing Technical Compliance and Effectiveness of AML/CFT/CPF Systems. Retrieved from FATF-GAFI.
• FATF. (2023). Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations. Retrieved from FATF-GAFI.
• FATF. (2025, June 13). Jurisdictions under Increased Monitoring. Retrieved from FATF-GAFI.
• GAFILAT. (2023). Mutual Evaluation Report of the Plurinational State of Bolivia (4th Round).

Notes:

1. The FATF publishes two key monitoring lists three times a year, as part of its oversight framework for global AML/CFT regimes.
   ·       High‑Risk Jurisdictions subject to a Call for Action. Often referred to as the “black list,” this includes countries with significant strategic deficiencies in their AML/CFT or proliferation financing regimes. FATF calls on its members to apply enhanced due diligence and, in the most serious cases, to consider countermeasures to protect the international financial system.
   ·       Jurisdictions under Increased Monitoring (Grey List). These jurisdictions have committed to resolving identified strategic deficiencies within agreed timeframes and are subject to ongoing FATF review. While commonly misunderstood, inclusion on the grey list reflects engagement, not non-compliance. ↩︎