Grahame Jackson
27 June 2022

Gibraltar, the Financial Action Tax Force and “increased monitoring”


Hassans partner Grahame Jackson outlines Gibraltar’s progress in improving its compliance with FATF standards

 

The Financial Action Task Force (FATF) is an international organisation consisting of 39
countries which has a network of regional FATF style entities across different parts of the
world. The FATF is responsible for ensuring rigour and implementation of a number of
financial services regulations designed to prevent abuse of global financial services systems.
Through its Moneyval arm, the FATF undertakes regular reviews of all the jurisdictions
within its remit and grades them into three categories: ordinary status; jurisdictions under
“increased monitoring”; and high-risk jurisdictions subject to a call for action. Today,
Gibraltar has moved from the ordinary status to the list of jurisdictions requiring “increased
monitoring”.

In 2019, Gibraltar underwent a Moneyval review. By December 2021, it had made good
progress in resolving all the recommendations contained in the report that was published
following the review. However, as highlighted in today’s FATF papers, two
recommendations remain outstanding; as a consequence, “increased monitoring”
procedures have been activated.

What this is and is not

It is important to understand that the FATF lists are not related to tax. The OECD and the EU
(as well as many jurisdictions in their own right) maintain “blacklists” and “greylists” (or lists
of “non-cooperative jurisdictions”) in connection to the tax systems of other jurisdictions.
The FATF listing system is not that, rather it is a measure of the compliance with a set of
provisions designed to stop abuse of financial systems. Inclusion on the OECD and EU lists
would incur immediate sanctions on those subject to taxation in Gibraltar, there are no
similar sanctions under the FATF “increased monitoring” status. Gibraltar is and remains
fully compliant with international standards in regard to the design of our taxation system
and our compliance with international exchange of information regulations (and
participates in wider information exchange than the UK or many other jurisdictions).
This change in status is, of course, still a serious matter and should not be taken lightly.
However, moving onto the list of jurisdictions subject to increased monitoring does not
imply punishment. Instead, it identifies areas which require improvement and encourages
jurisdictions in this position to engage with the FATF to set out an action plan to resolve
outstanding issues.

It is our understanding that the Gibraltar Government is fully engaged. There are no direct
economic or procedural sanctions levied against jurisdictions which are under increased
monitoring, though financial institutions will most probably have increased requirements for
due diligence and anti-money laundering requirements when dealing with payments and
transactions originating in and in connection with Gibraltar.

How common is ‘Increased monitoring”?

Gibraltar is not the first jurisdiction to be moved onto “increased monitoring”. In March
2021, Malta was placed under increased monitoring, although this has now been removed.
The act of placing an EU jurisdiction on the list sent a message that the FATF was
approaching this without fear or favour. In previous years, countries such as Iceland,
Mauritius, and the Cayman Islands, among others, have both been placed under increased
monitoring and, in many cases, removed from it.

Impact

As outlined above, there will be no direct sanctions, either on Gibraltar or its financial
institutions, though the change in status will not go unnoticed by global financial
institutions. Much of the impact on countries such as Pakistan has been around limitations
on their ability to access IMF funding: that kind of impact is not relevant to Gibraltar.
Instead, we expect to see a further tightening of enforcement activity by the Gibraltar
authorities and the resolution of the two recommendations which remain outstanding.

How long will this last?

In our experience, the minimum period for which Gibraltar will remain under increased
monitoring will be one year. This is a function of how long it will take to resolve any issues,
and also how long it will take for the FATF to review implementation. Removal will also be
subject to matters of timing of the next relevant meeting at which Gibraltar’s removal can
be considered. We are confident that both the Gibraltar Government and the financial
services sector in Gibraltar will do their utmost to ensure compliance in the shortest
possible timescale.

Increased vigilance

Gibraltar fleetingly appeared on the OECD list of non-cooperative jurisdictions 22 years ago.
The Gibraltar authorities have avoided inclusion in any similar listing arrangements ever
since by adopting a consistent approach and working to embrace compliance as a positive
way in which to tackle important issues.

Gibraltar prides itself on its compliance with international standards. We are confident that,
whilst today’s FATF resolution to place Gibraltar under “increased monitoring” should be
taken as a call to increased vigilance, the authorities in Gibraltar will continue to work in
fulfilling the requirements of the FATF and that Gibraltar will be removed as quickly as
possible from “increased monitoring”.

More about the FATF

The Financial Action Task Force (FATF) is the global money laundering and terrorist financing
watchdog. This inter-governmental body sets international standards that aim to prevent
these illegal activities and the harm they cause to society. As a policy-making body, the FATF
works to generate the necessary political will to bring about national legislative and
regulatory reforms in these areas.

With more than 200 countries and jurisdictions committed to implementing them, the FATF
has developed the FATF Recommendations, or FATF Standards, which ensure a co-ordinated
global response to prevent organised crime, corruption and terrorism. They help authorities
go after the money of criminals dealing in illegal drugs, human trafficking and other crimes.
The FATF also works to stop funding for weapons of mass destruction.

The FATF reviews money laundering and terrorist financing techniques and continuously
strengthens its standards to address new risks, such as the regulation of virtual assets,
which have spread as cryptocurrencies gain popularity. The FATF monitors countries to
ensure they implement the FATF Standards fully and effectively, and holds countries to
account that do not comply.

For more information, please visit https://www.fatf-gafi.org/about/ For more detail on the
FATF’s assessment of Gibraltar, please visit https://www.fatf-gafi.org/countries/#Gibraltar

 

Grahame Jackson

Grahame is a Partner with Hassans specialising in Tax. After graduating with his first degree
(English & Philosophy at Keele), he ran his family’s printing business for nine years before
moving to Gibraltar. For more information, please visit https://www.gibraltarlaw.com/our-people/grahame-jackson/
Grahame is also a co-host on the International Tax Bites podcast.
Please visit https://open.spotify.com/episode/7K4eEeiD8TKdvvvAwJr5R1 to hear more about
how the FATF works.

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