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FATF issues expanded risk statement on russia, upholds membership suspension but fails to blacklist the country

The Financial Action Task Force (FATF) issued an expanded statement about the risks that russia poses to the global financial system but decided to continue russia’s membership suspension without imposing further restrictive measures.

The FATF said that "members note with concern the potential risks to the international financial system, including the growing financial connectivity of Russia with countries subject to FATF countermeasures, risks of proliferation financing, and malicious cyber activities and ransomware attacks”. The FATF also called upon all jurisdictions to continue to remain vigilant due to these risks.

While this expanded guidance is welcomed, it fails to comprehensively address the Kremlin's continued and deliberate flouting of FATF’s standards and principles since it was suspended a year ago. The Ministry understands the political challenges of reaching a consensus on further measures, yet the evidence shows that more must be done to counter the threats russia poses to the integrity of the global financial system.

In the past year, russia has ramped up its arms trade with the FATF-blacklisted states of Iran and North Korea. Since December, evidence continues to emerge that Russia has been procuring North Korean missiles to use on the battlefield against Ukraine in violation of UN sanctions. This week, new reports appeared suggesting Iran has shipped ballistic missiles to russia.

Increased financial and banking ties with russia provide heavily sanctioned North Korea, Iran and Myanmar with a back door to access the global financial system, creating serious challenges for FATF and its members.

At the next plenary, FATF must take stronger restrictive action to mitigate these serious threats. Individual countries, however, do not need to and must not wait for the FATF’s processes to result in further restrictive measures. They can place russia on their national high-risk jurisdictions lists that would require increased scrutiny of all russia-linked transactions and can continue to introduce other restrictive measures to prevent abuse of their systems for sanctions evasion, money laundering and financing of terrorism by the Kremlin.

Following the conclusion of the FATF plenary, Sergii Marchenko, Finance Minister of Ukraine, said:

 “We expected stronger action from FATF in the face of mounting evidence of russia’s violations. FATF’s expanded russia risk guidance is welcomed but falls short of the appropriate response – placing russia on the blacklist. Since its suspension a year ago, russia has strengthened ties with blacklisted North Korea and Iran and ramped up malicious cyber activities. FATF – an institution entrusted with upholding the security of the global financial system - must live up to its mandate. Lack of stronger restrictive measures dangerously plays into the Kremlin’s hands, giving it and potentially other malign actors the green light to continue the incremental destruction of the rules-based international framework.”

Head of the State Financial Monitoring Service of Ukraine Igor Cherkaskyi said:

“We welcome FATF’s expanded statement about the risks posed by Russia – it should serve as guidance for anybody engaging in any russia-related transactions. However, it is crucial that this statement is accompanied by further actions. Almost daily, russia makes an increasingly compelling case for its blacklisting, either by providing blacklisted countries, like North Korea, Iran and Myanmar, a back door to the global economy or by flouting FATF principles on financial transparency. We will continue to cooperate with the FATF to obtain a comprehensive decision based on the process's technical nature.”