She applied the “Page 99 Test” to her new book, The Bankers' Blacklist: Unofficial Market Enforcement and the Global Fight against Illicit Financing, and reported the following:
Page 99 of The Bankers’ Blacklist is devoted to laggard states, that is, those few countries that have not changed their laws as result of the FATF noncomplier list. The text reads as follows:Visit Julia Morse's website.[When the] FATF removed Myanmar from the list in February 2016, the public statement became exclusively focused on Iran and North Korea, and nearly five years later, it remains this way.The remainder of the page is a table of all countries on the FATF noncomplier list as of June 2020.
Laggard States
The FATF noncomplier list has successfully incentivized policy change in nearly all listed countries. Only four countries listed today have been on the list for more than three years: Iran, the DPRK, Syria, and Yemen. Table 4.1 displays all the listed countries as of June 2020, organized by original listing date, and provides the reasons they have not yet been removed from the list. All the listed countries (with the exception of North Korea) have taken some measures to cooperate with the FATF and to implement their FATF action plans. Both Syria and Yemen have…
This test performs relatively well. It captures a core part of my book’s argument—the FATF noncomplier list has been remarkably successful at incentivizing countries to change their laws—and by discussing the FATF’s few policy failures, it indirectly highlights what makes the noncomplier list so successful. The FATF noncomplier list works in large part because it outsources enforcement to the global banking network. When the FATF lists a country, international banks often shift how they do business with banks in the listed country. Banks, firms, and individuals in listed countries may find that it takes longer to transfer money or access the formal financial system, or pay higher costs for doing business. This unofficial market enforcement process causes the banking sector in listed countries to lobby governments in favor of FATF compliance, thus bringing about policy change.
My discussion of laggard states helps illustrate the importance of market enforcement as an unofficial process. The FATF’s list is powerful because it avoids direct coercion and thus can be deployed against a large variety of countries. But countries like Iran and North Korea are already subject to significant market pressure due to sanctions. They are significantly less integrated into global finance, and as a result, the FATF list creates few financial repercussions for these countries.
The laggard states discussion also highlights the technical nature of the FATF as an organization. At the time of publication, Syria and Yemen had both undertaken significant policy reforms due to listing; however, the FATF had yet to conduct on-site visits in the countries (due to the security situations), and therefore did not remove them from the list. The FATF’s focus on verifying reported change in part of what makes it a credible evaluator of state illicit financing policies, and this point is clearly illustrated on this page.
--Marshal Zeringue
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