FATF brings Iraq back on gray list, raising compliance hurdles for foreign capital

Bad news for FDI: Iraq is back on FATF’s gray list. The global watchdog leading the fight against illicit banking has just made it more difficult for foreign players to do business in Iraq, placing the country on its “gray list.” The listing by the Financial Action Task Force (FATF) means that financial institutions abroad now have to treat transactions to and from Iraq as high risk, and as such, requiring higher compliance controls.

Why it matters: Some foreign banks could opt to simply stop transacting with Iraqi counterparts, and the listing will make it more expensive for those that do continue to trade with the country. The result: It just got more expensive (and more difficult) to repatriate profits or move capital into the country to support investments.

The listing comes amid unconfirmed reports from Iraqi and regional outlets that Prime Minister Ali Al Zaidi sacked the central bank governor Ali Al Allaq as part of a wider shuffle of senior leadership that also includes top national security posts.

Syria is still on the list

Syria missed a critical window that could have substantially de-risked its business environment. That means Syria will have to wait until the upcoming review round, whose results are expected next October. FATF updates its list three times a year.

Syria is in line to get off the list — the missing piece of the puzzle is an on-site visit by FATF that officials there have sidestepped, citing security concerns. “FATF determined that Syria had substantially addressed its action plan at a technical level, including by criminalising terrorist financing and establishing procedures for freezing terrorist assets,” the global watchdog said, adding that the visit is required to make sure progress is reflected on the ground.

BACKGROUND- We previously flagged the delay of FATF’s on-site visit as the final hurdle for de-listing Syria. “What needs to happen is a technical visit from the FATF global team. They need to do an on-site assessment. And no one in the Syrian government is pushing the FATF organization to do this visit fast enough. They do the visit for one week, and the removal could be out,” Sima Partners Managing Partner Hani Al Jundi previously told us.

It was not all bad news for the region: Algeria made it off the gray list, with FATF saying the country made progress on anti-money laundry and compliance regimes.