An exclusive article by Fred Kahn

The 2024-2025 FATF report rightly recognises significant global effort, yet it also exposes persistent inefficiency at the core of anti-money laundering and counter-terrorism financing enforcement. Nearly 200 jurisdictions have been assessed, and technical compliance exceeds 75 percent in major areas, but the same report identifies deep structural deficiencies in investigating money laundering and terrorism financing. Sixty-nine percent of jurisdictions still show major or structural weaknesses in terrorism financing investigations. The contrast between formal compliance and real enforcement is systemic and difficult to ignore.

FATF effectiveness gaps in anti-money laundering and counter-terrorism financing

The global framework is built around the 40 Recommendations, which form the backbone of anti-money laundering and counter-terrorism financing standards. Technical compliance with these standards has improved significantly, with levels now exceeding 75 percent across major areas. This indicates that most jurisdictions have enacted the required laws, regulations, and institutional arrangements.

However, effectiveness remains uneven. Sixty-nine percent of jurisdictions assessed in the latest round exhibit major or structural deficiencies in effectively investigating, prosecuting, and convicting terrorism financing cases. Legislative alignment does not automatically translate into operational success. While legal frameworks exist, investigative capacity, prosecutorial expertise, and interagency coordination often remain limited.

Money laundering effectiveness raises similar concerns. Global asset recovery efforts still fall short of addressing the hundreds of billions in criminal proceeds generated annually. Confiscation and recovery of illicit assets are central to disrupting criminal enterprises, yet many countries remain ineffective in measures designed to defend and protect financial systems and businesses from illicit finance.

Fraud is cited in 89 percent of mutual evaluation reports, making it the second most common predicate offence after corruption. This demonstrates widespread exposure within financial systems. Despite this prevalence, coordinated responses that link financial intelligence, supervision, and prosecution remain inconsistent.

The peer review process itself is rigorous. It includes desk-based reviews of laws and systems, on-site visits lasting two to three weeks, and extensive discussions at the plenary level. Each evaluation spans around 16 months. Even within this structured system, the findings repeatedly highlight deficiencies in risk understanding, investigation, prosecution, and asset confiscation.

The pattern is clear. Countries may demonstrate strong technical compliance, yet struggle to deliver measurable disruption of criminal proceeds or terrorism financing networks. This disconnect is the most significant finding within the report.

Structural weaknesses in risk understanding and supervision

The risk-based approach remains central to the international standard. Countries are required to identify, assess, and understand their money laundering and terrorism financing risks, then allocate resources proportionately. Implementation, however, is uneven.

Only 53 percent of countries update their national risk assessments every two to three years. Eighty percent report challenges in collecting relevant data, and 35 percent highlight coordination issues linked to limited political commitment. Without reliable data and consistent interagency cooperation, risk-based supervision becomes largely theoretical.

The report identifies contextual factors influencing terrorism financing risk, including porous borders, informal or cash-based economies, weak governance, systemic corruption, and high levels of criminality. These structural vulnerabilities limit the ability of financial intelligence units and law enforcement agencies to convert intelligence into effective prosecutions.

Supervisory effectiveness also varies widely. Although improvements are reported in jurisdictions under increased monitoring, many countries still struggle to ensure consistent private sector implementation. Risk-based supervision requires not only legal authority but also trained personnel, sufficient resources, and sustained political backing.

Training and capacity-building efforts have expanded, including hundreds of officials qualified as assessors and enhanced support for low-capacity countries. These measures strengthen institutional frameworks, yet the overall assessment remains cautious. Global effectiveness is still described as work in progress.

Digital finance and evolving compliance pressure

Virtual assets present ongoing challenges. Three in four assessed jurisdictions are non-compliant or partially compliant with Recommendation 15, which addresses virtual assets and virtual asset service providers. Many jurisdictions have yet to regulate or fully assess risks associated with these entities.

Jurisdictions with materially important virtual asset activity show higher levels of progress, particularly regarding implementation of the Travel Rule, which requires originator and beneficiary information to accompany certain transfers. Nevertheless, global implementation remains uneven.

Payment transparency reforms under Recommendation 16 were finalised in June 2025 after broad consultation. The changes seek to ensure consistency of information in payment messages, clarify institutional responsibilities, and introduce tools to reduce fraud and error. These reforms align with broader efforts to improve cross-border payment transparency.

Despite attention on digital innovation, the dominant weaknesses identified in the report remain within traditional money laundering and terrorism financing enforcement. Virtual asset compliance gaps are significant, but they do not overshadow systemic deficiencies in investigation quality, prosecutorial outcomes, and asset recovery.

Proliferation financing receives attention through targeted financial sanctions linked to United Nations Security Council resolutions. Only 16 percent of countries demonstrate high or substantial effectiveness in implementing these sanctions. While important, this area remains secondary to the broader enforcement gaps in money laundering and terrorism financing.

Accountability, monitoring, and the path forward

The monitoring and listing process continues to serve as a key accountability mechanism. Five countries were removed from increased monitoring after addressing strategic deficiencies, while others strengthened investigations, prosecutions, supervision, and private sector implementation. Thirty-two countries have been supported through the listing process to address strategic weaknesses.

Revisions to listing criteria aim to reduce pressure on least developed countries and focus attention on jurisdictions posing greater systemic risk. Prioritisation includes membership status, World Bank high-income classification, and financial sector asset size above USD 10 billion. These changes are intended to enhance proportionality and effectiveness.

A new procedure allows countries and international financial institutions to raise concerns if the misapplication of standards disrupts legitimate non-profit organisation activity. This addresses concerns about unintended consequences, including financial exclusion.

Even with these structural reforms, the central challenge remains. Technical compliance levels are high, consultation processes are broad, and training initiatives have expanded. Yet a significant proportion of jurisdictions remain ineffective in investigating and prosecuting terrorism financing and in recovering criminal proceeds from money laundering schemes.

Nearly 200 jurisdictions have completed comprehensive evaluations. The next round emphasises effectiveness and impact, with shorter assessment cycles and practical roadmaps for improvement. Whether this shift produces measurable increases in convictions, confiscations, and disruption of terrorism financing networks will determine the credibility of the system.

The hidden reality within the annual review is not a lack of standards. It is the persistence of operational weakness despite formal compliance. Until investigation capacity, prosecutorial effectiveness, and asset recovery outcomes improve across a majority of jurisdictions, global anti-money laundering and counter-terrorism financing systems will continue to face justified scrutiny.

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Key Points

• 69 percent of assessed jurisdictions show major or structural deficiencies in terrorism financing investigations and prosecutions
• Global asset recovery remains insufficient relative to estimated criminal proceeds
• 89 percent of reports cite fraud as a common predicate offence
• 80 percent of countries report data collection challenges in national risk assessments
• Three in four jurisdictions remain non-compliant or partially compliant with virtual asset standards

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Related Links

• FATF Recommendations Overview
• FATF Mutual Evaluations and Follow-Up
• United Nations Security Council Sanctions Framework
• G20 Cross-Border Payments

Other FinCrime Central Articles About FATF Measures and Assessments

• Dangerous Illusion of Strength Behind FATF Consolidated Assessment Ratings
• FATF Redefines Asset Recovery Standards to Close Loopholes in 2025
• Inside FATF’s Revised R.16 That Redefines AML Compliance for Payments

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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