This paper examines what happens to a country’s capital flows after it is identified in the Financial Action Task Force (FATF)’s list of countries or jurisdictions with strategic deficiencies in their framework for Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT). The list of countries with such deficiencies is known as the gray list. How much gray-listingaffects a country’s capital flows is of interest to policy makers and investors. It is also of interest to the Fund in relation to country surveillance, prioritizing
The Financial Action Task Force’s gray list publicly identifies countries with strategic deficiencies in their AML/CFT regimes (i.e., in their policies to prevent money laundering and the financing of terrorism). How much gray-listingaffects a country’s capital flows is of interest to policy makers, investors, and the Fund. This paper estimates the magnitude of the effect using an inferential machine learning technique. It finds that gray-listing results in a large and statistically significant reduction in capital inflows.
JEL Classification Numbers: F21, F38, G