Chapter 1: Introduction

The recent evaluation of Argentina by the Financial Action Task Force (FATF) has sparked intense debate regarding the effectiveness of the country?s anti-money laundering and counter-terrorism financing (AML/CFT) system. Although Argentina managed to avoid being included on the "grey list," this does not mean that its performance was optimal. In fact, the report published on December 18, 2024, in Paris highlights that, despite significant regulatory progress, weaknesses persist in the effective implementation of prevention and control policies.

A country's inclusion on FATF?s "grey list" entails financial restrictions and stricter scrutiny from international organizations, which could ultimately lead to unfavorable consequences for the country, particularly in terms of access to credit programs from the World Bank and the International Monetary Fund?both institutions that collaborate with FATF.

In this case, Argentina finds itself in an intermediate position: it has not been immediately sanctioned, but it has been placed under an enhanced supervision regime. This will require constant and coordinated efforts from all stakeholders in Argentina's AML/CFT system to demonstrate concrete progress in the fight against money laundering and terrorist financing (ML/TF).

This article aims to provide a detailed analysis of the findings of FATF?s report (within the context of developments in 2024 and the evolution of Argentina?s AML/CFT system in recent years), the deficiencies that still persist, and the economic impacts of enhanced supervision. It will also examine international regulatory trends and the measures adopted by other countries in similar situations.

Chapter 2: FATF and Its Role in Combating Money Laundering and Terrorist Financing (ML/TF)

As stated in previous articles by this author, money laundering is a crime with transnational characteristics and can be a manifestation of transnational organized crime. This offense poses a serious threat to global economic stability, as well as to individual nations, particularly by undermining the integrity of financial systems worldwide and contributing to increased criminal activity.

This illicit activity is generally fueled by funds from drug trafficking and political corruption, or, in some cases, a combination of both factors. Additionally, it is linked to heinous crimes such as human trafficking, sexual slavery, organ trafficking, and others.

To combat this crime globally and collectively, the Financial Action Task Force (FATF) was established in Paris in 1989 by the Group of Seven (G7)?the United States, Canada, Germany, France, Italy, Japan, and the United Kingdom.

Initially, the group's primary concern was fighting money laundering (which at the time was largely linked to drug-related crimes). However, following the September 11, 2001, attacks on the Twin Towers, counter-terrorism financing was added to FATF?s mandate.

As a result, FATF became the most influential international body in AML/CFT efforts, with its primary and most significant functions being the study and issuance of recommendations on combating money laundering, terrorist financing, and the proliferation of weapons of mass destruction. Additionally, FATF evaluates member jurisdictions to ensure they have incorporated these recommendations into their domestic regulations (Technical Evaluation) and assesses the effectiveness of AML/CFT policies implemented through such regulations.

Chapter 3: The FATF Evaluation System

The primary function of the organization in evaluating the implementation of standards by countries is carried out through the process known as "Mutual Evaluations," through which the member country or jurisdiction is assessed in two central aspects:

(a) The technical compliance with FATF Recommendations, which involves determining the degree of implementation of the preventive requirements arising from them in the internal regulations of the evaluated State; and (b) The effectiveness of the AML/CFT system in terms of the results obtained by the country in prevention matters.

This is to determine to what extent a country's legal and institutional framework produces the intended results.

Some of the key areas evaluated to determine the system?s effectiveness include, among other aspects, the verification of the implementation of Customer Due Diligence (CDD) and Know Your Customer (KYC) systems; effective supervision of financial institutions and relevant non-financial sectors; the number of proceedings initiated by the Financial Intelligence Unit (FIU); the number of Suspicious Transaction Reports (STRs) filed and those reported to the Public Prosecutor?s Office; the number of cases opened in the judiciary and the number of convictions; the degree of independence and autonomy of the Financial Intelligence Unit (FIU) from the current government; the degree of international cooperation and information exchange measures between countries and international prevention bodies; the level of identification and mitigation of specific risks related to money laundering and terrorist financing; the extent of achievements obtained in the effective and timely confiscation and seizure of assets related to illicit activities, etc.

The evaluation result is then discussed in the FATF plenary session, from which two public documents emerge three times a year. These documents identify jurisdictions that satisfactorily meet the two evaluation parameters mentioned above, as well as jurisdictions with weak measures to combat money laundering and terrorist financing that require special monitoring ("Grey List") and jurisdictions classified as "High-Risk" ("Black List").

In the so-called "Grey List," technically referred to as "Jurisdictions under Increased Monitoring," jurisdictions with weak prevention systems are described. In this document, FATF identifies each of the countries actively working with it to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing.

The fact that a country is placed on the "Grey List" means that it has committed to quickly resolving the identified strategic deficiencies within agreed timelines and is subject to increased monitoring. However, it also exposes the country's deficiencies in its systems for combating money laundering and terrorist financing crimes.

FATF?s process of publicly listing countries with weak anti-money laundering and counter-terrorist financing regimes has proven to be effective.

In this regard, and as indicated on FATF?s website, as of October 2024, this international organization has reviewed and evaluated more than 137 countries and jurisdictions (including Argentina) and publicly identified over 112 of them as countries with weak regimes. Out of these, 85 have successfully implemented the necessary reforms to address their deficiencies in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) prevention and have been removed from the process.

As a result of the consequences that arise from the publication of a jurisdiction on FATF?s lists, FATF Recommendations are considered "Soft Law." While non-compliance does not open the path for claims before competent international courts, it does lead to so-called "indirect sanctions," such as the inclusion of the country on lists, the loss of membership, or negative political and economic consequences such as difficulties in accessing financing programs from the World Bank or the International Monetary Fund, entities that actively collaborate with FATF.

Chapter 4: Evaluations of Argentina and the Evolution of Its AML/CFT System

In the case of Argentina, the country has been evaluated four times, with the most recent evaluation taking place in 2024. During this last evaluation, Argentina received an on-site visit from FATF?s assessment team in March of that year.

FATF evaluations have had a tremendous impact on our country, demonstrating their great effectiveness. The evolution of Argentina?s repressive and preventive system for combating money laundering and terrorist financing has been shaped by regulations that, in almost all cases, were approved as a consequence of the country's desire to align with international standards and as a reaction to being subjected to Mutual Evaluations and addressing the observations made over the years, in order to avoid being placed on the Grey List and suffering the negative consequences associated with it.

The result of this alignment with international requirements is Argentina?s regulatory framework in this area, from which its Prevention System derives. As mentioned in previous articles, this evolution can be divided into well-defined stages or phases.

In the first stage, Argentina, not yet a FATF member, criminalized money laundering through Law 23.737 of 1989 as a form of concealment, but limited it to the predicate offense of illegal drug trafficking, in line with the 1988 United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances.

From the year 2000, a second stage of evolution of the preventive and repressive system begins, as Argentina becomes a FATF member that year. As a result, it embarks on a path of adaptation to FATF and its standards, enacting Law 25.246, which modifies the criminal treatment of money laundering to align with new forms established in international conventions, particularly the 2000 Palermo Convention and FATF Recommendations. Consequently, money laundering is no longer limited to drug trafficking but extends to any crime within the penal system.

Additionally, in the preventive aspect, the enactment of this law laid the foundation for Argentina?s preventive system, creating the FIU, defining its powers and obligations, determining the entities subject to the law, describing the applicable obligations for these entities, the sanctioning system, and other necessary guidelines for establishing the mixed (state/private sector) prevention system for money laundering and terrorist financing.

After the enactment of Law 25.246 upon Argentina?s entry into FATF, a decade passed where the country failed to regulate this law. During this time, there was a gap in issuing specific FIU resolutions to regulate and govern the specific obligations in money laundering prevention that economic entities listed in Article 20 of the aforementioned law had to comply with, as well as issues related to the inspection and supervision regime, etc.

Regarding the internal treatment of terrorism and terrorist financing crimes in its repressive aspect, these were only incorporated into the Penal Code in June 2007 with the enactment of Law No. 26.268, which introduced these offenses under Articles 278 ter (terrorism) and 278 quater (terrorist financing), respectively. In its preventive aspect, the same law introduced a series of reforms to Law No. 25.246 to expand the FIU?s competence to investigate these new crimes.

In this context of nearly a decade of neglect, except for the minimal reforms mentioned above, Argentina underwent the 3rd Round of Mutual Evaluations by FATF, in which, due to severe deficiencies found in its preventive and repressive system for money laundering and terrorist financing, it received a very low rating and, as a result, was placed on the "Grey List" in October 2010. At that time, the report showed non-compliance with 49 out of the 54 strategic guidelines.

The beginning of the third stage of Argentina?s preventive system evolution can be pinpointed to its inclusion on the Grey List, which led to a strong national response aimed at reversing this result. This resulted in modifications to the criminal offenses of money laundering, terrorism, and terrorist financing, as well as the issuance of most FIU resolutions and money laundering regulations in the following years (especially between 2011 and 2012). These regulations were not updated for more than a decade until 2018 and more extensively since 2022, in preparation for the upcoming fourth round of mutual evaluations in 2024.

In this third stage, Law 26.683 was enacted in June 2011, through which the Penal Code was modified, ceasing to treat money laundering as concealment and instead considering it as an autonomous crime defined in Article 303 of the Penal Code, thus adapting to the FATF Recommendations. With the same purpose of readjusting to the changes introduced in those international standards, in December 2011, Law No. 26.734 was enacted, which modified the classification of the crime of terrorism by incorporating Article 41 quinquies into the Penal Code and the crime of financing terrorism into Article 306.

As has historically happened, these criminal offenses, over time, became outdated concerning the recommendations made by the FATF in this regard, which are why they were later subject to updates through Law 27.739, which we will examine in greater detail.

After evaluating all the changes introduced to the Argentine preventive and repressive system in this stage, Argentina was able to demonstrate to the FATF significant progress in implementing measures to combat the crimes in question, which earned it removal from the FATF?s Grey List in the 2014 FATF Members' Plenary, based on the results of this evaluation (in October 2014).

Also, in this case, although there were significant improvements in the system during that stage, after almost a decade of these changes being in force, the Argentine system again became outdated concerning the evolution of what was required by international standards.

For this reason, the fourth stage of evolution emerged, in which, after almost a decade of inaction, it was decided once again, with a view to facing the fourth round of mutual evaluations to be carried out in 2024, to implement an action plan to update the Argentine system to international standards and comply with the remaining FATF Recommendations.

Within this stage, specific regulatory changes made by the FIU between 2017 and 2018 were identified, relating to Policies on Politically Exposed Persons (FIU Res. No. 134/2018), the application of the Risk-Based Approach in certain regulations related to obligated entities in the financial sector (Financial Entities - FIU Res. No. 30-E/2017 -, Capital Markets - FIU Res. No. 21/2018 -, Insurance sector - FIU Res. No. 28/2018 -) and supervisions and inspections to be carried out both by the FIU (FIU Res. No. 154/2018) and by the Central Bank of the Argentine Republic (FIU Res. No. 97/2018) and other Specific Oversight Bodies such as CNV, SSN, and INAES (FIU Res. No. 155/2018). Beyond this, it was clear that our internal regulations still had many pending issues that needed to be addressed before being evaluated again.

In this regard, except for the aforementioned 2018 reforms, and considering that most updates dated back to 2011 and 2012, over time, areas were identified where more efforts needed to be made, such as the effective application of sanctions, the identification of ultimate beneficiaries in certain cases, the national risk assessment for money laundering and terrorist financing in Argentina, the application of the Risk-Based Approach concept in the regulations and policies required of obligated entities, etc. This, in addition to the need to include small changes in the legal definitions of the aforementioned crimes that required implementation to include matters recommended by the FATF, as well as adding the classification of the crime of financing the proliferation of weapons of mass destruction, among others.

Knowing that Argentina would be subject to the Fourth Round of Mutual Evaluations in 2024, in the preceding years, the Argentine government's political will to prepare the ground for this evaluation was once again observed, taking action to fully update the Argentine repressive and preventive system to international standards and address the observed shortcomings to stay aligned with international practices and avoid being included again in the FATF Grey List.

Based on this, in 2021, what could be called the fifth stage of evolution and updating of our preventive and repressive system for the crime of money laundering and terrorist financing began, with a marathon effort that involved carrying out multiple actions, including, among others, conducting the National Risk Assessment, systematic reforms of all FIU Resolutions?both those related to the specific policies of each type of obligated entity and those applicable to all obligated entities or those related to the structure of the FIU, supervision processes, administrative sanctioning regime, etc.?mostly under the presidency of Juan Carlos Otero in said organization and the latest in 2024 under the presidency of Yacobucci.

Additionally, there was the comprehensive reform of Law 25.246 and the Penal Code through the enactment of Law 27.739, which, among other things, also created the centralized registry of Ultimate Beneficiaries within the scope of ARCA (formerly AFIP).

Once again, all of this was done as a reaction to fulfill the aspects of the Recommendations that Argentina had not yet incorporated into its internal regulations, to achieve a positive technical evaluation and avoid the FATF Grey List.

Chapter 5: Results of the Fourth Round of Mutual Evaluation.

Upon the conclusion of the Fourth Round of Mutual Evaluations, the FATF, in its plenary meeting held in Paris at the end of 2024, ultimately decided not to include Argentina on its "Grey List." This decision was made as the FATF identified a strengthening of Argentina's anti-money laundering and counter-terrorism financing laws and processes compared to the 2010 Mutual Evaluation, which had highlighted significant deficiencies.

This news was widely celebrated by the government and extensively reported in all Argentine media, due to its significance and impact in political and economic terms.

Nevertheless, it is important to highlight certain aspects that were not as emphasized when the evaluation results were made public, particularly the fact that, although Argentina was not included in the Grey List, it was (metaphorically) placed in quarantine, in a status close to that situation, should it fail to deepen the treatment of its deficiencies in the remaining issues.

Indeed, while not placing the country on the Grey List, the FATF made it clear that Argentina remains at a high risk of falling into said list, as it has been subjected to the regime of "Enhanced Follow-Up," with the obligation to report to the FATF at the end of 2025.

The FATF?s "enhanced follow-up" regime means that throughout this year, the country will be under a higher level of scrutiny and must report on its progress in addressing the deficiencies identified in its anti-money laundering and counter-terrorism financing (AML/CFT) system that still need to be perfected.

Essentially, it represents a step closer to being included in the "Grey List," a list where, as explained before, countries with strategic deficiencies are publicly listed.

Clearly, being on the Grey List implies a higher level of monitoring and a significantly greater negative reputational impact compared to merely being under enhanced follow-up. However, inclusion in this intermediate regime itself serves as a significant warning that the country is close to entering that list if urgent action is not taken.

Both mechanisms involve additional monitoring, but "enhanced follow-up" is a less severe stage, indicating that the country is actively working to address concerns, even though it has not yet fully implemented all necessary changes.

In summary, we could state that the "enhanced follow-up" status assigned to Argentina is a preliminary phase in which a country is being closely observed due to potential issues in its system.

Chapter 6: Pending Challenges and FATF Recommendations.

In its report dated December 18, 2024, regarding the results of this latest round of mutual evaluations, the FATF highlighted Argentina's progress but decided to include Argentina in the aforementioned intermediate regime due to the following aspects or deficiencies in Argentina, as highlighted therein:

·        Argentina faces deficiencies in achieving effective results, except in cooperation with international partners, where it has achieved positive outcomes.

·        As an upper-middle-income country, it faces money laundering risks primarily stemming from internal threats such as drug trafficking, tax evasion, corruption, smuggling, fraud, and human trafficking.

·        It must improve its understanding of money laundering and terrorist financing risks arising from corruption and through informal financial services.

·        It must increase the criminal prosecution of money laundering and improve asset confiscation in line with its risk profile. In this regard, the report indicates that while Argentina has made significant efforts to strengthen the identification, prosecution, and conviction of money laundering?achieving some positive convictions during the review period?the 91 convictions obtained remain relatively low considering the size and context of the country. Additionally, although authorities have managed to secure asset forfeitures in nearly all cases, the amounts seized are modest.

·        It must address issues identified in the reporting of suspicious transaction reports by high-risk sectors, such as the securities market, the real estate sector, and virtual asset service providers (VASPs).

·        Argentina has demonstrated limited use of intelligence derived from cross-border cash movements and low levels of information on terrorist financing.

·        It has a well-designed AML/CFT supervisory framework; however, its effectiveness is limited by serious deficiencies in human and technological resources, especially in the case of the UIF.

·        In terms of terrorist financing, Argentina has a generally adequate regulatory framework, but the limited number of investigations, the lack of prosecutions, and the absence of convictions are not fully consistent with its medium-low risk profile, requiring improvements.

It is also important to highlight the deficiency noted by the FATF, framed in a polite "suggestion," where the organization recommends that Argentina protect and ensure the operational independence of the Financial Intelligence Unit (UIF).

Additionally, the report highlights other shortcomings related to the country?s obligated entities, indicating that:

·        Regarding financial institutions operating in the country, they demonstrate a good general level of understanding of money laundering risks but an uneven knowledge of terrorist financing risks.

·        Regarding the so-called "gatekeeper" professions such as lawyers, accountants, trust service providers, and real estate agents (Designated Non-Financial Businesses and Professions - DNFBPs), these entities understand their main AML/CFT risks in line with Argentina?s National Risk Assessments. However, the understanding of specific risks within each sector is inconsistent and, in some cases, limited.

·        Regarding non-profit organizations (NPOs), Argentina must adopt a more risk-based approach to mitigate the potential abuse of these entities, in line with FATF Recommendation 8, while avoiding the disruption or discouragement of legitimate activities of these organizations.

Chapter 7: Conclusion and Perspectives.

Argentina has made significant progress in adapting its regulations to international standards, allowing it to avoid inclusion in the FATF's grey list.

This achievement was recognized as a positive milestone by the authorities, as it prevents more severe restrictions on access to international financial markets and the consequent economic pressure that being on such a list entails.

However, this result should not be interpreted as a definitive victory. Rather, it constitutes a clear signal from the FATF aimed at motivating Argentina to redouble its efforts to complete the pending tasks.

Enhanced supervision is a warning about the need to improve both the effectiveness of the measures adopted and their practical implementation in the fight against ML/TF.

For Argentina to move beyond this phase and achieve full recognition in the international community, it must comply with all aspects of the review, both in terms of the technical adequacy of its regulatory framework and the assessment of the real effectiveness of its system.

This entails not only demonstrating concrete progress in the investigation and prosecution of financial crimes but also strengthening the independence and operational capacity of oversight bodies, increasing international cooperation, and ensuring effective supervision across all high-risk sectors.

The coming year will be crucial in assessing whether the country can rectify its deficiencies and consolidate a more effective and robust system, aligned with international best practices.

Once these objectives are achieved, the challenge will be to sustain the progress made, as the fight against ML/TF is not a static goal but a continuous, living, and dynamic process that requires ongoing maintenance, refinement, and updating of the preventive and repressive system. This effort should not depend on the occurrence of a future Mutual Evaluation to serve as a motivation for such work.

Threats constantly evolve, and only through rigorous monitoring and sustained, unwavering commitment to international best practices will it be possible to consolidate a strong and effective system.

In this regard, while enhanced supervision may be perceived as an obstacle or a threat of proximity to a Grey List, it should be seen as an opportunity for Argentina to demonstrate its responsiveness and commitment to financial transparency and integrity, ensuring an optimized and up-to-date prevention system. This system should then be sustained over time through commitment and the implementation of state policies that ensure its continuous improvement and updating, regardless of whether evaluations take place.

This approach will prevent the disorderly process of making multiple regulatory changes within short periods to update the system all at once, only to then experience another decade of stagnation, repeating the same cycle before the next evaluation.

Success in this process will depend on political will, cooperation between the public and private sectors, and the implementation of strategies that ensure effective and sustainable compliance with international ML/TF prevention standards, alongside an orderly, consistent, and foreseeable development and refinement of the system.