The Financial Action Task Force (FATF) occupies a distinctive position in global governance. It has no treaty. No court. No formal legal authority to compel states to do anything. Unlike UN Security Council Resolution 1373, which creates legally binding obligations on all UN member states regarding terrorist financing, FATF’s 40 Recommendations carry no binding force in international law.

And yet FATF exercises extraordinary influence over domestic legal reform. Countries that fail to satisfy its standards risk grey-listing or black-listing, triggering consequences far beyond technical anti-money laundering regulation: increased scrutiny from international financial institutions, reduced investor confidence, higher transaction costs, weakened correspondent banking relationships and, in some cases, economic isolation. More than 200 jurisdictions have amended domestic laws in response to standards that are, formally non-binding.

This creates a significant paradox in contemporary global governance. How does an institution with no binding legal authority exercise such extraordinary coercive power? More importantly, once countries have passed the required laws, why do the enforcement outcomes remain so uneven? I argue that answering this requires looking beyond legal design towards the political economy of implementation. Socio-legal scholarship has long cautioned against treating formal legal rules as reliable predictors of institutional behaviour, emphasising the gap between law on the books and law in action, and the conditions through which legal norms acquire practical effect.

The consequences of FATF assessments do not fall evenly across society. When countries are grey-listed, it is not politically connected elites who struggle to make international payments, lose access to correspondent banking services or face reduced foreign investment. Those consequences are borne primarily by businesses, ordinary citizens and national economies. This distributional asymmetry reflects a broader socio-legal concern with regulatory regimes in which authority is dispersed across states, private actors and transnational institutions, making accountability inseparable from power.

Beneficial ownership transparency provides a useful illustration. Since FATF operationalised its effectiveness framework in 2013, no jurisdiction achieved High Effectiveness on Immediate Outcome 5 for more than a decade, while several achieved High Effectiveness on Immediate Outcome 6. FATF’s own methodology recognises that beneficial ownership information is fundamental to following complex financial flows. If investigators cannot reliably identify who ultimately owns the legal structures through which money moves, their ability to hold powerful actors accountable is necessarily constrained. Financial intelligence can still be produced, but the intelligence most capable of reaching politically connected actors becomes substantially more difficult to generate.

This is where my research departs from conventional explanations. Persistent implementation gaps are typically met with calls for stronger laws, greater technical assistance or improved administrative capacity. Those reforms matter. But they may not address the binding constraint.

My research explores whether the gap between the effectiveness FATF’s framework is designed to promote and the outcomes repeatedly observed through domestic implementation should be understood not simply as an implementation failure, but as a structural feature of the political economy within which the regime operates. Political economy accounts of regulation challenge the assumption that regulatory regimes operate solely in the public interest, emphasising how organised interests can shape regulatory design and operation. Socio-legal approaches similarly caution against analysing rules in isolation from the institutional environments and relationships through which they are implemented. Organisational scholarship goes further, showing how organisations facing conflicting demands may preserve legitimacy through divergences between talk, decisions and action. Rather than treating law and policy as sequential, my research asks whether the same interests that shape international standards also shape the conditions under which those standards are implemented.

The question therefore becomes not simply whether countries have adopted the right laws, but whether implementing institutions have the political and institutional incentives to enforce them against the actors best placed to evade them.

Recent developments illustrate why this distinction matters. Latvia has become one of the first jurisdictions to achieve High Effectiveness on both beneficial ownership transparency and financial intelligence under FATF’s revised methodology. Whether this reflects the success of FATF’s framework alone is far from straightforward. Latvia’s reforms followed exceptional external pressures, including the collapse of ABLV Bank after intervention by the United States Treasury and sustained obligations arising from European Union membership. Understanding what drove that success therefore requires looking beyond formal legal reform to the political, institutional and external pressures through which compliance became possible.

The broader lesson is that the effectiveness of global financial governance cannot be understood solely through legal design. It also requires understanding the political economy of implementation.

The question, then, is not simply whether we need better laws. It is whether legal reform alone can produce the political conditions necessary for those laws to achieve what they promise, or whether the architecture of accountability is itself shaped by the interests it seeks to regulate.