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The European Commission new list of countries with strategic deficiencies

Following the entry into force of the Fourth Anti-Money Laundering Directive in 2015, the European Commission published a first EU list of high-risk third countries. The Commission developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol. The result is a more ambitious approach for identifying countries with deficiencies posing risks to the EU financial system.

The Fifth Anti-Money Laundering Directive broadened the criteria for the identification of high-risk third countries, including notably the availability of information on the beneficial owners of companies and legal arrangements. This will help better address risks stemming from the setting up of shell companies and opaque structures which may be used by criminals and terrorists to hide the real beneficiaries of a transaction (including for tax evasion purposes).

The 23 jurisdictions are:

  • Afghanistan,

  • American Samoa,

  • The Bahamas,

  • Botswana,

  • Democratic People's Republic of Korea,

  • Ethiopia,

  • Ghana,

  • Guam,

  • Iran,

  • Iraq,

  • Libya,

  • Nigeria,

  • Pakistan,

  • Panama,

  • Puerto Rico,

  • Samoa,

  • Saudi Arabia,

  • Sri Lanka,

  • Syria,

  • Trinidad and Tobago,

  • Tunisia,

  • US Virgin Islands,

  • Yemen.

The new list replaces the one currently in place since July 2018.

As a result of the listing, banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows. On the basis of a new methodology, which reflects the stricter criteria of the 5th anti-money laundering directive in force since July 2018, the list has been established following an in-depth analysis.

In fact, the 5th Money Laundering Directive, imposes new obligations (focused on enhanced due diligence measures) with respect to business relationships or transactions involving high-risk third countries:

  1. obtaining additional information on the customer and on the beneficial owner(s);

  2. obtaining additional information on the intended nature of the business relationship;

  3. obtaining information on the source of funds and source of wealth of the customer and of the beneficial owner(s);

  4. obtaining information on the reasons for the intended or performed transactions;

  5. obtaining the approval of senior management for establishing or continuing the business relationship;

  6. conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.

In addition to the measures described, obliged entities may apply, where applicable, one or more additional mitigating measures to persons and legal entities carrying out transactions involving high-risk third countries:

  1. the application of additional elements of enhanced due diligence;

  2. the introduction of enhanced relevant reporting mechanisms or systematic reporting of financial transactions;

  3. the limitation of business relationships or transactions with natural persons or legal entities from the third countries identified as high risk countries.

  4. refusing the establishment of subsidiaries or branches or representative offices of obliged entities from the country concerned, or otherwise taking into account the fact that the relevant obliged entity is from a country that does not have adequate AML/CFT regimes;

  5. prohibiting obliged entities from establishing branches or representative offices in the country concerned, or otherwise taking into account the fact that the relevant branch or representative office would be in a country that does not have adequate AML/CFT regimes;

  6. requiring increased supervisory examination or increased external audit requirements for branches and subsidiaries of obliged entities located in the country concerned;

  7. requiring increased external audit requirements for financial groups with respect to any of their branches and subsidiaries located in the country concerned;

  8. requiring credit and financial institutions to review and amend, or if necessary terminate, correspondent relationships with respondent institutions in the country concerned.

What’s next?

  1. Review your Risk calculator process and include the 23 jurisdictions described in your geographic criteria.

  2. Review your policies and procedures:

  • Your AML programme need to be comprehensive and up-to-date. Your AML policy will describe the Due Diligence measures applied depending on the risk. These measures are required to be aligned with the 5th Directive.

  • Also, your AML procedures will be aligned with the new Directive and your AML policy.

We are Certified Anti-Money Laundering Specialists (ACAMS). We help you build the support you need for your AML compliance and financial crime prevention policies and procedures.

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