Businesses are required under Anti-Money Laundering/Counter-Terrorism Financing (AML/CFT) legislation to recognize, evaluate, and comprehend the risks associated with potential money laundering. However, each jurisdiction has its own set of rules.
Fighting financial crime in more than 200 nations is the Financial Action Task Force (FATF), a reputable global watchdog. As a result, the FATF conducts reviews to determine which nations have serious shortcomings in their counter-terrorist financing (CFT) and anti-money laundering (AML) regimes. The findings of these evaluations have an impact on each nation’s standing within the international financial system.
The FATF releases a country report periodically, the most recent being June 2024, and identifies “low-risk” and “high-risk” nations. Consequently, this aids businesses in deciding whether to engage with customers from particular jurisdictions.
GloRep understands the requirements your company will face when dealing with entities or individuals from high-risk areas and are your trusted partner in regulatory compliance,
What is the FATF’s definition of High-Risk
An international organization called the FATF identifies nations with significant deficiencies in AML/CFT. It gathers many lists, which are updated three times per year, including the High-Risk Jurisdictions Subject to a Call for Action and the Jurisdictions under Increased Monitoring.
According to the Transparency Index ranking, “high-risk” countries have serious shortcomings in their efforts to prevent money laundering, a high degree of corruption, and other critical problems. These nations are therefore under more scrutiny and have been given specific designations by governments and international organizations. As a result, they have been placed on the FATF’s “greylist” and “blacklist,” the Basel AML Index, and the high-risk country ratings of the US, UK, and EU.
FATF Guidelines for High-Risk Jurisdictions
AML/CTF jurisdictions that have strategic deficiencies are categorized by the FATF into two lists: Jurisdictions Under Increased Monitoring (also known as the “greylist”) and High-risk Jurisdictions Subject to a Call for Action (also known as the “blacklist”).
When dealing with a jurisdiction that is found on the Jurisdictions Subject to a Call for Action:
The FATF urges all members to implement EDD (Enhanced Due Diligence) measures when interacting with nations on this list in order to safeguard the global financial system from ML/TF threats.
When dealing with a jurisdiction that is found on the Jurisdictions Under Increased Monitoring:
A country is subject to greater monitoring and has agreed to address its strategic weaknesses within predetermined periods when the FATF places it under intensified surveillance. The Financial Action Task Force (FATF) does not apply severe sanctions to “greylist” countries because it applauds their efforts in fighting money laundering. These nations can still be subject to trade sanctions and economic penalties from organizations like the World Bank and the International Monetary Fund (IMF). In any event, in these nations, banks and other regulated financial organizations must be constantly watched.
Those nations who effectively fix their deficiencies are taken off the greylist, whilst new ones are frequently added.
How to safeguard your company
Legally, regulated financial institutions must abide by national and international AML/CTF regulations. This entails gathering all necessary data, determining all pertinent risk factors, and initiating further CDD measures as necessary before starting a business engagement.
When dealing with high-risk third-country business contacts and transactions, it is imperative to implement EDD techniques. All high-risk third nations must comply with these criteria; however, the extent of the EDD measures required may differ.
Businesses that interact with clients from high-risk nations should be mindful of the following:
- Financial sanctions may apply to high-risk nations, necessitating further steps from businesses.
- Companies must use EDD measures in any transaction or business interaction with an individual based in a high-risk nation, according to regulators across the globe.
Notwithstanding, it should be noted that clients hailing from nations with elevated crime rates do not inherently partake in illicit activities; rather, these factors signify elevated risk and demand further scrutiny.
Additionally, businesses must evaluate risk considerations for questionable client contacts from high-risk nations by applying a risk based approach to determine the need for EDD measures as well as perform the necessary screenings of these individuals.
