Q and A: EU money laundering blacklist explained
28 Feb 2019

The European Commission has published its list of high-risk third countries – dubbed the blacklist – which it says have weak anti-money laundering and terrorist financing regimes. It says the list was established after an ‘in-depth’ analysis, and the that the method reflected the ‘stricter’ criteria of the Fifth Anti-Money Laundering Directive (5AMLD).  The full list can be downloaded here.

In total, the Commission concluded that 23 countries have strategic deficiencies in their anti-money laundering/ counter terrorist financing regimes.

Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality said: “We have established the strongest anti-money laundering standards in the world, but we have to make sure that dirty money from other countries does not find its way to our financial system.

“Dirty money is the lifeblood of organised crime and terrorism. I invite the countries listed to remedy their deficiencies swiftly. The Commission stands ready to work closely with them to address these issues in our mutual interest.”

Meanwhile, blacklisted countries such as Panama and Saudi Arabia have reportedly disagreed with the EU listing.

So, what is the list all about and where did it all start? Here’s some answers:

What is the criteria used to establish the list?

Regarding the criteria to assess countries in the listing phase, this was initially set by the Fifth Anti-Money Laundering Directive and now includes the strategic deficiencies of those countries, regarding the legal and institutional anti-money laundering and counter-terrorist financing framework such as:

o    criminalisation of money laundering and terrorist financing,

o    customer due diligence and record keeping requirements,

o    reporting of suspicious transactions,

o    the availability and exchange of information on beneficial ownership of legal persons and legal arrangements,

o    the powers and procedures of competent authorities,

o    their practice in international cooperation,

o    the existence of dissuasive, proportionate and effective sanctions.

The Commission has to check how effectively the anti-money laundering and counter-terrorist financing safeguards are implemented in practice.

What are the consequences of the listing for financial institutions?

Under the Fourth Anti-Money Laundering Directive, banks and other financial institutions have to apply extra checks (“enhanced customer due diligence requirements”) for transactions involving high-risk third countries identified on the list.

Customer due diligence corresponds to a series of checks and measures that a bank or an obliged entity has to use in case they have suspicions of high risk of money laundering or terrorist financing. Enhanced due diligence measures include extra checks and monitoring of those transactions by banks and obliged entities in order to prevent, detect and disrupt suspicious transactions.

How does the list of high-risk third countries differ from the common EU tax list of uncooperative tax jurisdictions?

The high-risk third country list aims to address risks to the EU’s financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes. On the basis of this list, banks must apply higher due diligence controls to financial flows to the high risk third countries.

On the other hand, the common EU list of uncooperative tax jurisdictions addresses the external risks to Member States’ tax bases, posed by third countries that do not adhere to international tax good governance standards. The two lists may overlap on some of the countries they feature, but they have different objectives, criteria and different compilation processes.

How does the high-risk third country list differ from the Financial Action Task Force’s list?

The Commission’s approach follows the one already existing at global level by the Financial Action Task Force (FATF), the main standard-setting body in this field. The Commission considers countries identified by FATF as having strategic deficiencies, as a starting point for its assessment on high risk third countries.  Compared to the FATF lists, the Commission has developed a methodology with additional assessment criteria, based on the Fourth and Fifth Anti-Money Laundering directives. The EU requirements are therefore different compared to the Financial Action Task Force listing criteria.

When will the EU list based on the new methodology be available?

The first EU list based on the new methodology has been published on 13 February 2019. It includes countries identified as “priority 1”. Further assessments will be carried out over time to cover all relevant countries (Priority 2 countries). The autonomous EU list is an ongoing effort, taking due account of new information sources / updated information becoming available.

How often will the Commission update this list?

The Commission will continue monitoring countries already reviewed, monitor progress made by listed countries in removing their strategic deficiencies, and assess additional countries when new information sources become available.

Updating the list will happen regularly, with the aim of further identifying third countries as being of high-risk and reflecting progress made by listed countries.

How can a country be taken off the list?

In order to delist a country, the following requirements must be met:

-Complying with EU anti-money laundering criteria, such as criminalising money laundering and terrorism financing; customer due diligence requirements, record keeping and suspicious transactions reporting in the financial and in the non-financial sector; transparency of beneficial ownership; international cooperation;

-Ensuring in practice that information on beneficial owners of companies and trusts is available. This is particularly relevant since opaque structures are regularly involved in money laundering, terrorist financing and tax evasion. Further efforts are needed since too many countries are lagging behind with respect to transparency   on beneficial ownership

-Showing positive and tangible progress in improving effectiveness in all areas where significant deficiencies were identified.

(Source: European Commission)

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