EU Looks to Tweak Method for Compiling Dirty-Money Blacklist
10 Oct 2019

The European Union is working on a new approach for flagging countries with weak anti-money-laundering laws after the bloc’s previous attempt to create a blacklist failed earlier this year.

A newly proposed methodology for designating high-risk countries is aimed at addressing concerns about transparency in the previous process, according to documents published ahead of a meeting of the EU’s council of finance ministers.

The Council of Economic and Financial Affairs is scheduled Thursday to discuss the proposed methodology, which is intended to give countries a clearer sense of how they could be designated as high-risk, as well as a process to respond. The timeline for final approval was unclear Wednesday.

The EU is required under a pair of directives adopted by the bloc in recent years to identify countries that are susceptible to moving dirty money. But creating a blacklist has proven to be politically fraught.

The previous blacklist from the European Commission, the EU’s executive arm, was rejected in March by member states, following pushback from Saudi Arabia, which was on the list, and the U.S., which had some of its territories listed.

A big question facing the commission as it revamps its methodology is whether it can quell criticism that it wasn’t clear about its reasons for including jurisdictions on its previous list.

“A lot of the controversy—at least from our point of view on the list—was who it didn’t include,” said David Schwartz, president and chief executive of the Florida International Bankers Association, whose members include banks with operations in Puerto Rico and other U.S. territories that were on the list.

The EU’s attempts to call out anti-money-laundering weaknesses abroad have been undercut, in part, by scandals on its own turf, including allegations that bank branches in Estonia have been used to move dirty money from Russia, compliance observers have said.

The commission is working to secure acceptance from policy makers in the European Parliament and European Council on a revamped methodology, according to Christian Wigand, a commission spokesman. It is also working with countries and jurisdictions that it deems as high-risk.

“The commission remains fully committed to deliver a new list in line with our legal obligation to do so and in order to protect the EU financial system,” Mr. Wigand said.

Blacklists impose higher compliance costs and due-diligence requirements, as well as possible reputational risks, on banks that operate in designated countries. The EU blacklist, if approved, would apply to financial institutions based in the bloc’s 28 countries.

Complicating the EU’s effort is the fact that the Financial Action Task Force, the anti-money-laundering standard-setter, has a longstanding blacklist of its own. The FATF, established by the Group of Seven leading nations 30 years ago, counts several European countries, as well as the European Commission, on its member roster.

The U.S. Treasury Department raised the issue of overlapping lists in February when the EU designated Puerto Rico and other territories as high-risk. Unlike the FATF’s process, which includes extensive reviews and consultations, the EU’s process involved minimal communication with the countries affected, the Treasury said.

By Kristin Broughton, The Wall Street Journal, 9 October 2019

Read more at The Wall Street Journal

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