In the ever-evolving landscape of global finance, the issue of money laundering and terrorist financing remains a critical concern. On December 4, 2023, the HM Treasury released an updated advisory notice, reiterating the stringent measures businesses must adhere to when engaging with high-risk third countries. The notice, centering on the Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLRs), emphasizes the necessity for enhanced due diligence in specific financial dealings.
Understanding High-Risk Third Countries
The MLRs dictate that UK-regulated entities must exercise enhanced customer due diligence concerning high-risk third countries, as detailed in Regulation 33(1)(b). These measures extend to both business relationships and transactions involving entities established in countries specified within Schedule 3ZA. This schedule encapsulates nations identified with significant deficiencies in anti-money laundering (AML), counter-terrorist financing (CTF), and counter-proliferation financing controls.
Recent HM Treasury Regulatory Updates
A crucial development arriving on December 5, 2023, will be the implementation of the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No.2) Regulations 2023. This amendment substitutes the list of high-risk third countries with an updated roster, aligning closely with the Financial Action Task Force's assessments. Notably, this update includes the addition of Bulgaria, Cameroon, Croatia, Nigeria, South Africa, and Vietnam while removing Albania, the Cayman Islands, Jordan, and Panama, mirroring shifts in the FATF's monitoring lists.
Newly Added Jurisdictions In FATF Monitoring:
Barbados
In October 2023, the FATF acknowledged Barbados's substantial completion of its action plan to fortify its AML/CFT regime. The country committed to on-site assessments, ensuring reforms' implementation and ongoing political commitment.
Bulgaria
October 2023 marked Bulgaria's high-level commitment to strengthen its AML/CFT regime in collaboration with FATF and MONEYVAL. Key actions encompass a comprehensive action plan, addressing compliance deficiencies, and enhanced supervision.
Burkina Faso
Since February 2021, Burkina Faso has pursued improved AML/CFT regulations, focusing on sector-based risk assessments and reinforcing cooperation mechanisms. Ongoing efforts target resource capacity, supervision enhancements, and effective investigations.
Cameroon
June 2023 saw Cameroon's high-level commitment to bolster AML/CFT effectiveness. Advancements include aligning strategies with risk assessments, improved supervision, and enhanced financial intelligence usage for ML/TF cases.
Democratic Republic of the Congo
Since October 2022, the DRC has made strides in its AML/CFT regime, finalizing national risk assessments and designating supervisory authorities. The action plan emphasizes strategy dissemination, capacity-building, and effective TF-related TFS implementation.
Croatia
Croatia, in June 2023, committed to fortify its AML/CFT regime with FATF and MONEYVAL. Progress involves risk assessment completion, enhanced FIU capabilities, robust ML investigations, and TF-related TFS framework establishment.
Haiti
Since June 2021, Haiti has worked on AML/CFT improvements, focusing on supervisory capacities, ownership information maintenance, and financial intelligence utilization. Persistent efforts are required for effective strategy implementation.
Jamaica
Despite progress since February 2020, Jamaica faces challenges in ownership data availability and sanction application, with incomplete action plan milestones. Urgent progress is required by February 2024 to meet FATF expectations.
Mali
With strategic initiatives since October 2021, Mali has strengthened law enforcement capacities and risk-based supervision. However, unmet deadlines demand further work to disseminate risk assessments and enhance TF-related frameworks.
Mozambique
Commencing high-level commitments in October 2022, Mozambique focuses on enhanced coordination among authorities, resource allocation, and TF risk assessments. Urgency in implementation is necessary to address strategic deficiencies.
Nigeria
Since February 2023, Nigeria committed to enhancing its AML/CFT regime, completing residual risk assessments. Ongoing actions aim to align strategies, improve supervision, and strengthen international cooperation while ensuring timely access to beneficial ownership information..
Philippines
The Philippines, since June 2021, has worked to fortify its AML/CFT system by improving supervision, controlling risks related to casino operations, and enhancing law enforcement's access to ownership information. Urgent action is urged by FATF, given expired deadlines.
Senegal
Since February 2021, Senegal has focused on NPO abuse risks for TF purposes. Efforts involve compliance enhancement, updated ownership data, TF investigations, and effective supervision, despite lapsed deadlines.
South Africa
Since February 2023, South Africa has addressed technical deficiencies in its financial sanction regime. Ongoing efforts encompass enhanced risk-based supervision, effective law enforcement actions, and improved information access and utilization.
South Sudan
Since June 2021, South Sudan improved its AML/CFT landscape by centralizing STRs and identifying NPOs under risk. To fulfill its action plan, it requires comprehensive legal reviews, stronger LEA capacities, and effective TF-related sanctions.
Syria
While Syria made strides to address AML/CFT deficiencies, the ongoing security situation hampers on-site verification of reforms. FATF continues monitoring for future assessments..
Tanzania
Since October 2022, Tanzania has progressed by addressing technical flaws and conducting outreach to DNFBPs. Further actions include improved supervision, robust investigations, and comprehensive TF risk assessments.
Türkiye
Despite substantial progress, Türkiye has one strategic deficiency remaining, requiring asset confiscation related to terrorist financing. All deadlines have passed, urging prompt action for compliance.
Uganda
Uganda's substantial completion of its action plan in October 2023 signifies ongoing reforms, including strategy adoption, enhanced supervision, ML investigations, TF prevention, and NPO oversight. Monitoring ensures adherence to risk-based supervision of NPOs.
United Arab Emirates (UAE)
The UAE made notable strides in ML/TF investigations, risk-based compliance, understanding risks in legal entities, and enhancing FIU capabilities. Ongoing reforms seek sustained implementation and political commitment.
Vietnam
June 2023 marked Vietnam's commitment to fortify its AML/CFT regime, progressing with the MER recommendations. Actions include improving risk understanding, supervision, regulating virtual assets, and enhancing beneficial ownership information. Their plan aims for international cooperation and compliance with technical shortcomings.
Yemen
Despite substantial technical improvements in AML/CFT actions since 2014, Yemen's on-site verification remains pending due to security concerns. While Yemen completed its FATF action plan, on-site assessment awaits confirmation of sustained reforms. FATF continues monitoring, and planning an on-site visit when feasible.
Removed Jurisdictions In FATF Monitoring:
Albania
Albania's significant improvements in AML/CFT met FATF commitments, including enhanced analysis, economy formalization, strengthened legal powers, and increased prosecutions. Freed from increased monitoring, Albania aims to uphold improvements, engaging with MONEYVAL for sustained progress.
Cayman Islands
The Cayman Islands' reforms, addressing sanctions, beneficial ownership, and effective money laundering prosecutions, led to the exit from FATF monitoring. Continuing collaboration with CFATF is urged for ongoing AML/CFT enhancements.
Jordan
Jordan's reforms in risk assessments, supervision, prosecutions, and NPO monitoring facilitated its exit from FATF monitoring. Collaboration with MENAFATF remains crucial for sustaining these improvements.
Panama
Panama's efforts in risk understanding, supervision, beneficial ownership verification, and ML investigations led to exiting FATF monitoring. Sustaining improvements involve continued collaboration with GAFILAT for ongoing AML/CFT enhancements.
Applying Enhanced Due Diligence
The obligation to apply enhanced customer due diligence and ongoing monitoring applies to both new and existing customers established in high-risk third countries listed in Schedule 3ZA. As the schedule undergoes updates, the mandate for heightened scrutiny becomes effective immediately through statutory instruments.
While the MLRs articulate the necessary steps for enhanced due diligence, regulated entities are encouraged to adopt a risk-based approach in executing these measures. This approach involves tailoring the depth and type of verification based on the risk attributed to each customer or transaction. Factors to consider include FATF-identified deficiencies and jurisdiction-specific risk typologies.
Group Wide Controls
Regulation 20(3) imposes a responsibility on regulated entities to ensure their branches and subsidiaries operating in countries with weaker AML requirements uphold measures equivalent to those in the UK. This directive necessitates UK-based entities to ensure branches or subsidiaries in Schedule 3ZA countries implement enhanced due diligence measures akin to those mandated domestically.
FATF Public Statements
The FATF's public statements from October 27, 2023, spotlight jurisdictions with strategic deficiencies in their AML/CTF regimes. HM Treasury urges firms to be mindful of these statements and considers jurisdictions listed in Annex A and Annex B as candidates for inclusion in Schedule 3ZA of the MLRs.
In light of these developments, regulated entities should diligently review their existing and prospective dealings with entities in high-risk third countries. Adhering to the enhanced due diligence requirements outlined in the MLRs, while leveraging a risk-based approach, is paramount. Additionally, staying abreast of FATF statements and promptly adapting internal practices is crucial to maintain compliance.
This advisory notice serves as a pivotal guide for financial entities, underlining the gravity of aligning with regulatory standards to combat financial crime effectively.
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14 Nov 2024
