Money Laundering and High-Risk Third Countries

Angelika Hellweger of Rahman Ravelli details the UK Treasury’s revised list of high-risk states.

HM Treasury has updated the list of states it views as high-risk third countries for money laundering.

A new statutory instrument, the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2023, has substituted the list of high-risk third countries specified in schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs) with a new list.

The new list continues to reflect the Financial Action Task Force’s (FATF) “Jurisdictions under increased monitoring’’ and “High-risk jurisdictions subject to a call for action’’ documents. Schedule 3ZA consolidates these lists into a single list of countries, as all countries included in either of the FATF’s lists have significant shortcomings in their anti-money laundering, counter terrorist financing or counter-proliferation financing controls.

Cambodia and Morocco are now no longer on the Treasury list, in recognition of changes to the FATF lists, which were as a result of the significant progress made by these countries in addressing anti-money laundering and counter-terrorist financing deficiencies.

The countries currently on the list are Albania, Barbados, Burkina Faso, Cayman Islands, Democratic Republic of the Congo, Democratic People’s Republic of Korea (DPRK), Gibraltar, Haiti, Iran, Jamaica, Jordan, Mali, Mozambique, Myanmar, Panama, Philippines, Senegal, South Sudan, Syria, Tanzania, Turkey, Uganda, United Arab Emirates and Yemen.

The MLRs require the UK regulated sector to apply enhanced customer due diligence in relation to high-risk third countries. Regulation 33(1)(b) of the MLRs requires regulated businesses (“relevant persons”) to apply enhanced customer due diligence measures and enhanced ongoing monitoring in any business relationships with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country.

Regulation 33(3A) of the MLRs makes clear (in sub-paragraphs (a)-(f)) what steps must be taken in order for relevant persons to meet their obligations. Regulation 33(3A) does enable relevant persons to take a risk-based approach when applying enhanced diligence to existing customers, such as by prioritising higher-risk customer groups. The degree of enhanced customer due diligence and ongoing monitoring undertaken should be proportionate to the level of risk attributed to the customer.

Regulated persons should refer to their sector-specific guidance, approved by HM Treasury, for further advice on meeting their obligations under regulation 33.

Depending on the type of industry and the type of customers, businesses might need to amend their risk assessment to reflect the recent update. This might lead to a change in processes in response to a business’ need to prioritise high-risk customer groups, specific jurisdictions or other risk factors specifically mentioned in the FATF report. Businesses also need to make sure that relevant employees are properly updated and trained when it comes to the latest amendment.