The global fight against money laundering has led many countries to develop strict AML/CTF (Anti-Money Laundering/Combating the Financing of Terrorism) regimes. These regimes are designed to build programs that identify, trace, and prevent financial support to criminals, terrorists, or fraudulent merchants. As a result, countries that don’t have a fully developed regime are considered a high risk and may pose a potential threat to international efforts on AML/CTF.
The Financial Action Task Force (FATF) maintains an updated list of high-risk countries and worldwide standards to help combat money laundering, terrorist financing and other threats to the international financial system. The FATF works with countries to develop an action plan, highlighting areas of deficiencies in financial market oversight and regulation. If these countries do not complete their action plan to the FATF standards, the organization will consider them a potential threat to the integrity of the global financial system.
For financial institutions operating in countries that are members of the FATF, financial relationships with high-risk countries could result in legal action. U.S. institutions, for example, are prohibited entirely from engaging in financial transactions with North Korea under the North Korea Sanctions program, Section 311 of the USA PATRIOT Act, and several Executive Orders. Violating these sanctions could result in blocked transactions, asset forfeiture, and significant fines.
Countries Cooperating with the FATF
The following countries have either publicly committed to addressing deficiencies highlighted by the FATF, or are currently implementing an action plan:
Bosnia and Herzegovina
Since 2015, Bosnia and Herzegovina has built a legal and regulatory framework that meets its action plan commitments. As a result, it’s no longer subject to the FATF’s AML/CTF monitoring process, and will instead be working with MONEYVAL (the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism) to improve its AML/CTF framework. MONEYVAL is part of the Council of Europe helps national authorities adhere to international money laundering and terrorism financing standards.
After making a commitment in early 2017, Ethiopia began by raising awareness of AML/CFT in designated non-financial business and professions, regulatory bodies, and investigative bodies. Its action plan involves fully implementing the results of a national risk assessment, as well as establishing targeted sanctions related to terrorism and WMDs (weapons of mass destruction).
Iraq committed to addressing its AML/CFT deficiencies in October 2013 with a plan focused on preventing money laundering and terrorism funding. To achieve that, it established a legal framework for finding and freezing terrorist assets, creating effective CDD (customer due diligence) measures with requirements for reporting suspicious transactions, and establishing a Financial Intelligence Unit, along with a financial sector oversight program.
In November 2017, Sri Lanka committed to strengthening its existing AML/CFT regime through increased supervision of its financial sector. Its action plan involves enacting amendments to the Mutual Assistance in Criminal Matters Act to ensure mutual legal assistance can be provided on the basis of reciprocity, ensuring that CDD rules are being implemented and that beneficial ownership information is readily available, and performing risk-based supervision of financial institutions and high-risk DNFBPs. Sri Lanka is also implementing UN Security Council Resolutions and regulations related to Iran and North Korea.
Since its February 2010 commitment, Syria has made significant progress by criminalizing terrorist financing and implementing procedures for freezing terrorist assets. Although Syria met its obligation in June 2014, the FATF hasn’t been able to conduct an on-site visit to confirm the effectiveness of its AML/CFT regime.
Trinidad and Tobago
A key part of Trinidad and Tobago’s plan is prioritizing cases related to money laundering and transaction laundering in its court system. It established a Case Prioritization Policy and advanced legislation in areas related to AML/CTF. Also, it will trace and confiscate criminal proceeds, counter proliferation financing, improve transparency into financial records and beneficial ownership, and increase collaboration with other countries and organizations.
Since November 2017, Tunisia has focused on increasing AML/CTF training and awareness. It prepared supervisory manuals, conducted training sessions for authorities, and added personnel resources to its Financial Intelligence Unit. Also, it plans to perform risk-based AML/CFT supervision of its financial sector, improve its commercial registries while sanctioning transparency violations, increase the efficiency of reporting suspicious transactions to the Financial Intelligence Unit, and implement economic sanctions targeting terrorism and WMDs.
In February 2016, Vanuatu committed to criminalizing money laundering and terrorist financing by confiscating assets related to money laundering, freezing terrorist assets, improving financial sector transparency, establishing a Financial Intelligence Unit, establishing an AML/CFT oversight program for the financial sector, and establishing channels for stronger international collaboration. An on-site visit from the FATF is still pending.
Yemen made significant progress in addressing AML/CTF deficiencies between February 2010 and June 2014. Its action plan focused on criminalizing money laundering, reducing terrorist funding, and strengthening monitoring and reporting across the financial sector. Although Yemen completed its action plan in 2014, the FATF hasn’t yet conducted an on-site visit to verify that the processes are in place.
High-risked and Other Monitored Jurisdictions
The FATF considers the following countries serious threats to the global financial system due to their limited, or lack of, strong AML/CTF regimes. Their public statement gives context to why they are considered high-risk: “In order to protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards, the FATF identified jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system.”
Starting in June 2016, Iran has been working with the FATF to amend its AML and CFT laws. However, its current plan has expired, and many of its action items are incomplete including adequately criminalizing terrorist financing, finding and freezing terrorist assets, establishing a fully independent financial intelligence unit, and providing transparency into financial transactions and due process. and will re-evaluate Iran’s status in June 2018.
Democratic People’s Republic of Korea (DPRK)
Since 2011, the FATF called on its members to carefully scrutinize business relationships and transactions within the Democratic People’s Republic of Korea. More specifically, the FATF describes concerns with the DPRK’s involvement in the proliferation and financing of WMDs. As a result, it encourages its member countries to implement targeted financial sanctions, as well as close branches of DPRK-affiliated banks within their borders.
Although most of these countries are working to implement strong AML/CTF policies, it’s crucial to know which ones are safe and which pose a risk to the international financial system. And as they continue to address money laundering issues in their jurisdiction, be sure to stay updated to these changes – making the most informed decisions for your financial institution. If you wish to learn more about a specific country’s status, see the FATF’s list of member countries.