Here is what businesses need to know.
The UK AML regulator – HM Treasury issued an updated recommendation for regulated businesses to apply enhanced customer due diligence measures and monitoring to those businesses or clients located in the high-risk regions. The rule also applies in relation to transactions where at least one of the parties to the transaction is based in a high-risk country.
The measures are necessary as high-risk jurisdictions lack strategic defenses against money laundering, terrorist financing, and financing of proliferation.
Who does it affect
Here is who will be primarily influenced by the changes.
- high-risk countries identified as so by the European Commission and its authorized acts under the 4th Money Laundering Directive.
- all parties of the transaction where one of the participants is established in the country that is considered high-risk.
Being established is a high-risk region specifically refers to the following.
- For a legal person, it would mean being incorporated or base one’s business in the country in question.
- For a financial institution or credit institution, it means having the main regulatory authority in the country in question.
- For an individual, it means to reside in the country in question.
All businesses dealing with high-risk countries have to implement certain risk-relevant measures to protect themselves and the international financial system.
High-risk categories and recommendations
The UK HM Treasury divides risky jurisdictions into two types: the ones that definitely require EDD and the once that might need to have EDD applied to them in certain high-risk situations.
1. Jurisdictions: DPRK, Iran
Recommendation: high-risk countries that require counter measures and EDD relevant to the risk amount.
2. Jurisdictions: Albania, The Bahamas, Barbados, Botswana, Cambodia, Ghana, Iceland, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Pakistan, Panama, Syria, Uganda, Yemen, Zimbabwe.
Recommendation: initiate certain relevant to the risks practices, which may include EDD in high risk scenarios.
Note, that some of the mentioned countries, namely Democratic People’s Republic of Korea, Iran, Syria, Tunisia and Yemen, are also subjects to financial sanctions and require additional measures.
Overall, the HM Treasury urges to take into account regularly updated “geographical risk factors” and statements by the FATF to help businesses identify high-risk countries and assess their AML/CTF policies before involving oneself into any sort of business relationships.
To ensure the relevance of financial crime policies and procedures and avoid potential damage from the high-risk countries mentioned in the advisory notice, businesses are encouraged to maximize the efficiency of communication across compliance, risk, reporting, board and executive teams.