Key Aspects:

• The advisory notice published by the HM Treasury this Monday sets out changes to the definition of High-Risk Third Countries (HRTC) in the Money Laundering Regulations. 
• This means any countries listed by the Financial Action Task Force as high risk, or under increased monitoring, are henceforth automatically deemed High Risk Third Countries under the Money Laundering Regulations.
• Interestingly enough, the list specifically mentions large HNWI markets such as Turkey, the UAE, South Africa, or even the EU Member Bulgaria or Croatia. 

Legal Context

According to Regulation 33(1)(b) of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the MLRs), if a person is doing business with someone from a high-risk country, they must apply enhanced customer due diligence measures and enhanced ongoing monitoring. A high-risk country was one listed in Schedule 3ZA, this is not the case anymore.

The enhanced due diligence measures taken by a relevant person include getting more information about the customer and their beneficial owner, understanding the nature of the business relationship, finding out where the money is coming from, knowing why certain transactions are happening, getting approval from higher-ups for the business relationship, and closely watching the business relationship with more checks and paying attention to specific transaction patterns.

What has changed?

The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 came into force on 22 January 2024 and amended the definition of High-Risk Third Countries, i.e. the document removed Schedule 3ZA containing the list of HRTCs.

Instead, Regulation 33(3)(a) now defines an HRTC as:

“a country named on either of the following lists published by the Financial Action Task

Force as they have effect from time to time -

(i) High-Risk Jurisdictions subject to a Call for Action;

(ii) Jurisdictions under Increased Monitoring.

To read the original texts of The Money Laundering and Terrorist Financing (High-Risk Countries) and  UK HM Treasury's Guidance on Enhanced Due Diligence on Clients from High-Risk Jurisdictions.

European Union keeps abreast

For the European Union according to the new AML package the rules are as follows:

Obliged entities will be required to apply enhanced due diligence measures to occasional transactions and business relationships involving high-risk third countries whose shortcomings in their national anti-money laundering and counter-terrorism regimes make them represent a threat to the integrity of the EU’s internal market.

The Commission will make an assessment of the risk, based on the FATF listings.

FATF Listing

On 27 October 2023, the FATF published the most recent update to its lists of jurisdictions identified as having strategic deficiencies in their AML/counter-terrorist financing (CTF) regimes, of ‘Jurisdictions Under Increased Monitoring’ and ‘High-Risk Jurisdictions subject to a Call for Action’.

In response to the latest FATF statements, HM Treasury advises firms to consider at the time of publication, the following jurisdictions are considered ‘High-Risk Third Countries’ as defined by Regulation 33 of the MLRs:

• Barbados

• Bulgaria

• Burkina Faso

• Cameroon

• Croatia

• DPRK

• Democratic Republic of the Congo

• Gibraltar

• Haiti

• Iran

• Jamaica

• Mali

• Mozambique

• Myanmar

• Nigeria

• Philippines

• Senegal

• South Africa

• South Sudan

• Syria

• Tanzania

• Turkey

• Uganda

• United Arab Emirates

• Vietnam

• Yemen 
 

The following jurisdictions are subject to financial sanctions measures at the time of publication of this notice, which require firms to take additional measures:

• DPRK

• Democratic Republic of the Congo

• Iran

• Mali

• Myanmar

• South Sudan

• Syria

• Yemen