On February 13, the European Commission adopted a new list of “high-risk” jurisdictions that the Commission identified as posing significant threats to the European Union’s financial system as a result of strategic deficiencies in their anti-money laundering and counter-terrorism financing (AML/CFT) frameworks. In addition to countries like North Korea, Iran, and Syria, the list also includes four US territories. In response, the US Department of Treasury expressed “significant concerns about the substance of the list,” which diverges from the list published by the Financial Action Task Force (FATF), as well as the “flawed process” by which the list was developed. As a result of the new list, banks in the EU will be required to exercise enhanced due diligence when dealing with customers and financial institutions from the listed countries and territories.
According to the Commission, the new list reflects the broadened criteria for the identification of high-risk jurisdictions under the EU’s Fifth Anti-Money Laundering Directive, which now includes “the availability of information on the beneficial owners of companies and legal arrangements” including trusts. In creating this list, the Commission “developed its own methodology to identify high-risk countries, which relies on information from the Financial Action Task Force, complemented by its own expertise and other sources such as Europol.” EU Justice Commissioner Věra Jourová stated that the list is aimed at ensuring that “dirty money from other countries does not find its way [into the EU’s] financial system,” and urged the listed countries “to remedy their deficiencies swiftly.”
Significantly, the Commission’s new list includes ten additional countries or territories that are not included in the list of higher-risk jurisdictions published by FATF—a group that, according to the US, serves as “the global standard-setting body for combating money laundering, terrorist financing, and proliferation financing.” Both the US and European Commission are members of FATF, along with 14 EU-member countries. As a result of the Commission’s departure from the FATF list, which the US alleges was done “without reasonable support,” European companies will be required to apply enhanced due diligence to a wider range of countries than the global standard.
In a press release following the inclusion of American Samoa, Guam, Puerto Rico, and the US Virgin Islands on the Commission’s list, the Department of Treasury stated that it was “reject[ing]” the inclusion of these territories and that the US “was not provided any meaningful opportunity to discuss with the European Commission its basis for including the listed US territories.” As a result, the Department of Treasury stated that it “does not expect US financial institutions to take the European Commission’s list into account in their AML/CFT policies and procedures.”
The Commission’s list will now be submitted to the European Parliament and Council for approval within one month. Once approved, the list will enter into force 20 days after its publication. During this period, the Commission has stated that it will “continue its engagement with the countries identified as having strategic deficiencies . . . and will further engage especially on the delisting criteria.” While it remains to be seen how seriously the Commission will consider requests for delisting, EU-member countries including the UK, France, and Germany have reportedly been critical of the list, particularly as related to their economic relations with newly-listed countries like Saudi Arabia. The list has also, as the New York Times noted, “open[ed] a new rift” in the relationship between the US and EU “that has grown increasingly fractious amid disputes over trade and Iran sanctions.” While the kinks in the Commission’s new list are worked out, European financial institutions will likely be required to apply enhanced due diligence in line with the new and more expansive list of high-risk jurisdictions.