High-Risk Jurisdictions

High-risk jurisdictions are countries deficient and vulnerable to stand or fight against money laundering, proliferation and terrorism financing. These countries are defined and listed by the Financial Action Task Force (FATF), a global organization responsible for developing policies and regulations against money laundering and combating terrorism financing.

The FATF collects data and collaborates with regional regulatory bodies to verify the AML (Anti-money laundering) standards, sanctions and procedures of different countries to determine whether they are appropriate or not. These jurisdictions are checked based on their anti-money laundering deficiencies, other transactional risks, and specific threats they technically pose to the global financial systems.

High-risk jurisdictions are a label given to countries that pose a high risk to the global financial system because they lack AML strategies and are deficient in their regime to combat money laundering, proliferation funding and terrorism financing. In layman's terms, such countries intentionally or unintentionally have fewer resources, loose policies and monetary frameworks that pose them as a threat to the global financial framework as most of the illegal global financial activities like funding terrorism, money laundering and proliferation financing happen through their system, domestic offices, businesses and corporations.

The countries are tagged in two documents issued by the Financial Action Task Force created in July 1989 by the G7 countries and EU. It is headquartered in Paris, France. The core fundamental objective of the FATF is to encourage countries to imply enhanced due diligence and promote global efforts to fight against money laundering and terrorism financing. The FATF holds three meetings every year in February, June and October. It subsequently releases a list of jurisdictions under a black and grey list, along with other public statements.

Under the FATF's enhanced due diligence, countries are encouraged to apply the following measures -

• Obtaining additional information about their customer and keep updating them.
• Collecting extended data and related details about the intended nature of the business.
• Gathering information about the customer or business's source of funds or wealth.
• Keep adding details and understanding the reason for the performed fund transactions.
• Before initiating a business relationship, get the approval of the senior management.
• Start performing enhanced monitoring of business activities, operations and relationships by going through the pattern of transactions, controls and other aspects.
• Demand for the first payment to be initiated by an account in the customer's name with a known bank following the compliance of due diligence standards.

The Financial Action Task Force analyzes and ranks jurisdictions with weak measures and regulations against money laundering and terrorism financing and issues two public documents thrice a year. As of June 2024, FATF has reviewed 133 nations and identified 108 of them.

Out of these 108 jurisdictions, 84 have managed to make the necessary changes, policies and reforms to address and create strict guidelines to fight against money laundering, proliferation and terrorism financing so they are removed from the process.

The two documents are two lists. One is the high-risk jurisdictions subject to a call for action (black list), which typically lists countries with serious AML deficiencies and are identified as high-risk; as of June 2024, the countries in this list are -

• Democratic People's Republic of Korea
• Iran
• Myanmar

FATF urges these countries to apply enhanced due diligence and the right policies to protect the international financial system and help in the elimination of terrorism financing, money laundering and proliferation financing.

The second list comprises jurisdictions under increased monitoring; this is called the grey list. Now, as of June 2024, the countries in the list are -

• Bulgaria
• Burkina Faso
• Cameroon
• Croatia
• Democratic Republic of Congo
• Haiti
• Kenya
• Mali
• Monaco
• Mozambique
• Namibia
• Nigeria
• Philippines
• Senegal
• South Africa
• South Sudan
• Syria
• Tanzania
• Venezuela
• Vietnam
• Yemen

These nations are under increased monitoring, they are committed to resolving their AML deficiencies within a set period.

The countermeasures to implement while dealing with a high-risk jurisdiction are -

• All financial institutions, virtual assets service providers, and nonprofit organizations, including designated non-financial businesses and professions of a country, must implement enhanced due diligence to gauge business transactions and relationships with the blacklisted jurisdictions.
• The concerned and central authorities must restrict the establishment of any branches or regional, zonal or international representative offices of any VASPs, FIs and DNFBPs in the areas of jurisdictions that fall on the blacklist.
• All offices, organizations, financial firms, service companies, FIs, virtual assets service providers, DNFBPs and other corporations, including nonprofit organizations, shall follow internal reporting frameworks and monitor transactions and any business activities related to the blacklisted jurisdictions.
• All these entities shall practice reporting of any form of suspicious transactions or business activities that they come across or identify.
• Review agreements, make changes and amendments, and, if necessary, terminate business relationships and arrangements with banks, financial institutions and other corporations associated with jurisdictions in the black or grey list.
• Performing a thorough external audit and increasing the frequency and intensity of reporting entities for all the branches and subsidiaries located in the concerned countries or jurisdictions listed in the FATF documents.
• Restricting reporting entities to take help or appoint third-party firms and companies that are located in the concerned jurisdictions.
• Follow any new policies and measures specified or introduced by the federal government regarding financial security and international business practices.