06 Oct 2020

High risk jurisdictions, officially known as the Financial Action Task Force (FATF), blacklist countries that are considered deficient in their anti-money laundering (AML), counter-financing of terrorism (CFT) and counter proliferation financing (CPF) regulatory regime.

FATF is an inter-governmental body aimed at protecting the financial system from abuse by criminals. It provides a comprehensive framework and measures for combating money laundering, terrorism financing and proliferation financing.

In an interview with BOPA, Director General of Financial Intelligence Agency (FIA) Dr Abraham Sethibe underlined that by issuing the list, the FATF encourages countries to improve their regulatory regimes and establish a global set of AML/CFT/CFP standards and norms.

Dr Sethibe said once a country was blacklisted, the FAFT calls on its members and all jurisdictions to advise their institutions to give special attention to business relationships and transactions with the listed country.

“In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with appliacable United Nations Security Council Resolutions,” he said.

Dr Sethibe said European Union (EU) identifies and lists third country jurisdictions which had strategic deficiencies in their anti-money laundering and countering financing of terrorism (AML/CFT) regimes (high-risk third countries).

He said the objective of the EU list of high-risk third countries was to protect the Union internal market through application of enhanced due diligence measures.

The listed countries are encouraged to rapidly address their identified strategic deficiencies and the Commission was committed to support them where appropriate, he said.

Of particular note, Dr Sethibe, said countries publicly listed by the FATF representing a risk to the international financial system, were presumed to represent a risk to the EU internal market.

Moreover, he said countries assessed as posing significant threats to the Union’s financial system as a result of strategic deficiencies in their AML/CFT regimes based on external sources of information.

Whilst its methodology builds on the listing process followed by FATF, it considers that findings should be drawn upon together with other sources of information to further inform the Commission services’ analysis of third countries AML/CFT regime.

He said as a result of listing, banks and other entities covered by EU anti-money laundering rules are required to apply increased due diligence on financial operation involving customers and financial institutions from the high-risk countries to better identify any suspicious money flows.

Dr Sethibe underlined that ordinarily black listing comes with reputational risk particularly on a country’s image in the global community.

He stressed that the phenomenon increases possibility of reduction in capital flows due to compressed ability to attract investors.

“Investors who are already doing business in the country may withdraw their investments due to frustrations associated by delay in completion of transactions caused by application of enhanced due diligence,” he said.

Dr Sethibe expressed that countries implicated under blacklisting could adopt a high level commitment to address the identified deficiencies within the set timelines which are presented in the form of an action plan.

He said this involves, domesticating the international standards through the passing of laws and putting in place the structures and mechanisms to effectively implement the laws.

Furthermore, implicated countries are required to fully implement the action plan within the set timeframe and to demonstrate effective measures put in place to combat money laundering, terrorism financing and proliferation financing, he said.

Meanwhile, Dr Sethibe spoke of grey list which he officially referred to as jurisdictions under increased monitoring.

He said countries on the FAFT grey list are considered to be having a higher risk of money laundering and terrorism financing but had formally committed to working with the FATF to develop action plans that will address their AML/CFT deficiencies.

Grey listing allows the FATF to monitor the implementation of the Action Plan agreed between the FATF and the country to address strategic deficiencies whereas, the monitoring was done by the International Co-operation Review Group (ICRG).

“Countries that failed to address the strategic deficiencies within the agreed period, might, depending on the level of risk, be escalated to the FATF blacklist where the FATF calls for member countries to take enhanced due diligence or strict measures when dealing with the black listed county,” he said.ENDS