updated 8:44 AM CET, Jan 28, 2023

European Commission publishes updated money-laundering 'blacklist', as U.S. questions methodology

The European Commission on Wednesday published an updated version of what it called "third countries with weak anti-money-laundering and terrorist financing regimes," which included a number of U.S. territories, including American Samoa, Guam, Puerto Rico and the U.S. Virgin Islands.

The U.S. Treasury Department reacted to the list by questioning the European Commission's methodology in drawing it up, while Saudi Arabia said it regretted its inclusion for the first time. 

The Tax Justice Network, meanwhile, a London-based anti-tax evasion and tax avoidance organization, slammed the list for not including the U.S. on it, saying: "Tax Justice Network research has shown that the largest supplier of financial secrecy to the EU is the U.S...[therefore], the EU's new blacklist...offers little to be happy about." 

The European Commission's anti-money-laundering and counter-terrorist financing-focused blacklist is separate from another European Union blacklist that focuses on the willingness of jurisdictions to provide information and assitance to help prevent individuals and entities to avoid tax, typically by using accounts in foreign countries.

Unlike the tax haven blacklist, which had its origins in a pan-European response to the publication in April, 2016 of the so-called Panama Papers document trove by a Washington, DC-based investigative journalism organization,  this AML/CTF blacklist dates back to 2015, when the European Commission published its first list of "high-risk third countries," based on the assessment of the Financial Action Task Force, following the entry into force of the Fourth Anti-Money-Laundering Directive that year. The FATF is a Paris-based intergovernmental organization that was founded in 1989 to provide a coordinated policy to combat money laundering, and today has a membership of 37 countries. 

The Fifth Anti-Money-Laundering Directive, on which the current European Commission blacklist of jurisdictions is based, was introduced last year and adds fresh criteria for assessing which countries represent a high risk, "including notably the availability of information on the beneficial owners of companies and legal arrangements", the EC said. 

Altogether some 23 jurisdictions were named by the European Commission on Wednesday as having "strategic deficiencies" in the way they carry out their AML and counter-terrorist financing efforts, seven more than the previous list.

The 23 countries named include 12 countries listed by the Financial Action Task Force, "and 11 additional jursdictions," the EC said. 

The other jurisdictions on the European Commission's latest blacklist, in addition to those named above, are: Afghanistan, the Bahamas, Botswana, North Korea, Ethiopia, Ghana, Iran, Iraq, Libya, Nigeria, Pakistan, Panama, Samoa, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.  

Following publication of the latest AML/CTF list, the 28 EU member states now have one month, which can be extended to two, to formally adopt the list. Once that happens, it would then be published in the EC's Official Journal, and enter into force 20 days thereafter. 

'Increased due diligence'

In a statement accompanying the publication of its updated list on Wednesday, the European Commission said that as a result of the listing, "banks and other entities covered by EU anti-money-laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows.

"On the basis of a new methodology, which reflects the stricter criteria of the fifth anti-money laundering directive in force since July 2018, the list has been established followig an in-depth analysis."

Věra Jourová, European Commissioner for Justice, Consumers and Gender Equality said the list was important to ensure that "dirty money from other countries does not find its way [into] our financial system." 

"Dirty money is the lifeblood of organised crime and terrorism," she added. 

"I invite the countries listed to remedy their deficiencies swiftly. The commission stands ready to work closely with them to address these issues in our mutual interest."

U.S.: 'No need for U.S. institutions to take the EU's list into account'

In a statement yesterday, the U.S. Treasury Department said it had "significant concerns about the substance" of the European Union's "list of purportedly high-risk jurisdictions" that the EU regarded as “posing significant threats” to its financial system, and cited as well "the flawed process by which it was developed." 

For this reason, it said, "the Treasury Department does not expect U.S. financial institutions to take the European Commission’s list into account in their AML/CFT policies and procedures."

It added: "The Financial Action Task Force (FATF) is the global standard-setting body for combating money laundering, terrorist financing, and proliferation financing.

"The FATF, which includes the United States, the European Commission, 15 EU member states, and 20 other jurisdictions, already develops a list of high-risk jurisdictions with AML/CFT [anti-money-laundering and countering the financing of terror] deficiencies, as part of a careful and comprehensive process.

"Because of the FATF’s work, virtually all countries around the world are subject to a rigorous peer-review methodology that examines the legal frameworks to counter illicit finance as well as how effectively jurisdictions implement them.

"The European Commission’s process for developing its list contrasts starkly with FATF’s thorough methodology."

Later, the statement adds, "Beyond our concerns with the listing methodology, the Treasury Department rejects the inclusion of American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands on the list. The commitments and actions of the United States in implementing the FATF standards extend to all U.S. territories.

"The same AML/CFT legal framework that applies to the continental United States also generally applies to U.S. territories.

"Moreover, the Treasury Department was not provided any meaningful opportunity to discuss with the European Commission its basis for including the listed U.S. territories."

As for the Saudi reaction to its inclusion on the list, Saudi finance minister Mohammed al-Jadaan said in a statement: "Saudi Arabia’s commitment to combating money laundering and the financing of terrorism is a strategic priority, and we will continue to develop and improve our regulatory and legislative frameworks to achieve this goal."

To read the U.S. Treasury Department's statement in full, click here.

To read the European Commission's statement posted on its website yesterday, click here.