Accusations, Political Sensitivity& EDD: Reviving the Money Laundering Blacklist

Last week speculation arose that Brussels is to introduce a revised blacklist of non-EU countries suspected of committing money laundering.

The EU justice commissioner told the Financial Times (FT) this month, that they intended to develop a new methodology to identify such countries so that they could enhance their efforts to crack down on terrorist financing and anti-money laundering.

An original and controversial draft was proposed in February; however, 27 out of the 28 member states blocked the proposal. The FT reported that ‘Governments led by the UK, Germany and France complained they had been blindsided by the initiative and said the list was not drawn up in a “transparent and credible process”’


So why were the member states so opposed to the initiative?

Criticism came from two directions*:

  1. Lack of communication with the accused member states; and

  2. No basis of conversation with such territories.

*A third reason behind the objections could be down to political sensitivity…

The first draft published in February, named Saudi Arabia, Guam, the US Virgin Islands, American Samoa and Puerto Rico — none of which are named on an international blacklist prepared by the Financial Action Task Force (FATF). Inclusion sparked fierce lobbying of EU states’ national capitals by Riyadh and drew sharp criticism from Washington for being a politically motivated exercise[1].

Although there are no financial sanctions attached to the blacklist, European banks would have to carry out “enhanced” checks on funds from the named territories by rigorously vetting customers.

The EU has been determined to crack-down on illicit cash flows into the bloc after high-profile money-laundering scandals involving Germany’s Deutsche Bank and Denmark’s Danske.

While European capitals would rather Brussels avoided making politically sensitive judgments about the financial systems of non-EU countries, the European Parliament has pushed the commission to expand the blacklist to include Moscow. MEPs, along with member states, have the power to veto the draft list.

The above is interesting in the context of one of the new requirements within the 5th EU Money Laundering Directive, which will come into force in the revised UK Money Laundering Regulations, on 10th January 2020. There will be a requirement for firms to conduct EDD when dealing with customers or transactions involving high risk third countries.

Whilst conducting EDD on customers is a well-established process for firms, the new requirement stipulates a set of prescribed, mandatory EDD measures for transactions also. Firms are therefore very keen to understand what is meant by ‘dealing with’ and ‘involving’, which in themselves could be very broadly interpreted. This will be imperative to enable them to design and implement effective measures to comply with the requirements.

[1] Financial Times, 18th August 2019

Written By: Lauren Parmenter