Why does a customer’s jurisdiction matter?
Before accepting a non-resident customer, any financial or corporate service provider is required to conduct due diligence measures to identify and assess the risks associated with that customer. Among other things, it is essential to find out the client’s country of residence or incorporation, who the company’s beneficial owners and main business partners will be and the geographical scope of their operations.
This is necessary because the interaction with persons or entities originating from or otherwise associated with certain countries or territories may carry the risk of involvement in the laundering of money which has been obtained by illegal means. This is why most countries’ competent authorities and international bodies maintain lists of countries which are recognised as high-risk for the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT).
The United Kingdom’s list
When establishing requirements for their regulated entities, individual countries are free to maintain and amend their own jurisdiction lists for AML/CFT purposes. In most cases they are also guided by the current FATF list.
For example, the United Kingdom’s list of high-risk third countries is outlined in Schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and usually includes the same countries as in the FATF list.
- Burkina Faso
- Cayman Islands
- Democratic People’s Republic of Korea
- Democratic Republic of the Congo
- South Sudan
- United Arab Emirates
His Majesty’s Treasury (HM Treasury) publishes and regularly updates the UK’s list of high-risk jurisdictions within the relevant advisory notice on the gov.uk website.
All regulated UK businesses are required to apply enhanced customer due diligence measures and enhanced ongoing monitoring in any business relationship with a person established in or associated with a high-risk third country.
It is important to note that the EU list, below, has no longer been in effect within the UK since 1 January 2021.
The Financial Action Task Force (FATF), as an inter-governmental body which sets international standards in this area, regularly identifies jurisdictions with strategic AML/CFT deficiencies and publishes the relevant lists of countries.
The FATF list of countries for the purposes of AML/CFT falls into two groups: “High-risk jurisdictions subject to a call for action” (also referred to as the “black list”) and “Jurisdictions under increased monitoring” (also referred to as the “grey list”).
|High-risk jurisdictions (“black list”) |
These countries have significant strategic deficiencies in their AML/CFT regimes.
|Jurisdictions under increased monitoring (“grey list”)|
These countries have committed to resolving the identified strategic deficiencies within agreed timeframes and are subject to increased monitoring.
The lists of countries presented above are regularly updated depending on the progress achieved by particular countries in addressing their strategic deficiencies.
The European Union’s list
The EU anti-money laundering Directive 2015/849 of 20 May 2015 requires the regulated entities to apply enhanced due diligence measures in business relationships and transactions involving high-risk third countries.
According to the current version of the EU’s high-risk third country list, the European Commission identifies the following jurisdictions as having strategic deficiencies in their AML/CFT regimes:
The EU list of high-risk third countries
- Burkina Faso
- Cayman Islands
- Democratic People’s Republic of Korea (DPRK)
- the Philippines
- South Sudan
- Trinidad and Tobago
What if a client is from a high-risk jurisdiction?
- If a person belongs to a high-risk third country then the regulated entity, e.g. a bank or a corporate service provider, that is establishing business relations with such a person must apply enhanced due diligence measures.
- If such a client is accepted for service then their transactions will be the subject of increased attention.
- Subject to our risk assessment policy, Uniwide Formations Ltd. is unlikely to accept customers from high-risk jurisdictions listed by HM Treasury. If you reside or are established in any of these countries then please contact our staff before placing an order through our website.