High-risk countries: heightened vigilance and increased due diligence are the order of the day in AML/CFT matters

by 11/09/2024Anti-corruption, Export Control, AML-CFT

A global challenge for businesses, efforts to combat money laundering and the financing of terrorism (AML-CFT), have intensified since the pandemic and the war in Ukraine. The shifting geopolitical context has led to an evolution/sophistication of criminal behavior, exposing organizations to new challenges, even more so in so-called "high-risk" countries, i.e. those with strong deficiencies in their AML/CFT regimes, or whose unstable political climate is conducive to corruption and criminal behavior. In these regions, companies are more exposed to economic sanctions which, in addition to severe fines, can lead to a ban on future business in certain markets.

FATF points the finger at AML-CFT deficiencies

High-risk countries are those whose AML-CFT measures have proved 'ineffective' or insufficiently rigorous. Three times a year, the FATF publishes a public list of states whose legal arsenal and jurisdictions do not demonstrate convincing efforts or results in this area, which can be consulted on the Customs website.

Generally speaking, high-risk countries are characterized by :

  • High levels of corruption, political instability and criminal activity,
  • The presence of criminal gangs or cartels, or even the country's use as a transit point for international trafficking in drugs, arms, etc.
  • The existence of armed militias financed by the State, armed arms or accomplices of criminal organizations,
  • A strong informal economy,
  • The existence of free trade zones,
  • State support for terrorism,

All these factors, alone or in combination, encourage or facilitate the criminal laundering of assets.

The weight of additional constraints and obligations

In high-risk countries, new constraints and obligations are added to the compliance rules imposed on companies. Regulations on AML-CFT can vary, forcing companies to comply with local regulations while respecting international standards, a process that can prove complex and costly. In addition to the criminal and financial penalties that can be imposed on companies guilty of complacency or complicity, the damage in terms of image and reputation can also be critical.

A lack of transparency and reliable partners

For companies operating in low-risk countries, it may be difficult to find reliable partners in these states, or even highly likely that they will find themselves partners or associates of an entity involved in money laundering or terrorist financing operations. Organizations may also lack reliable and accurate information on potential partners: shareholders, customers and partners, etc. This lack of transparency complicates verification and due diligence processes, further increasing risks.

The different categories of high-risk countries :

The Black List: countries or jurisdictions targeted by a call to action or a public statement.

These are high-risk countries. The FATF identifies serious strategic gaps and dysfunctions, and urges its members and their jurisdictions to apply enhanced due diligence and, in the most serious cases, counter-measures to protect the international financial system against these heightened risks of money laundering and the financing of terrorism and proliferation. Three countries are currently blacklisted: Iran, North Korea and Myanmar (formerly Burma).

The Grey List: countries and jurisdictions subject to enhanced vigilance

The countries on this list are actively working with the FATF to remedy the shortcomings, gaps and strategic dysfunctions in their regimes AML-CFT. Placing a country under enhanced scrutiny means that it is committed to rapidly resolving these shortcomings within an agreed timeframe. Twenty countries have been placed under enhanced scrutiny, with Monaco and Venezuela joining last June.

Countries under embargo or subject to trade restrictions

Embargoes or trade-restriction measures are sanctions decided and implemented by the European Union following sanctions imposed either by the United Nations, or as part of the Common Foreign and Security Policy (CFSP). These measures aim to prohibit trade in certain targeted goods and services, such as weapons and war materiel, equipment needed to exploit hydrocarbon and mineral deposits, or key technologies essential to countries placed under embargo.

What the law says

Companies' obligations are specified by the Fifth EU Directive of February 2019.

Companies must :

  • Carry out thorough and regular due diligence on customers and business partners to identify and assess risks, and apply enhanced due diligence measures to occasional transactions and business relationships involving high-risk third countries on the FATF's grey list.
  • Keeping abreast of changing, country-specific regulations. High-risk countries are often synonymous with unstable and specific regulations.
  • Implement an effective AML-CFT program, which must include policies and procedures to identify, assess and mitigate risks AML-CFT.

Regtech: effective control measures to accurately assess the integrity of third parties.

Latest-generation RegTechs like AP Solutions IO offer full AML-CFT solutions to avoid the pitfalls of casual relations with high-risk countries. APScan can identify sensitive individuals: people under sanctions or with assets frozen (National, EU & International Sanctions, Assets Freeze), Politically Exposed Persons (PEP) and their close associates (RCA - Relative & Close Associates), reputational risks / negative press (AME - Adverse MEdia), Country risks (Embargo, Vigilance), other open data lists... This detection is based on fuzzy logic, i.e. detection with spelling or graphical approximations, unfortunately leading to the generation of numerous suspicions or "false positives". Based on the quality and precision of the third-party information gathered by the company, and the more than 70 parameters offered by the APScan tool, which precisely define the alerts to be screened out, it will be possible to drastically reduce false positives.

Interconnectable with APScan, APFilter will detect international sanctions and/or identify countries under embargo. Detection is instantaneous, thanks to a high-performance engine and full API integration with core banking systems. Filtering adapted to data typologies (names, countries, currencies, BIC, IBAN...) and an easily configurable reduction engine minimize the number of suspicions.

AP solutions IO uses national and global watch and sanction lists from national, international and intergovernmental organizations, as well as from the most reputable private companies. These lists are constantly updated by thousands of analysts worldwide. Contact us to find out more!

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