The European Commission released a blacklist of 23 non-EU countries which the European body says have strategic deficiencies in their anti-money laundering and counter-terrorism financing frameworks.
The U.K. government had lobbied heavily to keep Saudi Arabia, a prominent source of funds for the City of London and a significant trading partner, off the list. But the Commission added several new countries, including Saudi Arabia, Panama and Nigeria to the existing blacklist for their lax anti-money laundering and terrorist financing controls.
In addition to the reputational damage, inclusion on the blacklist makes transactions with EU members states more complicated, because EU banks must employ more stringent checks when dealing with entities and customers from listed jurisdictions.
The other newly added countries are Libya, Botswana, Ghana, Samoa, the Bahamas and the four United States territories of American Samoa, U.S. Virgin Islands, Puerto Rico and Guam. Other listed states are Afghanistan, North Korea, Ethiopia, Iran, Iraq, Pakistan, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen.
The European Parliament and the EU Council now have one month, which can be extended to two, to endorse the list.
The anti-money laundering list is different from the EU blacklist of non-cooperative countries in tax matters that the Cayman Islands attempted to avoid by reforming its Companies Law in December.
The next meeting of the EU Council’s Code of Conduct Group on Business Taxation that deals with the tax blacklist is set for Feb. 25.
“We have established the strongest anti-money laundering standards in the world, but we have to make sure that dirty money from other countries does not find its way to our financial system,” Vera Jourova, Commissioner for Justice, Consumers and Gender Equality said. “Dirty money is the lifeblood of organized crime and terrorism. 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.”
The EU first shortlisted 54 countries, including the Cayman Islands, based on whether they have economic ties with the EU; a systemic impact on the integrity of the EU financial system; and whether they were classed by the International Monetary Fund as offshore financial centers.
For each country, the Commission said it assessed the level of existing threat, the legal framework and controls put in place to prevent money laundering and terrorist financing risks, and their effective implementation. The Commission also considered the work of the Financial Action Task Force, the international standard-setter in this field.
The EU blacklist includes 12 countries listed by the FATF and 11 additional jurisdictions. The U.S. Department of the Treasury rejected the inclusion of American Samoa, Guam, Puerto Rico, and the U.S. Virgin Islands on the list, stating it had significant concerns about the substance of the list and the flawed process by which it was developed.
The European Commission’s process for developing its list “contrasts starkly with FATF’s thorough methodology,” the Treasury Department said, adding that the Commission’s process had not included a sufficiently in-depth review, and only provided affected jurisdictions with a “cursory” basis for its determination.
The Treasury also criticized that listed countries had only been informed days before the release of the list and had no opportunity to challenge their inclusion.
The Treasury Department said it does not expect U.S. financial institutions to take the European Commission’s list into account in their anti-money laundering and combating financing of terrorism policies and procedures.
Other critics claimed the list failed to include several countries that were involved in recent money laundering scandals in Europe.
“Some of the biggest dirty-money washing machines are still missing,” said Sven Giegold, a lawmaker for the Greens and a member of European Parliament’s special committee on financial crimes. “These include Russia, the City of London and its offshore territories, as well as Azerbaijan.”
Cayman is awaiting the release of its fourth mutual evaluation report by the Caribbean Financial Action Task Force. The report was discussed and approved by the CFATF Plenary at a meeting in Barbados in November 2018, but has not been published yet.
The evaluation, which is rumored to contain critical elements, assesses if the necessary anti-money laundering laws and regulations are in place, and more importantly, how effective they are in practice in achieving the desired outcome.