FATF-Identified Jurisdictions with AML/CFT Deficiencies

August 22, 2019 by ACA Compliance Group

On June 21, 2019, the Financial Action Task Force (FATF) updated their list of jurisdictions that have strategic AML/CFT deficiencies and issued a public statement about the international sanctions on the Democratic People’s Republic of Korea (DPRK) and Iran.

The Financial Crimes Enforcement Network (FinCEN) issued an advisory on July 12th, 2019 to remind financial institutions that these updates may affect their obligations with respect to these jurisdictions and that they should consider the impact these updates have on the institution’s risk-based approach.

Below is a summary of changes to the list of jurisdictions with strategic deficiencies:

  • Jurisdiction added to the list: Panama
  • Jurisdiction removed from the list: Serbia
  • Jurisdictions retained on the list: The Bahamas, Botswana, Cambodia, Ethiopia, Ghana, Pakistan, Panama, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Yemen

ACA Guidance

Financial institutions should consider the following when reviewing their obligations and risk-based policies, procedures, and practices with respect to the jurisdictions with strategic AML/CFT deficiencies along with DPRK and Iran:

  • Panama has been added to the list of Jurisdictions with strategic deficiencies in AML/CFT program due to the lack of effective implementation of its AML/ CFT framework.
  • Serbia has been removed from the list and is no longer subject to the FATF’s monitoring process under its ongoing global AML/CFT compliance process. However, financial institutions should consider the reason behind the delisting while assessing risk for their AML program.
  • The Government of Iran and Iranian financial institutions remain entities whose property and interests in property are blocked (under E.O. 13599 and section 560.211 of the ITSR).
  • U.S. financial institutions are prohibited from engaging in transactions or dealings with Iran, the Government of Iran, and Iranian financial institutions, including opening or maintaining correspondent accounts for Iranian financial institutions.

Obligations Related to Jurisdictions with Strategic AML/CFT Deficiencies

Financial institutions should:

  • Apply countermeasures to protect the international financial system from ongoing and substantial money laundering and terrorist financing risks.
  • Apply enhanced due diligence proportionate to the risks arising from Iran.
  • Apply enhanced due diligence when maintaining correspondent accounts for foreign banks operating under a banking license issued by a country (i) designated as non-cooperative with respect to international anti-money laundering principles or procedures (ii) that is the subject of special measures pursuant to Section 311 of the USA PATRIOT Act. The enhanced due diligence should:
  1. Determine nested correspondent banking relationships and take reasonable steps to obtain information relevant to assess and mitigate money laundering risks associated with the foreign bank’s correspondent accounts for other foreign banks, including the identity of those foreign banks.
  2. Determine the identity of each owner of the foreign bank and the nature and extent of each owner’s ownership interest for any such correspondent account established or maintained for a foreign bank whose shares are not publicly traded.
  • Consider the risks associated with the AML/CFT deficiencies of the jurisdictions identified by FATF.
  • Ensure due diligence programs for correspondent accounts maintained for foreign financial institutions include appropriate, specific, risk-based, and where necessary enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed in the United States.
  • Money Services Businesses (MSBs) need to establish adequate and appropriate policies, procedures, and controls commensurate with the risk of money laundering and the financing of terrorism posed by their relationship with foreign agents or foreign counterparties.
  • FinCEN requests financial institutions to use the updated mandatory Suspicious Activity Report (SAR) form (as of February 1, 2019) and reference the advisory as “July 2019 FATF FIN-2019-A004” in SAR field 2 (Filing Institution Note to FinCEN) to indicate a connection between the suspicious activity being reported and the jurisdictions and activities highlighted in this advisory.

Obligations Related to DPRK and Iran

  • Financial Institutions must fully comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, with foreign banks licensed by the DPRK or Iran.