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HM Treasury Advisory Notice: Money Laundering and Terrorist Financing Controls in High-Risk Third Countries

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CLIENT ALERT

The Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2022 (Schedule 3ZA) came into force on 29 March 2022, substituting the UK’s previous high-risk third countries list. The only new addition to the list is the UAE, reflecting its inclusion on the FATF’s latest ‘grey list’ of jurisdictions that have strategic deficiencies in their regimes to counter AML/ CTF risks. Zimbabwe has been removed from both lists following the FATF’s on-site evaluation in January 2022.

The UK Money Laundering Regulations 2017 requires regulated firms to apply enhanced customer due diligence (EDD) in relation to high-risk third countries. Regulation 33(1)(b) requires the application of EDD and enhanced ongoing monitoring in any business relationships with a person established in a high-risk third country or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country.

Why it matters to our clients

As a result, UK-regulated firms, along with their branches and subsidiaries, will now have to carry out EDD and enhanced ongoing monitoring on all customers, new and existing, established in the UAE. Given the Emirates’ status as a global trade and financial centre, some firms may find that a large number of customers are newly in-scope for EDD, which can present operational and compliance challenges.

So that all UAE-based customers can be flagged for EDD, firms should ensure that their country risk lists and customer risk rating tools are updated within a reasonable time frame to take account of the changes to the Schedule 3ZA list. By extension, business risk assessments should factor in the elevated risk profile of any business in the UAE or involving Emirati persons.

EDD demands more time and resources than standard due diligence almost by definition. Measures can include further name screening or research on the customer’s associated parties, obtaining verified information on the customer’s Source of Wealth, or conducting more in-depth transaction analysis. To deal with surges in EDD caseload, such as may be brought about by the addition of the UAE to the UK’s high-risk third country list, firms may look to third-parties for support, both in terms of resourcing and efficiency-boosting technology. 

How We Can Help

Exiger has extensive experience of working with entities across regulated industries to provide solutions to the most complex due diligence challenges. We are equipped to assist financial institutions, corporates and fintechs in remaining compliant with UK regulations as they evolve.

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