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Explainer: How EU ‘dirty money’ list works and why US distanced itself from it

Published: Updated:

The United States raised concerns over the European Commission’s announcement adding Saudi Arabia, Panama and other jurisdictions to a blacklist of nations that pose a threat because of lax controls against terrorism financing and money laundering.

The United States Treasury issued a statement, immediately following the European Commission’s announcement on Wednesday, saying that they have significant concerns about the substance of the EU’s list and the “flawed” process by which it was developed.

“We have put in place the highest standards in the world in the fight against money laundering,” European Commissioner for Justice Vera Jourova said.

“But we must ensure that dirty money from other countries does not end up in our financial system,” she told a press conference at the European Parliament plenary session in Strasbourg.

Riyadh is being considered for the blacklist “despite several measures of reinforcement of its legal framework which has led to increased cooperation with its counterparts,” the report added.

Meanwhile, Saudi Arabia expressed “regret” over the EU proposals, state media said Thursday. “Saudi Arabia notes with regret the European Commission proposed revised list of ‘high risk’ countries,” reported the official Saudi Press Agency.

“The Kingdom reaffirms that it is strongly committed to the common fight against money laundering and terrorism financing, a commitment that it shares with its international partners and allies,” the statement said.

How it works

According the Commission, the aim of the list is to protect the EU financial system by better preventing money laundering and terrorist financing risks.

Following the introduction of the Fourth Anti-Money Laundering Directive in 2015, the European Commission published a first EU list of countries based on the assessment of the Financial Action Task Force (FATF).

The FATF’s membership includes the United States, the European Commission, 15 EU member states, and 20 other jurisdictions.

An inter-governmental body established in 1989, its aim is to set global standards in implementing legal, regulatory and operational measures in combating money laundering, terror financing and other related threats related to the integrity of the international financial system.

Inclusion on the European Commission’s list will not trigger sanctions but banks in the EU will have to carry out additional checks on payments involving entities from listed jurisdictions.

On Wednesday, new countries targeted by the commission join another 16 already on this register, bringing the total up to 23.
The newcomers to the list are Libya, Botswana, Ghana, Samoa, the Bahamas and the four United States territories of American Samoa, US Virgin Islands, Puerto Rico and Guam.

The other listed states are Afghanistan, North Korea, Ethiopia, Iran, Iraq, Pakistan, Sri Lanka, Syria, Trinidad and Tobago, Tunisia and Yemen. Bosnia, Guyana, Laos, Uganda and Vanuatu were removed from earlier versions of the list.

The FATF list includes only 12 jurisdictions – all on the EU blacklist – but excludes Saudi Arabia, Panama and US territories.

According to a statement from EU justice commissioner Vera Jourova, who proposed the list, the added countries joined the list because they met one of the following criteria: They have systemic impact on the integrity of the EU financial system, they are reviewed by the International Monetary Fund as international offshore financial centers and have economic relevance and strong economic ties with the EU.

The proposal must now be approved or rejected by the European Parliament and the 28 member states within one month, which can be extended to two.

Britain raises concern

“The European Commission’s process for developing its list contrasts starkly with FATF’s thorough methodology. First, the Commission’s process did not include a sufficiently in-depth review necessary to conduct an assessment related to such a serious and consequential issue,” the statement published on the US Treasury website read.

According the treasury, the European Commission’s process for developing its list contrasts starkly with FATF’s thorough methodology.

“First, the Commission’s process did not include a sufficiently in-depth review necessary to conduct an assessment related to such a serious and consequential issue. Second, the Commission provided affected jurisdictions with only a cursory basis for its determination.

Third, the Commission notified affected jurisdictions that they would be included on the list only days before issuance. Fourth, the Commission failed to provide affected jurisdictions with any meaningful opportunity to challenge their inclusion or otherwise address issues identified by the Commission. As a result, the European Commission produced a list that diverges from the FATF list without reasonable support,” the statement said.

Britain, which plans to leave the EU on March 29, said the list could “confuse businesses” because it diverges from a smaller listing compiled by FATF.