AMLD and high risk countries

The Anti Money Laundering Directive is a far-reaching law that has been in force in the Netherlands since 2008. This law has a major impact on how transactions in tax or real estate may be executed. An important part of the law is that assessment must be made of the risk of money laundering and financing of terrorism for all parties involved in the transaction. Also important in this assessment is the geographical origin of a party, the so-called country risk. In this blog, we will have a brief look at what this entails and how the country risk is determined.

Anti Money Laundering Directive (AMLD)

The Wwft is designed to prevent money laundering and terrorist financing. The Wwft has been in force in the Netherlands since August 1, 2008, and was last amended on July 25, 2018, to reflect the Fourth European Anti-Money Laundering Directive (AMLD4). The core of the Wwft is the use of parties closely involved in transactions of fiscal funds, such as banks and notaries, to detect money laundering or terrorist financing. This is done through the so-called client investigations, where these parties investigate their clients and the risk of money laundering or terrorist financing they carry.

Country risk

A country is a so-called risk country if it is on a sanctions list, if it is on the FATF (Financial Action Task Force) list of risk countries, and if it is considered a risk country by the European Commission. All these bodies use different criteria to compile their respective lists, making it difficult for individuals to keep up to date and comply with the law.

There are different commissions who decide if a country is considered a risk country and should be put on a list. Both the FATF and the European Commission have their own lists with risk countries

Why a country is on the list of risk countries

The various committees that make decisions about risk countries each look at different aspects when drawing up lists of countries. When a country is included on a sanctions list, it almost always arises from geopolitical decisions, such as the ongoing sanctions against North Korea. The FATF, on the other hand, draws up its lists by looking at current anti-money laundering or terrorist financing (AML/CFT) measures in place in countries. Countries whose measures are considered inadequate will be placed on the FATF risk lists. The European Commission initially followed the FATF’s assessment but recently decided to adopt an amended standard.

The best way to deal with persons that are living in a risk country or persons that have a company based in a risk country, is to conduct an extensive client research

Dealing with country risk

Dealing correctly with country risk requires that you are always aware of current risk lists and that client due diligence is properly conducted. Country risk is also closely associated with the Sanctions Act, putting an individual at risk of committing an economic crime if the investigation is inadequate. Therefore, the best way to deal with this risk is to ensure that the policy against client screening is adequate.

Adequate customer due diligence

The customer due diligence remains the first step required to identify a customer or business relation from a risk country. A customer due diligence should consider the identity and identification documents of a customer, identify the ultimate interested party (UBO) behind a customer, and ultimately estimate the risk of money laundering and terrorist financing based on this information.

For both the customer and the identified UBO, this process needs to include a focus on the geographical region where they are based. This should then be compared with the current sanctions lists, the list of FAFT risk countries, and the list of high-risk countries of the European Commission.

Country risk in the CDD On Demand solution

CDD On Demand also checks whether a person's nationality poses an increased risk (appears on the FATF list). Furthermore, if known, the address of the person is also checked for country risk. When this involves an increased risk, it is displayed as a warning on the report.

CCD On Demand

SCOPE FinTech Solutions has developed the CCD On Demand solution to support users in conducting a customer due diligence in accordance with the AMLD. The CCD On Demand solution is a user-friendly external customer due diligence tool that can be easily integrated with an existing customer base.