EU Blacklists Saudi Arabia in Fight Against Money-Laundering and Terror Financing

(Bloomberg) -- The European Union drew a rebuke from the U.S. for including Puerto Rico, the U.S. Virgin Islands and other overseas territories on a blacklist of 23 jurisdictions posing higher risks of money laundering and terrorist financing.

The European Commission on Wednesday said all the regions listed -- from American Samoa and Guam to Saudi Arabia and Panama -- should face stricter oversight to combat illicit financial flows. The measures will raise the regulatory hurdles for European banks doing business with clients in affected jurisdictions. The list must now be formally endorsed by the bloc’s national governments and the EU Parliament before taking effect.

The U.S. Treasury said in a statement it has “significant concerns about the substance of the list and the flawed process by which it was developed.” The same anti-money laundering rules that apply to the continental U.S. also extend to its territories, it added.

The move by the EU’s executive arm follows a string of money-laundering cases involving some of the region’s biggest banks, highlighting shortcomings in the bloc’s framework. Danske Bank A/S is at the heart of a dirty money scandal involving suspicious funds that flowed from Russia and elsewhere through its Estonian unit. Russia isn’t included on the list.

EU Blacklists Saudi Arabia in Fight Against Money-Laundering and Terror Financing

The Treasury said it doesn’t expect U.S. financial firms to take account of the EU list in their anti-money laundering policies. It also noted that the Financial Action Task Force, a global watchdog, already develops a list of high-risk nations “as part of a careful and comprehensive process.” The U.S. territories don’t feature on the FATF list.

‘Weaknesses’

“This is an invitation” for the named jurisdictions to address their “weaknesses,” EU Justice Commissioner Vera Jourova said at a press briefing in Strasbourg, France, adding that the list is not set in stone and will be adapted as those included address the EU regulator’s concerns. “My aim is not to list countries for the sake of listing them.”

As a result of the list, “banks and other entities covered by EU anti-money laundering rules will be required to apply increased checks (due diligence) on financial operations involving customers and financial institutions from these high-risk third countries to better identify any suspicious money flows,” the commission said.

It’s the first time the commission has drawn up a list based on its own methodology, targeting more countries than an existing version by the FATF. A country is added if “strategic deficiencies” in its anti-money laundering framework are identified, for example in relation to record keeping and the reporting of suspicious transactions.

‘Deepest Concern’

Panama “expresses its deepest concern regarding a potential inclusion” on the EU list, the nation’s ambassador to the EU, Miguel Verzbolovskis, said in a statement, describing the move as “unfair punishment” for progress made.

“The timely adoption of our national law by democratic means is concrete proof of our will to cooperate and adhere to international standards and to directly address criticism,” he said.

The addition of Saudi Arabia also reflects concerns in Brussels that the kingdom poses a higher risk in relation to the financing of terrorist entities, according to an internal commission document that was seen by Bloomberg. The list will be subject to continuous monitoring and revisions, meaning that countries can be taken on or off, depending on their regulatory safeguards against illicit activities.

The Saudi government’s Center for International Communication didn’t immediately respond to a request for comment.

Inclusion on the list “does not entail any type of sanctions, restrictions on trade relations or impediment to development aid; but requires banks and obliged entities to apply enhanced vigilance measures on transactions involving these countries,” the EU regulator said in a statement.

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