🔹 Definition
A High-Risk Jurisdiction refers to a country or territory that is considered to have strategic deficiencies in its Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), or proliferation financing regimes. These jurisdictions are identified by international organizations like the Financial Action Task Force (FATF) or by national regulators, and are often associated with weak governance, lack of regulatory enforcement, or non-cooperation with international standards.
Entities dealing with individuals, businesses, or transactions involving high-risk jurisdictions are typically required to apply Enhanced Due Diligence (EDD) measures.
🔹 Frequently Asked Questions (FAQs)
Q1: Who determines if a jurisdiction is high-risk?
- FATF maintains two public lists:
- The Grey List (Jurisdictions under Increased Monitoring)
- The Black List (High-Risk Jurisdictions subject to a Call for Action)
- National regulators (e.g., MAS, FCA, FinCEN) may publish their own lists or adopt FATF’s classifications
- Financial institutions may create internal high-risk country lists based on business needs and risk appetite
Q2: What are the compliance implications of dealing with high-risk jurisdictions?
- Must perform Enhanced Due Diligence (EDD) on clients with ties to high-risk countries
- Monitor transactions more closely for suspicious activity
- May require senior management approval for onboarding or continuing business relationships
- Could trigger Suspicious Transaction Reports (STRs) or sanctions risk reviews
Q3: What are red flags related to high-risk jurisdictions?
- Clients with residential or business addresses in high-risk countries
- Use of offshore shell companies or intermediaries in those regions
- Payments routed through correspondent banks in jurisdictions under monitoring
- Requests to bypass due diligence by citing local exemptions or urgency
Q4: How can organizations manage exposure to high-risk jurisdictions?
- Maintain updated country risk lists aligned with FATF and local regulators
- Automate country-based risk scoring in onboarding and transaction monitoring tools
- Conduct regular jurisdictional risk assessments
- Limit or prohibit certain types of business relationships involving non-compliant countries
