How are high-risk third countries identified, and what is MONEYVAL?

To protect the internal market, the 4th AML Directive requires the European Commission to identify non-EU jurisdictions whose national AML/CFT regimes have strategic deficiencies that pose significant threats to the EU's financial system. It does so by delegated acts, adopted within one month of identifying the deficiencies, and the list sits in Commission Delegated Regulation (EU) 2016/1675, which is amended regularly as countries are added or removed.

The Commission looks at three things. First, the country's legal and institutional framework: whether money laundering and terrorist financing are criminalised, and its rules on customer due diligence, record keeping, suspicious transaction reporting and access to accurate beneficial ownership information. Second, the powers and procedures of its authorities, including effective, proportionate and dissuasive sanctions and cooperation with EU authorities. Third, how effective its system is in practice. It takes account of evaluations by international bodies and standard setters such as the FATF and MONEYVAL. Tax rates or economic size are not criteria.

Business relationships or transactions involving a high-risk third country require enhanced due diligence under the AML/CFT Law: more information on the customer and beneficial owner, the intended relationship and the purpose of transactions, the source of funds and wealth, senior management approval, and closer monitoring. Cyprus law also treats as high-risk any third country that the firm itself rates as high risk in its own assessment. A branch or majority-owned subsidiary of an EU firm located in such a country, which fully applies the group's policies, is assessed on a risk-sensitive basis rather than automatically.

Because the list changes, firms check the current version of the delegated regulation rather than relying on older material.

MONEYVAL is the Council of Europe's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism. It was set up in 1997 by the Council of Europe's Committee of Ministers to evaluate the AML/CFT measures of Council of Europe member states that are not members of the FATF, and it is a permanent monitoring body. A few other jurisdictions have since joined its evaluations. It is part of the Council of Europe, not the EU, and is distinct from the FATF, although it applies the FATF standards.

Its two tasks are to assess compliance with the main international standards, the FATF Recommendations, and how effectively they are implemented, and to make recommendations to national authorities on the improvements their systems need. It works through evaluations of each country by its peers, followed by regular progress reports. It does not make laws, issue EU directives, inspect individual firms or prosecute anyone. Cyprus, which is not an FATF member, is evaluated by MONEYVAL.