High-risk third countries: Comments and recommendations by the NBB
1. Target situations
Article 38 of the Anti-Money Laundering Law requires enhanced customer due diligence measures to be implemented by financial institutions which carry out transactions on behalf of or establish or maintain business relationships with natural or legal persons or legal arrangements such as trusts or fiducies that are established in a high-risk third country.
In accordance with Article 4, 9°, of the Anti-Money Laundering Law, “high-risk third country” refers to:
- a third country (i.e. a non-EEA country) which has been identified by the European Commission as having strategic deficiencies in its ML/FT regimes that pose significant threats to the financial system of the European Union: in this respect, see the list of countries concerned annexed to Delegated Regulation (EU) 2016/1675 of 14 July 2016, which is updated regularly on the basis of a methodology established by the Commission (see the financial crime section of the Commission’s website); or
- a third country identified by (i) the FATF, (ii) the Ministerial Committee tasked with coordinating the fight against the laundering of money of illicit origin, (iii) the National Security Council or (iv) the obliged entity itself as presenting a high geographic risk: in accordance with Article 19, § 2, of the Anti-Money Laundering Law, entities should perform their risk assessment taking into account the criteria indicative of a potentially higher risk that are specified in Annex III to the Anti-Money Laundering Law, including geographic risk factors (see the page “Individual risk assessment”). Please also refer to the EBA Risk Factor Guidelines dated 1 March 2021 in particular.
For more information on countries identified as “high-risk” countries, see the Treasury website. The NBB stresses that the obligation to adopt enhanced customer due diligence measures applies to all these countries, regardless of whether they have been identified as a “high-risk third country” by the European Commission, the FATF, the Ministerial Committee tasked with coordinating the fight against the laundering of money of illicit origin, the National Security Council or the obliged entity, and regardless of the capacity of the person established there (customer, agent or beneficial owner).
2. Enhanced due diligence measures
In accordance with Article 19, § 2, of the Anti-Money Laundering Law, the special case of enhanced due diligence referred to in Article 38 of the Law still requires an individual risk assessment taking account of all risk factors associated with the business relationship or occasional transaction, to determine the appropriate intensity of the enhanced due diligence measures to be implemented to adequately manage and reduce these risks. For more information on this subject, see the page “General commentary on cases of enhanced due diligence”, the content of which is taken from the Explanatory Memorandum of the Anti-Money Laundering Law, and the page “Individual risk assessment”.
The NBB recommends determining the intensity of the due diligence measures to be implemented in the institution’s internal procedures, based not only on the reasons behind the decision made at the international, European or national level or by the institution itself to qualify a country as a “high-risk” country – since these reasons and, therefore, the measures taken on this basis may differ significantly from one country to the other – but also on the (non-)existence of other high-risk factors associated with the transaction or business relationship concerned. To that end, all characteristics of the transaction or business relationship should be taken into consideration, particularly its nature and purpose and the amounts involved. The enhanced due diligence measures should also be applied in conjunction with any measures involving financial embargoes or asset freezing which may have been taken against the same countries (for more information on this subject, see the page “Financial embargoes and asset freezing”).
When a decision is made at the international, European or national level or by the institution itself to qualify a territory as a “high-risk country”, it is typically followed (i) by a listing of all business relationships established by the financial institution which somehow involve natural or legal persons or legal arrangements established in the country concerned, (ii) by a new examination of the risk level presented by these relationships on the basis of the information available regarding the country concerned, and (iii) a formal decision by the senior management to maintain or terminate the relationship.
3. Possibility of derogation: Belgian parent companies
When a parent company governed by Belgian Law is at the head of a group as defined in Article 4, 22°, of the Anti-Money Laundering Law (see the page “Definitions”) which includes a branch or subsidiary established in a high-risk third country, this parent entity should, in principle, require the branch or subsidiary concerned to implement enhanced due diligence measures with regard to all its local customers pursuant to Article 13, § 3, second paragraph, of the Anti-Money Laundering Law. However, Article 38, second paragraph, of the Anti-Money Laundering Law provides that financial institutions may “based on an individual risk assessment, authorise [these branches and subsidiaries] to not automatically apply increased customer due diligence measures, provided that they ensure that the branches and subsidiaries concerned fully comply with the group-wide policies and procedures”.
For the measures which the NBB recommends applying when making use of this possibility of derogation, see point 3.2 of the page “Belgian parent companies”.
Finally, in accordance with Article 14 of the Anti-Money Laundering Law, it is recalled that financial institutions may never open a branch or representative office or directly or indirectly acquire or create a subsidiary in one of the countries designated by the King pursuant to Article 54 of the Law. As yet, however, no Royal Decree has been adopted with regard to a third country.
4. Internal control measures
Financial institutions are expected to periodically and permanently monitor the adequacy of the organisational measures implemented to comply with enhanced due diligence obligations imposed by Article 38 of the Anti-Money Laundering Law, which notably aim to ensure that each institution has a comprehensive knowledge of all the countries identified as “high-risk” countries at the international, European or national level. The NBB expects the internal audit function in particular to pay specific attention to the adequacy and effectiveness of the enhanced due diligence measures accordingly adopted by the financial institutions.
Disclaimer: This English text is an unofficial translation and may not be used as a basis for resolving any dispute.