AML – Bold Decisions at the FATF’s Plenary & Updates to the EU List of Non-Cooperative Jurisdictions for Tax Purposes

Analysis of FATF’s February Plenary Meetings

The FATF’s Paris headquarters were the venue for their anticipated February plenary held last week and attended by hundreds of delegates from over 200 countries.  The discussions concluded with several outcomes, one of which is an FATF first: the suspension of the Russian Federation’s membership.

The Russian Federation’s ongoing and escalating aggression against Ukraine contradicts the principles of the FATF, which aims to promote the safety, security, and integrity of the global financial system through international cooperation and mutual respect.  Consequently, the FATF Plenary has decided to suspend Russia’s membership and called on all jurisdictions to remain alert to the potential risks associated with attempts to circumvent measures aimed at safeguarding the international financial system against Russian activities.

During the Plenary, FATF members took several important measures to improve transparency in beneficial ownership and prevent criminal activities by opaque corporate structures. These steps include revisions to Recommendation 25 and the creation of new guidance to help countries and the private sector implement FATF’s strengthened requirements on transparency and beneficial ownership.  It is yet to be seen how the EU will respond to this in light of the recent EU court ruling on banning beneficial ownership information from the public domain.  The Plenary also developed an action plan to ensure timely global implementation of FATF standards on virtual assets. Additionally, FATF members approved a report on disrupting the financial flows related to ransomware and discussed ongoing work on several projects, including those related to the misuse of citizenship and residency by investment schemes and the enhancement of asset recovery. The Plenary also agreed to initiate new projects aimed at tackling cyber-enabled fraud and terrorist financing through crowdfunding.

FATF’s Country Assessments

Indonesia was evaluated as having a strong legal, regulatory, and institutional framework, resulting in robust technical compliance in several areas.   While the country is achieving good results in combating terrorist financing, it needs to focus more on pursuing larger-scale money launderers and enhancing asset confiscation.

The assessment of Qatar concluded that the country has made significant improvements to its anti-money laundering and countering the financing of terrorism (AML/CFT) regime in recent years, resulting in strong technical compliance with FATF Standards.  Qatar has also taken positive steps to develop a better understanding of money laundering and terrorist financing risks, confiscate criminal assets, supervise the financial and non-financial sectors, and implement targeted financial sanctions for terrorism financing.

The FATF will publish the evaluation reports for Indonesia and Qatar by May 2023 after completing its quality and consistency review.

South Africa and Nigeria were identified as new jurisdictions subject to increased monitoring (grey listed countries) and will have the arduous task of resolving the discovered deficiencies within the limited timeframe afforded by the FATF to hopefully avoid the same fate of Myanmar which was recently added to the blacklist alongside Iran and North Korea.

On the other hand, the FATF plenary concluded that Cambodia and Morocco made progress in improving their AML/CFT regimes as per their individual action plans.  Both countries have addressed the technical deficiencies identified by the FATF in February 2019 and 2021, respectively, and are no longer subject to increased monitoring.

EU List of Non-Cooperative Jurisdictions for Tax Purposes

As of February 14^th, 2023, the EU Council decided to add British Virgin Islands, Costa Rica, Marshall Islands and Russia to the EU list of non-cooperative jurisdictions for tax purposes.  The current list consists of 16 jurisdictions: American Samoa, Anguilla, Bahamas, British Virgin Islands, Costa Rica, Fiji, Guam, Marshall Islands, Palau, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, US Virgin Islands, Vanuatu.

• Marshall Islands have ignited EU concerns that this jurisdiction which has a zero or only nominal rate of corporate income tax is attracting profits without real economic activity. In particular, the Marshall Islands were found to be lacking in the enforcement of economic substance requirements.
• British Virgin Islands are listed because they were found not to be sufficiently in compliance with the OECD standard on exchange of information on request.
• Costa Rica is included because it has not fulfilled its commitment to abolish or amend the harmful aspects of its foreign source income exemption regime.
• Russia is listed after the code of conduct group screened Russia’s new legislation adopted in 2022 against the good tax governance criteria of the code and found that Russia had not fulfilled its commitment to address the harmful aspects of a special regime for international holding companies. In addition, dialogue with Russia on matters related to taxation came to a standstill following the Russian aggression against Ukraine.

The above AML updates have resulted in an adjustment of cleversoft’s Jurisdictional Risk Assessment scoring as follows: