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Nations up for inclusion on a controversial blacklist of non-EU jurisdictions with weak controls against financial crime would have more time to address their shortcomings under an alternative proposal now under development, a senior official told ACAMS moneylaundering.com.

In February, following years of debate over its methodology, the European Commission, the European Union’s executive branch, added Saudi Arabia, Panama and four U.S. territories to a proposed blacklist, requiring financial institutions to apply greater scrutiny to clients and transactions associated with those jurisdictions.

But the bloc’s 28 member states unanimously rejected the list amid claims that EU officials did not operate transparently when forming it, prompting the Commission to consider a new approach, Alexandra Jour-Schroeder, the branch’s deputy director for criminal justice, said.

“With the list presented in February, third countries were informed a few weeks in advance that they would be on it,” Jour-Schroeder told moneylaundering.com on the sidelines of the ACAMS AML & Financial Crime Conference in Berlin. “This process did not allow deficiencies to be addressed within this time frame.”

Under the new plan, a country deemed to have gaps in their anti-money laundering and counterterrorist financing regimes would be “confronted” with a negative assessment, asked to formally respond, and given a longer time frame to eliminate any gaps if concerns persist.

“As we’ve always said, the list is a tool but not the objective,” Jour-Schroeder said. “If in the end the country addresses the deficiencies then the objective would be achieved without a listing.”

EU officials would base the targeted country’s deadline on the estimated time needed to introduce the required reforms and put them into operation.

German MEP Sven Giegold, a member of the European Parliament’s special committee on financial crime, told moneylaundering.com in an email that after European governments blocked the initial proposal, “the move to a staged approach seems justified in order to achieve progress.”

“However, the Commission must not bow to the political pressure exerted by member states and third countries,” Giegold said. “Most importantly, the Commission should publish its country assessments allowing an objective and fair expert discussion on the money laundering risks of all 54 priority jurisdictions assessed so far.”

‘Politicization’ of AML assessments

European financial institutions must observe the EU blacklist in the same manner as a separate list of 14 high-risk jurisdictions kept by the Financial Action Task Force, or FATF.

The blacklist pitched by the Commission in February included 11 jurisdictions not targeted by the intergovernmental group: Saudi Arabia, Panama, Nigeria, Tunisia and the U.S. territories of American Samoa, Guam, Puerto Rico and the Virgin Islands. Serbia, which is in negotiations to join the European Union, appears on FATF’s list but was not included by the Europeans.

U.S. officials openly criticized the EU blacklist within hours of its introduction and Saudi authorities reportedly lobbied EU ambassadors to scrap it. FATF’s president, U.S. Assistant Secretary for Terrorist Financing Marshall Billingslea, said the EU blacklist risked undermining the international group he currently leads.

The list, which the Commission has modified several times since publishing a first draft in September 2016, draws on intelligence assessments, international evaluations—including those conducted by FATF—and the Commission’s own set of eight metrics for measuring a jurisdiction’s corporate transparency.

Those metrics include the quality of a particular country’s recordkeeping requirements, rules for reporting suspicious transactions, and frequency and willingness to share data and assist EU investigations into suspected financial crimes.

The Commission also gauges the extent to which a particular jurisdiction’s efforts to criminalize money laundering and terrorist financing comport with global standards. But EU lawmakers and the European Council, which represents national governments, can veto any version of the list.

The “politicization” of the list and questions over the judiciousness and transparency with which jurisdictions have been assessed thus far have challenged financial institutions seeking to comply with it, according to Carsten Giersch, senior partner at Berlin Risk.

“It’s become very complicated for obliged entities to come up with a meaningful country-risk assessment, especially when there’s a lack of information on the official side and political negotiations behind closed doors,” Giersch said.

Jour-Schroeder, the EU official, told moneylaundering.com that European financial institutions would not have to apply enhanced due diligence on clients and transactions from jurisdictions considered for inclusion on the list during any interim period.

But firms would likely eschew this approach in favor of viewing the document as a “gray list,” Giersch said. “If the Commission concludes these are countries with strategic deficiencies, from a practitioner’s view that means unless we get information that there have been significant improvements, it should, in combination with other factors, trigger a higher risk assessment.”

Contact Koos Couvée at kcouvee@acams.org