A few years ago, I would not have imagined becoming professionally enthusiastic about preventing money laundering and terrorist financing, but here we are 😊 My first article on anti-money laundering looks at the rather unwieldy abbreviation HR3C: high-risk third countries from an anti-money laundering and counter-terrorist financing perspective.
Under anti-money laundering law, banks have been required to apply enhanced customer due diligence when, for example, a customer sends a payment to or receives a payment from a high-risk third country listed by the European Commission.
Changes by the Commission
What happened in August 2023 when the Commission added new countries to the HR3C list?
This created a significant challenge in managing the growing volume of customer payment due diligence 🤔. Here is an example: Dubai is a long-standing favourite among Finnish travellers seeking a warm holiday destination. When the Commission added the United Arab Emirates to the HR3C list, this meant in practice that supervised entities were required to examine ‘cup-of-coffee payments’ made on holidays.
In my view, customers’ holiday payments are not the AML risks on which anyone should be spending their time, particularly through enhanced customer due diligence, which is a broad and demanding process.
The Financial Supervisory Authority’s seminar
I attended a seminar on AML held by the Finnish Financial Supervisory Authority and was pleased to hear useful guidance for banks on how to handle HR3C transactions going forward.
- Banks were given the opportunity to take a risk-based approach. This is very welcome, as it allows us to focus banks’ resources where they are needed 🎯.
- The FIN-FSA indicated a preliminary concession: where payments are understandable, small and limited to a short period, banks could in future take a risk-based approach without enhanced due diligence (EDD).
- A single low-value payment over a short period would not immediately trigger a requirement for EDD.
I welcome these preliminary FIN-FSA positions as a step in the right direction. After all, we are all working together to prevent money laundering.