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HM Treasury warns of higher risk of money laundering and terrorist financing

HM TREASURY News Release (20/08) issued by The Government News Network on 29 February 2008

IMPORTANT: This constitutes advice issued by HM Treasury about the heightened risks of money laundering or terrorist financing in the jurisdictions identified. All UK businesses within the financial sector should therefore factor this heightened risk into account and consider applying increased scrutiny and due diligence to transactions associated with these jurisdictions, in line with the FATF recommendations.

The Financial Action Task Force (FATF) issued a warning on 28 February 2008 of the higher risks of money laundering and terrorist financing posed by deficiencies in Uzbekistan, Iran, Pakistan, Turkmenistan, Sao Tome and Principe and the northern part of Cyprus.

The FATF statement says:

"UZBEKISTAN
The FATF is particularly concerned that a series of presidential decrees in Uzbekistan has effectively repealed the anti-money laundering/combating the financing of terrorism (AML/CFT) regime in that country and generates a money laundering/financing of terrorism (ML/FT) vulnerability in the international financial system. The FATF calls upon Uzbekistan to restore its AML/CFT regime and to work with the Eurasian Group to establish an AML/CFT regime that meets international standards. The FATF calls on its members and urges all jurisdictions to advise their financial institutions to take the risk arising from the deficiencies in Uzbekistan's AML/CFT regime into account for enhanced due diligence.

IRAN
Since its October 2007 Plenary meeting, the FATF has engaged with Iran and welcomes the commitment made by Iran to improve its AML/CFT regime. Consistent with its Statement on Iran, dated 11 October 2007, the FATF confirms its call to its members and urges all jurisdictions to advise their financial institutions to take the risk arising from the deficiencies in Iran's AML/CFT regime into account for enhanced due diligence. Iran is encouraged to continue its engagement with the FATF and the international community to address, on an urgent basis, its AML/CFT deficiencies.

PAKISTAN
The FATF notes Pakistan's recent progress in adopting AML legislation. However, financial institutions should be aware that the remaining deficiencies in Pakistan's AML/CFT system constitute a ML/FT vulnerability in the international financial system. Pakistan is urged to continue its efforts to improve its AML/CFT laws to come into closer compliance with international AML/CFT standards and to work closely with the Asia Pacific Group to achieve this.

TURKMENISTAN
The FATF is concerned with deficiencies in the AML/CFT regime of Turkmenistan. The FATF welcomes the recent steps this jurisdiction has taken to address these concerns and calls upon Turkmenistan to continue to engage with the international community on these issues.

SAO TOME AND PRINCIPE
The FATF is concerned with deficiencies in the AML/CFT regime of Sao Tome & Principe. The FATF welcomes the recent steps this jurisdiction has taken to address these concerns and calls upon Sao Tome & Principe to continue to engage with the international community on these issues.

TRANSACTIONS WITH FINANCIAL INSTITUTIONS OPERATING IN THE NORTHERN PART OF CYPRUS
The FATF welcomes the recent progress in policies and practices to combat money laundering and terrorist financing in the northern part of Cyprus. However, given the existing deficiencies, the FATF calls on its members and urges all jurisdictions to advise their financial institutions to pay special attention to the ML/FT risks in transactions with financial institutions operating in the northern part of Cyprus. The FATF encourages further progress to address the deficiencies."

The UK fully supports the work of the FATF on this matter and HM Treasury agrees with the FATF's assessment.

All UK businesses within the financial sector should be aware of the anti-money laundering and counter-terrorist financing deficiencies in these regimes. They should therefore factor the heightened risks associated with these countries into account, and consider applying increased scrutiny and due diligence to transactions where that is recommended by the FATF.

The Money Laundering Regulations 2007 require firms to put in place policies, procedures or systems that prevent money laundering or terrorist financing. The Joint Money Laundering Steering Group guidance encourages financial institutions to make appropriate use of any FATF findings, especially when a country's regime has been found to be deficient.

Financial institutions in the regulated sector should treat transactions associated with these countries as situations that by their nature can present a higher risk of money laundering or terrorist financing and apply a higher level of scrutiny to those transactions.

This advice is effective immediately.

NOTES FOR EDITORS

1. The Financial Action Task Force is an inter-governmental body established by the G7 in 1989 and today includes as members 32 countries and territories and two regional organisations. The UK holds the FATF presidency until June 2008.

2. In February 2007 the Government published 'The financial challenge to crime and terrorism' that sets out its approach to using financial tools to deter crime and terrorism; detect it when it happens; and, disrupt those responsible and hold them to account for their actions. The FATF is central to the UK's international objectives within this strategy.

3. The Money Laundering Regulations 2007 require firms to put in place policies, procedures or systems that prevent money laundering or terrorist financing. The Regulations also require firms to apply increased due diligence to "any other situation which by its nature can present a higher risk of money laundering or terrorist financing".

4. The Joint Money Laundering Steering Group guidance encourages financial institutions to make appropriate use of any FATF findings, especially when a country's regime has been found to be deficient. See paragraph 3.24 of the Steering Group Guidance 2007, approved by HM Treasury.

5. For further information about what the Treasury is doing to combat financial crime, visit the Treasury's financial crime web pages.

6. Non-media enquiries should be addressed to the Treasury's Correspondence and Enquiry Unit on 020 7270 4558, or by email to public.enquiries@hm-treasury.gov.uk

7. This press release and other Treasury publications and information are available on the Treasury website. If you would like Treasury press releases to be sent to you automatically by email you can subscribe to this service from the press release site on the website.