New list 3ZA of high-risk third countries

The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No.2) Regulations 2023, which came into force on 5 December 2023, replaced the list of high risk third countries in List 3ZA with a new list.

Why does this matter?

Regulation 33(1)(b) of the Money Laundering Regulations 2017 (MLRs) requires law firms to carry out enhanced client due diligence and enhanced ongoing monitoring when acting for a person established in a high-risk third country or in relation to any transaction where either of the parties to the transaction is established in a high-risk third country. The MLRs define a high-risk third country as a country specified in Schedule 3ZA. There is an immediate requirement for enhanced customer due diligence and enhanced ongoing monitoring on the new countries from 5 December. So, it’s essential that all lawyers working within scope of the MLRs familiarise themselves with the new list and act as necessary.

Which countries are affected by these changes?

The new list re-aligns Schedule 3ZA with the Financial Action Task Force’s (FATF) ‘Grey List’ (Jurisdictions under increased monitoring) and its ‘Black List’ (High-risk jurisdictions subject to a call for action).

How should law firms respond to these changes?

• Review all transactions involving the countries added to Schedule 3ZA, including the Client and Matter Risk Assessment, client due diligence and source of funds/wealth checks.
• Consider what further action should be taken (if any). The level of enhanced customer due diligence and enhanced ongoing monitoring undertaken should be proportionate to the level of risk attributed to the client, but you should consider:   
• FATF’s analysis of the specific shortcomings of the particular country
• The types of risk most relevant to the particular jurisdiction
• Whether existing clients have already been subject to enhanced due diligence and enhanced ongoing monitoring as a result of increased geographical risk (in line with Regulation (33)(6)(c)
• Review and update your firm’s Practice Wide Risk Assessment to include the new countries. Assess how the changes affect the firm’s risk profile and any new mitigations that might be necessary
• Communicate the changes to your team, providing training if needed.