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Saudi Arabia’s path Through the EU List of High-Risk Third Countries to FATF Membership

Saudi Arabia’s path Through the EU List of High-Risk Third Countries to FATF Membership

The FATF’s Plenary meeting in Orlando, Florida on June 16-21 coincided with its 30th Anniversary. Despite the hot topic caused by the new FATF Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers, which grabs all the public attention, one more important thing was announced: the Kingdom of Saudi Arabia becomes the 39th member of FATF. That, by the way, makes the Kingdom first Arab country to be granted full membership status in the organization (until this time, Saudi Arabia was a member of the Gulf Co-operation Council, the regional FATF member organization).

To become a member of FATF, first of all, a country must be invited by FATF to become an observer. Next, the country must meet a set of special criteria. For instance, the country should be strategically important, and the organization’s geographical balance should be enhanced by the member candidate. Also, the country should provide a written commitment at the political level to endorse and support FATF’s objectives and activity. Finally, the country must successfully pass FATF’s Mutual Evaluation.

Notably, for the last 9 years, there were only 2 countries that became a FATF member. All in all, there were 38 FATF members. Until recently.

Going Back in Time

Interesting fact, in 2018 the Kingdom was denied being granted membership because it was found to have a low-to-moderate level of effectiveness for 7 of the 11 assessed criteria. Moreover, just five months ago, in February 2019, the European Commission was suggesting putting Saudi Arabia to the list of the non-EU countries with strategic deficiencies in their AML/CFT frameworks (spoiler: it didn't happen).

Surprising? Okay, let's take a closer look. Saudi Arabia is a G20 member; one of the richest countries; one of the largest export countries in the world. Moving on, all G20 members, except for Indonesia, which is currently an observer to FATF, are the FATF members (recalling the criteria of membership above, all these starts looking very exciting, isn’t it?). The USA and the UK, other two powerful economies, support Saudi Arabia in becoming a FATF member (besides, the UK also supported the exclusion of Saudi Arabia from the EU list in March 2019). So, the final voting for the Kingdom’s membership at the FATF Plenary Meeting under the US Presidency on June was not controversial and passed very smoothly. By the way, the USA is among the top trade partners of Saudi Arabia.

Does Saudi Arabia’s membership in the FATF affect the theoretical possibility of inclusion to the European AML/CFT list again? Too many questions remain open.

Nevertheless, one thing is clear – being a FATF member is an advantage for the country. First of all, the FATF members have more impact on international AML/CFT policy-making than other countries. They are also assumed to secure more transparent and stable financial system, ensuring that financial markets are not vulnerable to infiltration or abuse by organized crime groups. You will agree, this seems quite attractive to businesses and foreign investors.

Looking at this world-changing, but silent things, we can be sure only in one thing: while doing your business or choosing a jurisdiction for your start-up do not forget to keep in mind that different organizations have different approaches and methodologies of AML/CFT risks evaluation. It is necessary to pay great attention to these differences while implementing the risk-based approach to your operation activity in order to effectively mitigate and manage your business risks.

 

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.

 

Sergio Mokhniev & Kristina Nikipolska

Compliance Experts at Legal Nodes

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Serhii

European Union

6 years in AML

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