Shifts in FATF High-Risk Jurisdictions Demand Stronger Compliance in 2025

fatf high-risk juridisctions sanctions lists

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Global efforts to counter money laundering, terrorist financing, and the proliferation of weapons of mass destruction face persistent challenges due to deficiencies in certain national compliance regimes. Each year, the Financial Action Task Force (FATF) releases updated lists identifying jurisdictions with significant gaps in their Anti-Money Laundering (AML), Countering the Financing of Terrorism (CFT), and Counter-Proliferation Finance (CPF) frameworks. These updates directly impact regulatory strategies and risk assessment processes across the world’s financial sector, influencing how institutions manage customer relationships and international financial flows.

The June 2025 FATF plenary session led to crucial changes in both its “Jurisdictions Under Increased Monitoring” and “High-Risk Jurisdictions Subject to a Call for Action” lists. The additions, removals, and ongoing designations in these lists have far-reaching implications, especially for financial institutions operating internationally or engaging with higher-risk markets.

Strategic Implications of FATF High-Risk Jurisdictions for Financial Institutions

The FATF serves as the leading global authority on setting standards for AML, CFT, and CPF. Its designation of certain countries as high-risk or under increased monitoring represents a call to action for the international financial community. In June 2025, FATF made significant updates:

British Virgin Islands and Bolivia were added to the “Jurisdictions Under Increased Monitoring” list.
Croatia, Mali, and Tanzania were removed after demonstrating adequate progress.
Iran, Democratic People’s Republic of Korea (DPRK), and Burma remained on the “High-Risk Jurisdictions Subject to a Call for Action” list, each with tailored expectations for countermeasures or enhanced due diligence.

Understanding FATF’s Categories

FATF’s two main lists serve as signals for global risk mitigation:

Jurisdictions Under Increased Monitoring: These are countries with acknowledged deficiencies in AML/CFT/CPF controls but which are working actively with FATF on remediation. Institutions must apply rigorous, risk-based due diligence and adapt their internal monitoring programs accordingly.
High-Risk Jurisdictions Subject to a Call for Action: Countries with severe gaps in their controls, prompting FATF to urge or require its members to impose countermeasures or significant due diligence. This includes robust transaction monitoring, reporting, and potentially limiting or suspending correspondent banking relationships.

The Impact of List Changes

Adjustments to FATF lists can have immediate effects:

Financial institutions must review their risk assessments and controls in relation to updated jurisdictions.
Compliance teams need to understand and implement the latest guidance from both international bodies and domestic regulators.
Business strategies may shift as certain markets become riskier or safer depending on FATF designations.

These changes are not merely bureaucratic. They affect day-to-day business decisions, onboarding procedures, transaction monitoring, correspondent banking arrangements, and even strategic investments.

AML Compliance and Regulatory Requirements Triggered by FATF Listings

Financial institutions are subject to a wide array of regulations requiring vigilance with respect to FATF high-risk jurisdictions. In the United States, for example, compliance requirements are clearly outlined in federal regulations such as 31 CFR § 1010.610(a), the USA PATRIOT Act, and guidance issued by the Financial Crimes Enforcement Network (FinCEN).

Risk-Based Due Diligence

Institutions must ensure their AML programs address the risks associated with jurisdictions on FATF lists. This includes:

Conducting enhanced due diligence (EDD) for clients and counterparties in or dealing with high-risk countries.
Developing specific policies for correspondent banking relationships, especially those involving foreign financial institutions.
Maintaining monitoring systems capable of detecting suspicious activity linked to these jurisdictions.

Money services businesses, insurance companies, securities brokers, and even casinos must tailor their AML controls to address the elevated risks tied to FATF-flagged countries. Failure to do so may lead to significant regulatory penalties and reputational harm.

Obligations for Suspicious Activity Reporting

Whenever there is suspicion or reasonable grounds to suspect that funds stem from illegal activity or relate to a FATF high-risk jurisdiction, financial institutions are required to file Suspicious Activity Reports (SARs). The regulatory frameworks across North America, Europe, and many Asia-Pacific countries demand prompt and detailed reporting to their respective Financial Intelligence Units (FIUs).

The Role of International and National Sanctions Lists

FATF designations are often paired with sanctions maintained by the United Nations and national governments. The U.S. Office of Foreign Assets Control (OFAC), for example, administers a wide range of sanctions programs. These may include prohibitions on opening or maintaining correspondent accounts for Iranian or North Korean financial institutions, as well as blocking property and interests of entities or individuals from those countries.

National governments are obligated under United Nations Security Council Resolutions to implement relevant economic and financial sanctions. These requirements are reflected in the operational procedures of financial institutions worldwide.

Specific Requirements for High-Risk Jurisdictions

Certain jurisdictions are subject to additional restrictions:

Iran and DPRK: Subject to broad countermeasures and virtually complete prohibitions for U.S. institutions, as well as many European and Asian banks.
Burma (Myanmar): Subject to enhanced due diligence, though the FATF explicitly warns against disrupting legitimate humanitarian and non-profit activity.

Financial institutions must ensure that controls are not so strict as to indiscriminately exclude all business from these regions, particularly where humanitarian, remittance, or non-profit activities are involved. Risk-based decision-making remains crucial.

How Financial Institutions Respond to FATF Updates: Practical Approaches

Adapting to the FATF’s evolving landscape requires agility, strong governance, and a culture of compliance across all business lines. Here’s how financial institutions and other regulated entities should respond:

Reviewing and Updating Risk Assessments

Promptly incorporate new FATF designations into enterprise-wide risk assessments.
Recalibrate customer risk scoring models to reflect the latest high-risk jurisdictions.
Use both public and commercial data sources to supplement FATF guidance with additional intelligence on local risks.

Strengthening Due Diligence Processes

Enhance the scrutiny applied to clients with connections to updated jurisdictions, including beneficial owners, directors, and transaction counterparties.
Regularly review and update customer due diligence (CDD) and enhanced due diligence (EDD) checklists.
Ensure that monitoring systems are configured to flag transactions to, from, or involving listed countries.

Employee Training and Internal Communication

Deliver timely training sessions for compliance, front-office, and back-office staff on the implications of new FATF list changes.
Distribute guidance and scenario-based examples to help employees identify red flags related to listed jurisdictions.
Foster a speak-up culture, encouraging employees to escalate concerns related to suspicious cross-border activity.

Engaging with Correspondent Banking Partners

Reassess correspondent banking relationships with institutions in or dealing with high-risk jurisdictions.
Maintain open lines of communication to understand how partners are responding to FATF updates.
Apply risk-based exit strategies if relationships cannot be remediated to meet enhanced compliance expectations.

Leveraging Technology

Deploy AML compliance software capable of rapid updates to screening and transaction monitoring rules based on the latest FATF lists.
Integrate real-time alerts and workflow automation for high-risk country exposure.
Use advanced analytics to uncover hidden networks or transaction patterns that may be obscured by complex cross-border activity.

Avoiding Indiscriminate De-Risking

Regulators increasingly warn against wholesale “de-risking,” where institutions exit entire markets or customer segments solely due to perceived risk. While enhanced controls are necessary, institutions must continue to provide services to legitimate businesses and individuals, especially for humanitarian or non-profit purposes, in line with both FATF and domestic guidance.

Evolving Enforcement Actions and Regulatory Penalties

Failure to adjust compliance frameworks to match FATF recommendations can lead to substantial enforcement actions. Regulators worldwide have demonstrated a willingness to levy significant fines, restrict business activities, and impose remediation requirements on institutions that fail to comply with high-risk jurisdiction guidance.

Recent years have seen penalties issued against banks, payment processors, and even virtual asset service providers for inadequate due diligence, weak transaction monitoring, or failure to file timely SARs related to high-risk jurisdictions.

National authorities, such as FinCEN in the United States, the Financial Conduct Authority in the United Kingdom, and regulators across the European Union, work closely with FATF to monitor adherence and escalate enforcement where necessary.

Practical Challenges for Global AML Compliance Teams

Implementing the FATF’s guidance is a complex, resource-intensive process. Compliance teams face several persistent challenges:

Rapidly changing country risk profiles demand constant monitoring and updating of systems.
Variations in local law may affect the ability to implement certain FATF recommendations.
International sanctions and domestic restrictions often overlap, requiring careful reconciliation of multiple lists.
Balancing risk-based compliance with fair access for legitimate users is a perennial struggle.
Ensuring information-sharing across borders, especially where secrecy or privacy laws may restrict collaboration.
Tracking beneficial ownership or ultimate beneficial owners in jurisdictions with weak transparency.
Managing complex correspondent banking structures involving intermediary institutions.
Keeping up with evolving criminal methodologies, such as the use of shell companies, digital assets, or trade-based laundering to circumvent controls.

Organizations that successfully navigate these challenges combine robust policies, skilled teams, and modern technology with a strong compliance culture.

Conclusion: The Continuing Evolution of FATF High-Risk Jurisdictions and Global Sanctions Lists

The FATF’s high-risk jurisdiction lists remain one of the most influential factors shaping AML compliance, sanctions screening, and global financial flows. As 2025 demonstrates, these lists are not static. Emerging threats, geopolitical shifts, and the progress of national reforms all contribute to ongoing updates.

Financial institutions must remain agile, embedding the latest FATF guidance and risk information into their day-to-day operations. Beyond avoiding penalties, strong compliance with FATF standards helps protect the integrity of the financial system, facilitate secure cross-border trade, and support the global fight against organized crime and terrorism.

For compliance teams, 2025’s FATF updates serve as a call to double down on risk-based monitoring, staff training, and system enhancements. As financial crime techniques evolve, the need for strong, globally harmonized AML compliance has never been greater.

Source: FinCen

Some of FinCrime Central’s articles may have been enriched or edited with the help of AI tools. It may contain unintentional errors.

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Shifts in FATF High-Risk Jurisdictions Demand Stronger Compliance in 2025

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