Britain has opposed Saudi Arabia’s inclusion in the list because of it probably bad for business, especially for the City of London.
In a significant development, the European Commission has added a host of countries including Saudi Arabia, Nigeria, Panama, and other jurisdictions to a list of nations whose financial systems are seen as posing a threat due to lax controls on terrorism financing and money laundering.
The development underscores a growing intent by governments to crackdown on money laundering following several scandals at EU banks.
In a statement, Saudi Arabia’s state agency Saudi Press Agency, reported the government as saying it regrets the decision.
“Saudi Arabia’s commitment to combating money laundering and the financing of terrorism is a strategic priority”.
Panama reacted to the development saying, it should be removed from the list because it has recently adopted stronger rules against money laundering.
The EU action comes despite pressures from countries, including Britain, to exclude Riyadh from the list.
The financial impact of this decision, apart from reputational damage, is complications in financial relations with the EU. EU-banks carry out additional checks on all transactions involving entities from listed jurisdictions.
The list now includes 23 jurisdictions, up from 16.
The European Commission stated, it added jurisdictions with “strategic deficiencies in their anti-money laundering and countering terrorist financing regimes”.
Other jurisdiction that form part of the list include Pakistan, Iran, Iraq, North Korea, Syria, Afghanistan, Libya, Botswana, Ethiopia, Trinidad, Ghana, Yemen, Sri Lanka, Samoa, the Bahamas, Samoa, U.S. Virgin Islands, Puerto Rico, Guam, Tobago, and Tunisia.
Bosnia, Guyana, Laos, Uganda and Vanuatu have been removed from the list.
The Eurozone’s 28 member states now upto one month, although this can be extended up to two, to endorse the list. They also have the option of rejecting it by a qualified majority. As per Vera Jourova, EU justice commissioner, who proposed the list, told a news conference that she was confident that EU member states would not block it.
She also called on them to act because “risks spread like wildfire in the banking sector”.
Britain, which plans to leave the EU on March 29, stated, the list could “confuse businesses” because it diverges from a smaller listing compiled by its Financial Action Task Force (FATF), which is the global standard-setter for anti-money laundering.
Incidentally, the FATF list includes 12 jurisdictions, which form part of the EU blacklist, but excludes Saudi Arabia, Panama and U.S. territories.
The FATF is scheduled to updates its list next week.
As per EU sources, London has led a pushback against the EU list in past days, and at closed-door meetings urged the exclusion of Saudi Arabia.
One of the reasons for Britain’s move could be that Saudi Arabia is a major importer of goods and weapons from the EU and several top British banks have operations in the country.
According to publicly available data, Royal Bank of Scotland is the largest European bank with a significant turnover in Saudi Arabia. In 2015, its turnover in the kingdom was around $169 million (150 million euros).
HSBC is Europe’s most successful bank in Riyadh. In 2015, it booked profits of 450 million euros in 2015 in the kingdom.
“The UK will continue to work with the Commission to ensure that the list that comes into force provides certainty to businesses and is as effective as possible at tackling illicit finance,” said a spokesman from the British Treasury.
CITY OF LONDON
The criteria used to blacklist countries include weak sanctions against money laundering and terrorism financing, lack of transparency about the beneficial owners of companies and trusts and insufficient cooperation with the EU on matters of money laundering and terrorism financing.
Critics of the list say it falls short of including several countries who are habitual offenders and who have been caught in money-laundering scandals in Europe.
“Some of the biggest dirty-money washing machines are still missing. These include Russia, the City of London and its offshore territories, as well as Azerbaijan,” said Sven Giegold, a Greens lawmaker who sits in the European Parliament special committee on financial crimes.
Jourova responded to this saying, the commission will continue to monitor other jurisdictions that have not yet been listed.
Among the states that will be closely monitored are the United States and Russia.