What’s a high-risk jurisdiction?

Countries aren’t all equal when it comes to money laundering (ML), terrorist financing (TF) and proliferation financing (PF) risk. Some jurisdictions lack strong controls. Others have systemic corruption, weak supervision, political instability or sanctions issues.

Under both the UK Money Laundering Regulations 2017 (as amended) (MLRs) and the global standards set by the Financial Action Task Force (FATF), these places are treated as high-risk jurisdictions. If your client or transaction has any connection to one, your due diligence obligations increase.

How the UK defines high-risk jurisdictions

Regulation 33 of the MLRs requires firms to apply enhanced due diligence whenever:

• a client is established in a high-risk third country, or
• a transaction involves a party established in such a country.

These high-risk third countries are designated by the UK government and reflect the FATF “grey list” (Jurisdictions under Increased Monitoring) and “black list” (High-Risk Jurisdictions subject to a Call for Action). 

Lists are updated regularly to respond to emerging threats, changes in supervision and geopolitical developments. See here for the most up-to-date list.

A jurisdiction may appear because of:

• inadequate AML/CTF/CPF frameworks;
• high levels of corruption or secrecy;
• weak beneficial ownership transparency;
• strategic deficiencies in counter-proliferation financing; or
• persistent links to sanctions evasion or terrorist activity.

FATF’s role is central to global AML. The UK list is built to mirror FATF findings and ensure consistency with global risk management.

Why high-risk jurisdictions matter

Connections to high-risk countries don’t automatically indicate wrongdoing. But they materially increase the likelihood that criminal funds could be involved. This affects ML, TF and PF risk in different ways.

1. Money laundering risk

Weak controls make it easier for criminals to move funds across borders, obscure ownership and layer transactions. Common indicators of money laundering include opaque corporate structures and unexplained transfers routed through jurisdictions with limited regulatory oversight.

2. Terrorist financing risk

Some high-risk jurisdictions fail to effectively monitor non-profits, cross-border remittances or informal value-transfer systems. This creates opportunities for both small-scale and organised terrorist financing networks. As highlighted in legal-sector CTF guidance, even seemingly legitimate payments may have hidden links to extremist organisations.

3. Proliferation financing risk

FATF has prioritised proliferation financing because jurisdictions with weak export controls or state-linked entities have been used to procure dual-use goods, fund weapons programmes or bypass sanctions. UK professionals are exposed where clients operate internationally, use complex supply chains or engage in high-risk sectors such as engineering or technology.

Common red flags involving high-risk jurisdictions

Professionals should be alert to suspicious patterns that are highlighted across sector guidance, such as:

• payments or ownership links routed via high-risk jurisdictions;
• unclear or constantly changing beneficial owners;
• structures with no obvious economic purpose;
• vague explanations for international sources of funds;
• dual-use goods or high-risk export sectors (a PF indicator); and
• charitable or humanitarian narratives used to justify unexplained international transfers (a TF indicator).

What you must do under the MLRs

The Regulations require a risk-based but mandatory escalated response when high-risk jurisdictions are involved. This includes:

Enhanced due diligence

Enhanced due diligence is not optional. But the level to which your standard due diligence is enhanced must be proportionate to the risk. It might include:

• additional identity checks;
• independent verification of source of funds and source of wealth;
• senior management approval;
• deeper understanding of the purpose and intended nature of the business relationship; and
• ongoing monitoring at a higher frequency.

This aligns with the detailed requirements in Regulation 33 and the triggers set out in sector guidance.

Ongoing monitoring

Clients connected to high-risk jurisdictions should be reviewed more often, particularly where payments, ownership structures or behaviours change.

Considering PF and sanctions risk

High-risk country exposure frequently overlaps with sanctions concerns. Screening must be current and continuous, and firms need escalation processes for potential matches.

Record-keeping

The MLRs require firms to maintain clear evidence of both the risk assessment and all EDD steps taken. Supervisors expect to see why you concluded a relationship could proceed and how you mitigated the jurisdictional risk.

How FATF shapes your risk assessment

FATF’s lists matter because they identify jurisdictions with “strategic deficiencies” in AML/CTF/CPF controls. These deficiencies can relate to:

• beneficial ownership transparency;
• supervision of designated non-financial businesses;
• cross-border wire transfer controls;
• PF sanctions implementation;
• law-enforcement cooperation; or
• non-profit sector oversight.

The expectation for all regulated firms worldwide is the same: where FATF lists a jurisdiction, firms must treat it as high risk and strengthen their controls.

For UK professionals already required to follow the MLRs, FATF’s findings should directly inform:

• your business-wide risk assessment;
• client-level risk scoring;
• your approach to EDD and monitoring; and
• updates to AML policies, controls and procedures.

Final thoughts

High-risk jurisdictions are a signal that the normal protections of the global financial system can’t be relied upon in that specific business relationship or transaction. For regulated professionals in the UK, the challenge is applying proportionate scepticism: understanding when international exposure is legitimate and when it introduces ML, TF or PF risk that demands deeper questioning.

From a supervisory perspective, your ability to evidence why you treated a jurisdiction as high risk and how you adapted your due diligence is just as important as spotting the risk in the first place. Getting this right strengthens your risk-based approach and protects your firm from unnecessary exposure in an increasingly complex international landscape.