What’s a high-risk jurisdiction?

A high-risk jurisdiction is a country that presents increased money laundering, terrorist financing or proliferation financing risk because of weaknesses in its legal, regulatory or supervisory framework.

From an AML perspective, jurisdictions aren’t treated equally. Some countries have strong systems for identifying beneficial ownership, supervising regulated sectors and enforcing financial crime laws. Others have gaps that make it easier for criminal activity to move through their financial systems undetected.

Where does the concept of a high-risk jurisdiction come from?

The concept of high-risk jurisdictions comes from the global standards set by the Financial Action Task Force (FATF). 

FATF is the international body responsible for setting anti-money laundering (AML), counter-terrorist financing (CTF) and counter-proliferation financing (CPF) standards. 

It assesses countries against those standards, identifies jurisdictions with serious or ongoing deficiencies and publishes its conclusions in two key lists:

• High-Risk Jurisdictions subject to a Call for Action, often referred to as the Black List 
• Jurisdictions under Increased Monitoring, commonly known as the Grey List 

Countries appear on these lists where FATF has identified strategic weaknesses in areas such as supervision, beneficial ownership transparency, sanctions implementation or enforcement capability. FATF’s findings are intended to directly shape how regulated firms assess and manage country risk.

High-risk jurisdictions in the MLRs

The UK Money Laundering Regulations 2017 (as amended) (MLRs) embed FATF’s findings into domestic law. Regulation 33 requires regulated businesses to apply enhanced due diligence where:

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

High-risk third countries are designated by the UK government and broadly reflect FATF’s Grey and Black lists, updated to reflect geopolitical developments and emerging risks.

What makes a jurisdiction high risk?

Money laundering risk

Where oversight is weak, criminals can more easily hide beneficial ownership, move funds through complex, layered ownership structures or exploit gaps in cross-border controls. Money laundering often shows up through unexplained international transfers or structures that lack a clear economic rationale.

Terrorist financing risk

Some jurisdictions struggle to supervise non-profit orgsnisations, remittance networks or informal value transfer systems. That creates opportunities for terrorist financing, where funds can be diverted for extremist purposes, sometimes through transactions that appear routine on the surface.

Proliferation financing risk

FATF places increasing emphasis on proliferation financing, particularly where jurisdictions have weak export controls or are linked to sanctions evasion. This is especially relevant for professionals involved in trade, manufacturing, logistics or international supply chains.

UK firms are expected to consider all three risk types when assessing jurisdictional exposure.

What the regulations expect you to do

Under the UK AML framework, exposure to a high-risk jurisdiction changes the baseline level of due diligence.

The expectation is not that overseas activity is treated as suspicious by default. It’s that jurisdictional risk is recognised and addressed in a proportionate, documented way.

Enhanced due diligence

Enhanced due diligence (EDD) is required once high-risk country exposure is identified. In practice, this usually means taking additional steps to understand who is involved, how funds are generated and moved, and why the relationship or transaction makes sense. Depending on the risk, this may include:

• obtaining more detailed information about the client and beneficial owner(s);
• independently verifying source of funds and source of wealth;
• gaining a clearer understanding of the purpose and intended nature of the relationship;
• involving senior management where appropriate;
• increasing the depth or frequency of monitoring.

The MLRs expect EDD to be applied using a risk-based approach, so that the level of scrutiny reflects the risk introduced by the jurisdiction.

Ongoing monitoring

Where high-risk jurisdictions are involved, firms are expected to review clients more closely and reassess risk if ownership, transaction patterns or geographic exposure changes. Monitoring should focus on whether activity remains consistent with what is known about the client.

Sanctions and proliferation financing

The NRA highlights that high-risk jurisdictions often overlap with sanctions and proliferation financing concerns. Screening should therefore be current and ongoing, with clear escalation routes where potential matches or concerns arise, particularly for international transactions or trade-related activity.

Record-keeping

A common misunderstanding is that high-risk jurisdictions must be avoided. Instead, the MLRs ask for informed judgement.

The regulatory expectation is that you can demonstrate awareness of the risk, show how it was assessed and evidence how your due diligence adapted in response. Where high-risk jurisdictions are involved, records should clearly show considerations like:

• how jurisdictional risk was identified;
• how it influenced the risk assessment;
• what enhanced steps were taken;
• why those steps were considered proportionate.

Final thoughts

High-risk jurisdictions indicate that the usual assumptions about transparency, supervision and enforcement may not hold in that specific context. For UK regulated professionals, the challenge is applying a risk-based approach to working with clients operating in these higher-risk locations. 

When international exposure is present, supervisors look for clear reasoning, proportionate enhanced checks and well-documented judgement. If you can explain why a jurisdiction increased risk and how your AML response reflected that risk, your approach should be aligned with both FATF standards and UK regulatory expectations.