Foreign Buyers and High-Risk Jurisdictions: EDD Requirements
When your client is from a high-risk jurisdiction, or funds originate from one, you must apply enhanced due diligence (EDD). The FATF maintains two lists that determine which countries require additional scrutiny.
The FATF lists
The Financial Action Task Force (FATF) maintains two key lists of jurisdictions with AML/CTF deficiencies:
Black List (High-Risk)
"Call for Action" - jurisdictions with significant strategic deficiencies. FATF calls on all countries to apply enhanced due diligence.
Currently includes: North Korea and Iran. The FATF updates its lists three times per year - always check the current FATF list before relying on this information.
Grey List (Increased Monitoring)
Jurisdictions under increased monitoring that have committed to resolving deficiencies within agreed timeframes.
Updated regularly - check FATF website
Check the current lists
FATF updates its lists three times per year (February, June, October). Use our free country risk tool to check the current status of any jurisdiction.
When does high-risk jurisdiction apply?
Consider the jurisdiction risk when:
- Client nationality: The client holds citizenship of a high-risk country
- Client residence: The client resides in a high-risk country
- Source of funds: Funds originate from a high-risk country
- Source of wealth: The client's wealth was generated in a high-risk country
- Beneficial owners: Ultimate owners are connected to a high-risk country
Enhanced due diligence measures
Under Section 32, when a high-risk jurisdiction is involved, you must apply EDD:
- Obtain additional information: More detailed identification and verification
- Source of wealth: Document and verify how the client accumulated their wealth
- Source of funds: Trace and verify the origin of transaction funds
- Senior management approval: Obtain sign-off before proceeding
- Enhanced ongoing monitoring: More frequent reviews of the relationship
Practical examples
Example 1: Property purchase
A foreign national from a grey-list country wants to purchase a $2 million apartment. Funds are coming from an overseas bank account.
Action: Apply EDD. Obtain source of wealth documentation, trace funds through bank statements, obtain senior management approval and conduct enhanced monitoring throughout.
Example 2: Australian citizen with overseas income
An Australian citizen is purchasing property. They are a mining executive who has worked in several high-risk African jurisdictions and their wealth was generated there.
Action: Even though the client is Australian, EDD applies because the source of wealth is connected to high-risk jurisdictions.
Key Takeaway
Clients with connections to FATF black-list or grey-list jurisdictions trigger enhanced due diligence. Check nationality, residence and source of funds/wealth. Apply additional measures including senior management approval and enhanced monitoring.
Read our complete Tranche 2 Guide
Key dates, affected sectors, obligations and how to prepare
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