The Financial Action Task Force (FATF) identifies jurisdictions with weak measures to combat money laundering and terrorist financing (AML/CFT). At the FATF Plenary Press Conference on 21 October 2022, the FATF announced that Myanmar has been categorised as a high-risk jurisdiction subject to a call for action, as the country has not sufficiently addressed the “large number of AML/ CFT recommendations”.

What does this mean?

This means that competent authorities and financial institutions have to take enhanced due diligence measures to mitigate the higher risk in respect of financial transactions involving Myanmar, including:

- obtaining additional identifying information from a wider variety or more robust sources and using the information to inform the individual customer risk assessment

- carrying out additional searches (e.g., verifiable adverse media searches) to inform the individual customer risk assessment

- commissioning an intelligence report on the customer or beneficial owner to understand better the risk that the customer or beneficial owner may be involved in criminal activity

- verifying the source of funds or wealth involved in the business relationship to be satisfied that they do not constitute the proceeds from crime

- seeking additional information from the customer about the purpose and intended nature of the business relationship (FATF, 2014)

The classification as high-risk jurisdiction is often referred to as “black-listing”. However, this does not mean that all financial transactions involving Myanmar will be banned across the board. Instead, such transactions will face increased scrutiny and be subject to enhanced due diligence.

We note that prior to this move by FATF, authorities and financial institutions have already been applying enhanced due diligence measures in respect of transactions involving Myanmar. The European Union has issued instructions to European banks to apply enhanced due diligence towards transactions involving Myanmar since 2020.

Further, FATF has classified Myanmar as a high-risk jurisdiction previously until 2016, when the country successfully addressed AML/CFT deficiencies in the action plan, and its status improved slightly to “jurisdiction under increased monitoring”. Many businesses operating in Myanmar now were also operating during the period when Myanmar was also classified as a high-risk jurisdiction.

Since the state of emergency was declared on 1 February 2021, financial transactions have been restricted by the changes in foreign exchange regulations and international sanctions. Many financial institutions have since then stepped up due diligence measures taken against transaction involving Myanmar persons and entities.

In this regard, this latest announcement may not significantly restrict or hinder financial transactions involving Myanmar more than before. We can expect more clarification questions raised in respect of transactions and requests for more supporting documents in light of heightened due diligence measures.

Timeline: FATF’s call for action