EU Designation of Russia as a High-Risk Third Country: Legal and AML Compliance Implications

AML, News

The European Union (EU) has independently designated Russia as a high-risk third country under its anti-money laundering and countering the financing of terrorism (AML/CFT) framework, effective 29 January 2026. This decision comes despite the Financial Action Task Force (FATF) not placing Russia on its high-risk “black list”, reflecting the EU’s autonomous regulatory assessment of systemic AML/CFT risks. For financial institutions and businesses, understanding the implications of this designation—including enhanced due diligence obligations, risk management, and compliance frameworks—has become critical.

Evolution of the EU High-Risk Third Countries Framework

The EU maintains a list of high-risk third countries under Directive (EU) 2018/843 (AMLD5) and accompanying Commission Delegated Regulations, identifying jurisdictions with strategic deficiencies in AML/CFT controls. Russia’s inclusion is based on factors such as:

• Limited enforcement of AML/CFT obligations
• Insufficient transparency in beneficial ownership frameworks
• Systemic risks posed to the EU financial system

Unlike FATF’s blacklisting mechanism, which relies on multilateral consensus, the EU applies regional risk assessments and retains the legal authority to act unilaterally when systemic vulnerabilities are identified. This underscores the EU’s growing regulatory autonomy in safeguarding the integrity of its internal market.

Legal Implications for AML Compliance

Enhanced Due Diligence Obligations

Following Russia’s designation as a high-risk third country, financial institutions and other obliged entities must apply enhanced due diligence (EDD) measures, including:

• Identification and verification of beneficial ownership in relation to Russian counterparties
• Enhanced scrutiny of the source of funds and source of wealth
• Senior management approval for establishing or maintaining business relationships
• Ongoing monitoring of transactions and compliance with suspicious transaction reporting obligations

Failure to comply may expose entities to administrative and regulatory sanctions, reputational harm, and intensified supervisory scrutiny.

Divergence Between EU and FATF Designations

The EU’s decision highlights a critical compliance consideration:

• FATF listings alone are no longer sufficient for AML risk classification
• Risk-based compliance programmes must incorporate EU-specific high-risk third country determinations
• Institutions must document and justify the treatment of Russia as a high-risk jurisdiction, even where FATF has not issued a corresponding designation

This divergence reflects an increasingly fragmented international AML landscape, requiring institutions to reconcile global standards with regional regulatory expectations.

Cross-Border Compliance Challenges

Financial institutions must navigate:

• Mandatory EDD obligations under EU AML legislation for Russian-linked relationships
• Overlapping exposure to other regulatory regimes, including sanctions and export controls
• Increased risk of AML circumvention through intermediary jurisdictions, necessitating enhanced monitoring

Due Diligence and Internal Control Frameworks

Effective AML compliance in this context requires:

• Robust risk-based due diligence frameworks covering clients, intermediaries, and supply chains
• Clearly defined internal escalation and approval procedures
• Comprehensive record-keeping and documentation to establish a defensible compliance position

Scenario planning should form an integral part of enterprise-wide AML programmes, enabling institutions to respond swiftly to regulatory developments and emerging jurisdictional risks.

Implications for AML Compliance

The EU’s unilateral designation of Russia as a high-risk third country signals several broader developments:

• Increased regulatory autonomy of regional authorities independent of FATF consensus
• A reinforced emphasis on preventive, risk-based AML compliance
• A shift towards proactive identification of systemic AML/CFT risks, rather than reliance solely on international standard-setter determinations

For compliance professionals, this underlines the need for adaptive, multi-layered AML frameworks capable of addressing divergent regulatory standards while maintaining operational continuity.

Conclusion

Russia’s inclusion on the EU list of high-risk third countries represents a material development in AML regulation, triggering mandatory enhanced due diligence and heightened compliance expectations. Financial institutions and businesses must implement risk-based AML frameworks to manage exposure, ensure regulatory compliance, and mitigate legal and reputational risk in an increasingly complex international environment.

New Balkans Law Office advises international businesses and financial institutions on all aspects of AML compliance, including enhanced due diligence, transaction monitoring, and jurisdictional risk assessments.

For further assistance, please contact: AML@newbalkanslawoffice.com