Institutions should begin by treating proliferation financing as a distinct risk in their Business Risk Assessments (BRAs), much like they do terror financing, political exposure, and other risk. Indeed, while many indicators might be similar, it is key to also place them within the context of proliferation financing.

This means monitoring financial activity that relates to jurisdictions and sectors of concern, the involvement of dual-use goods — on top of existing monitoring of diversion risk — and overly complex ownership structures. Onboarding processes must go deeper than surface-level checks. Understanding where client funds come from, how wealth is generated, whether declared business activities align with financial behaviour, and how proliferation risk manifests in different industries where such issues are more likely to appear, particularly logistics, trade finance, shipping, and chemicals, is essential.

Risk assessments should be tailored and multifactorial. A single red flag does not always signal a high-risk client, but the accumulation of minor concerns might.

Context is key and documentation of every decision strengthens internal controls while mitigating the risk of sanctions by the regulator due to a lack of well-documented justification of decision-making.

Why Guernsey Firms Cannot Afford Complacency

While Guernsey is not considered a high-risk jurisdiction for proliferation financing, indirect exposure remains a concern. Global fund flows, international client structures, and opaque supply chains can all serve as unintended conduits for this type of risk.

As mentioned above, boards must be informed, risk frameworks updated, and documentation consistent and defendable. Most importantly, managing proliferation financing risk must go beyond checklist compliance. Regulators expect firms to demonstrate reasonable, well-considered decision-making when it comes to assessing and mitigating exposure.

Final Thoughts

Proliferation financing is no longer a niche compliance concern but a serious issue that reflects the complexity of global financial crime. In 2025, Guernsey firms have a strategic opportunity to get ahead of the curve, not by starting from scratch, but by refining and reinforcing the systems already in place.

At Sqope Intelligence, we believe in clarity where it matters most. Our enhanced due diligence process integrates key proliferation financing indicators to help firms detect both obvious and more obscure risks alongside potential mitigating factors so they can be addressed before they escalate. Because in today’s regulatory landscape, anticipating risk is no longer optional: It’s the standard for resilient and responsible compliance.

This move has sparked sharp criticism, particularly from Mexico’s President Claudia Sheinbaum, who objected to the lack of consultation and announced constitutional reforms aimed at defending national sovereignty and cracking down on arms trafficking. She proposed, for example, to include a paragraph in the Mexican Constitution affirming that Mexico would not accept any intervention, intrusion, or other foreign action that undermines its national integrity, independence, or sovereignty.

Although not fully unprecedented, given the designation of the Nordic Resistance Movement (NRM) in June 2024, which is classified as a terrorist or criminal organization depending upon the country, most FTO designations target more “traditional” terror groups. Until now, no companies were targeted for materially supporting the NRM under the FTO designation, but this and the listing of the cartels certainly open the door to such action.

Moreover, beyond the political back-and-forth, the designations have far-reaching implications—particularly for the compliance and due diligence sectors.

What Does FTO Status Mean in Practice?

An FTO designation significantly broadens US enforcement capabilities by making it a federal crime to provide any form of “material support” to these organizations—including funding, logistics, housing, training, weapons, or even seemingly unrelated business services. Before such designation, US agents needed to justify a specific threat to a US citizen: Now any link to an FTO is grounds for investigation with such designation allowing authorities to use tools typically reserved for fighting more traditional terror groups, including freezing assets, whether traditional or cryptocurrency wallets, blocking financial networks, and ramping up surveillance and intelligence-sharing.

While likely intentionally vague, “material support” can encompass a wide range of activities from logistical assistance and financial aid to training, shelter, weapons, and forged documents. However, how that definition is applied often hinges on political will. This has serious consequences, particularly given how embedded cartel activity is in certain countries, particularly Mexico, including:

Broader Liability: Individuals and businesses not directly involved in illegal activities could face prosecution for knowingly or unknowingly aiding cartels and their affiliates. For example, a trucking company or a real estate agent could be targeted for unknowingly transporting cartel-linked goods or facilitating property purchases with illicit funds.

Similarly, US and multinational firms operating in cartel-dominated areas, whether geographical locations or business sectors, may face asset freezes or other charges given that many routinely pay extortion fees and other payments to cartel affiliates to produce, transport, and sell goods. Such payments now mean engagement with an FTO and not “only” an organized criminal group.

For the same reason, migrants, who are also often forced to pay cartels for safe passage, could now face prosecution. It is unclear if this threat may be utilized as part of the ongoing efforts to reduce illegal crossings into the US, but the possibility is clearly there to use.

Economic Impact: Given the cartels’ previously noted deep entanglement with the Mexican economy, legitimate businesses may find themselves inadvertently exposed or unable to do business. This would significantly broaden the pool of defendants given the material support clause and place many in the uncomfortable position of choosing not to pay, which can risk violence or the general inability to do business, or continuing to do so and facing potential legal ramifications as a result of the FTO designations.

What has changed?

Before cartels were designated as FTOs, their criminal liability was primarily addressed through laws targeting organized crime, drug trafficking, and related offenses such as money laundering, homicide, and kidnapping. The focus was on their involvement in common criminal activities, with penalties imposed mainly under national or international statutes aimed at combating organized crime. Authorities pursued these groups chiefly for drug trafficking, smuggling, corruption, and acts of violence.
However, once a cartel is officially designated as an FTO, the scope and severity of their criminal liability expand significantly. They become subject to anti-terrorism laws, which carry harsher penalties and allow for special legal procedures alongside enhanced investigative and prosecutorial powers. The violent acts committed by these groups are no longer seen solely as organized crime but can be classified as acts of terrorism. This shift enables authorities to implement stronger measures to freeze assets, limit funding sources, and target not only cartel members but also their supporters and financiers. Investigations may now include charges related to international terrorism, which can severely undermine the cartel’s ability to operate on a global scale.

Geopolitical Challenges

While the FTO designation is intended to elevate pressure on transnational criminal networks and expand the legal toolkit for disrupting cartel operations, it also introduces a complex array of geopolitical risks. These risks extend beyond law enforcement and counter-terrorism into the realms of international diplomacy, regional stability, legal norms, and global security.

One of the most immediate and consequential challenges arising from the FTO designation is the strain it places on US relations with Mexico. The latter strongly opposes the designations, viewing them as an infringement on its national sovereignty and a potential pretext for unilateral US military action within its territory. This tension could threaten ongoing bilateral cooperation on critical issues such as border security, immigration, and counter-narcotics, while further strain already increased tensions related to trade. It also could complicate intelligence-sharing and joint enforcement operations at a time when such coordination is perceived as essential for effectively combating organized crime, drug trafficking, and illegal entry into the US.

Indeed, concern of such designation providing a legal basis for direct US military action against these groups is not necessarily an exaggerated concern. Targeted strikes against targets on the FTO list is far from unprecedented globally since the war on terror expanded but would be in Mexico or in the territory of other “friendly neighbors”. Unilateral action, even if confined to the immediate border area, could provoke diplomatic fallout that exacerbates the potential ramifications from only increased tensions that were noted above, as well as retaliatory violence from cartels that could destabilize already fragile areas and even unintentionally empower rival criminal organizations.

At the same time, given that FTO status has been traditionally reserved for ideologically motivated groups with political or religious goals, applying this label to more profit-driven criminal enterprises like drug cartels blurs the conceptual and legal lines between criminality and terrorism. While both may use violence and coercion and although terror groups often find themselves involved in criminal enterprises as a means of fundraising, their motivations and organizational structures often differ significantly. While many terrorist groups engage in drug trafficking and organized crime as a means to raise funds, these are primarily driven by ideological, political, or religious goals, i.e. seeking to change or influence governments, societies, or policies through fear and violence. Criminal organizations, on the other hand, tend to be primarily motivated by profit and economic gain, and are typically structured on efficient control of illegal markets, prioritizing secrecy, and minimizing exposure to law enforcement.

While Mexican cartels are not ideologically aligned with global terrorist movements, they are adaptive and opportunistic. In the face of increased pressure and potential decreased revenue, they may seek or expand existing ties that can counter such losses, including those with state or non-state actors that have a vested interest in undermining US influence, such as arms traffickers, corrupt regimes, or terror-linked organizations. Moreover, the FTO label is likely to motivate cartels to adopt an even more decentralized and clandestine structures, making them harder to track and dismantle.

Cartel Reach

Today’s cartels are no longer just drug traffickers but are economic and political players with diversified portfolios ranging from illegal mining, fuel theft, and extortion, to money laundering and even infiltration of government infrastructure.

Take the Sinaloa Cartel, for example. Alongside controlling a significant portion of the fentanyl trade, often via Chinese chemical suppliers and laundering networks, it has embedded itself in Mexico’s agricultural and water management sectors. Cartel-linked “taxes” — protection payments, for example — are levied on basic staples like avocados and tortillas, with violent consequences for non-compliance.

Their reach extends from small-town tortilla shops to multinational logistics chains, making it extremely difficult to distinguish cartel-linked businesses from legitimate ones—especially in sectors like construction, farming, hospitality, and trucking. In other words, the likelihood that companies operating in certain countries and certain sectors have exposure to the cartels without being aware of the fact is exceedingly high, with ignorance not a particularly strong argument to make when confronted with potential prosecution by the US government.

Implications for Compliance and Due Diligence

This evolving threat landscape demands a complete rethink for financial institutions, compliance teams, and risk managers. Here’s what’s at stake:

1. Expanded Liability and Litigation Risk

As mentioned above, the relatively broad definition of “material support” under the FTO designation can open a range of businesses operating in certain countries and sectors to potential prosecution. Financial institutions, for example, could face lawsuits under the Anti-Terrorism Act (ATA) for facilitating transactions, whether intentionally or not, with FTO-linked entities. While historically aimed at foreign banks tied to Middle Eastern or Russian groups, the new designations expand that risk to US institutions and regional and local partners.

One of the key risks is likely to be the level of exposure to the more obvious and known sectors in which these organizations operate. Traditionally, cartels controlled limited territories and specialized on a single product, usually cocaine. The new criminal elites now traffic multiple products across extensive markets and regions. These illicit activities are less profitable than drug trafficking but they have become increasingly attractive because they generate relatively stable incomes at lower risk. In other words, cartels are playing a growing role in the region’s economies, from infiltrating seaports to extorting small businesses and expanding their political power.
The Sinaloa Cartel, for example, which is one of the two cartels believed to be primarily responsible for drug trafficking into the US, wields influence that goes beyond just narcotics and human smuggling to extortion, illegal mining, and oil theft, as well as legitimate businesses as a means to launder money.
Criminal groups have reportedly even infiltrated the public water system in Sinaloa, placing members or those with connections to their organization into offices that oversee irrigation. On Mexican farms, as another example, criminals are embebed in all stages of the supply chain, from production and processing to storage, transportation, and distribution.
Even at a more localized level, cartels have their hands in various sectors, including, among others, fishermen, chicken vendors, construction companies, trucking services, gas stations, and those that produce a staple food in the country: the corn tortilla. Reports suggest that tortilla shops that refuse to comply with payment demands can face violent repercussions, including becoming the target of arson or gunfire.

2. Review of Compliance

When it comes to enforcement and prosecution related to such new designations, the simplest and most cost effective method of sending a message that the Trump administration is serious about utilizing the FTO label to pursue criminal organizations is to target the “low-hanging fruit”. In other words, finding large, known corporations who have clear and expansive exposure to the known sectors or regions with cartel involvement, such as agriculture, and placing the bullseye on them.

For these reasons, companies and institutions that fail to adapt will increase their risk exposure, including to criminal and civil ligation (the latter under the ATA). Even for those with already robust compliance frameworks, a review to ensure that potential cartel exposure is sufficiently considered should be prioritized. Indeed, even when cartel-affiliated individuals or businesses are not explicitly named, their previously-discussed entrenchment in certain regions and sectors means that increased scrutiy should be levied across all stages of the supply chain and for all transactions that carry cartel-specific red flags.

This includes, but is not limited to, identifying high-risk geographical areas, such as border cities of Mexico and other regions where cartel activity is extensive, integrating this understanding of higher risk locations with known higher risk sector, and mapping out complex ownership structures to ensure no connections to designated entities and to allow for thorough vetting of any connections to such higher risk sectors and regions.

Conclusions and insights for the sector

By labeling cartels as FTOs, the U.S. government has expanded the tools at its disposal—transforming what were once complex criminal investigations into matters of national security. The designation empowers authorities to treat financial or logistical interactions with these groups as federal crimes, even when no clear criminal intent exists. The burden of compliance, therefore, no longer rests solely on avoiding direct involvement in illicit trade; it now includes avoiding any form of “material support,” however indirect or unintended.
For the compliance sector, this reclassification means that businesses with even tangential exposure to high-risk sectors and locations must now consider how deeply cartel influence may run through their operations, clients, or supply chains. Indeed, the notion that legitimate companies can operate in cartel-dominated areas must be reconsidered with the new lens of FTO designation.

This act has, since 1977, criminalized US individuals and entities engaging in bribery of officials to obtain or retain business, while also mandating transparent accounting provisions on publicly traded companies to prevent the concealment of such payments. Referred to by a prominent NGO as the “crown jewel in the US’s fight against global corruption”, the executive order offers a contrasting account of the FCPA, describing it as barring citizens and businesses from engaging in “routine business practices in other nations”. This forms part of his broader agenda to prioritize American economic interests, in this case by reducing regulatory constraints on US businesses operating globally.

During the 180-day suspension, US Attorney General Pam Bondi will review existing FCPA investigations and the act itself. Her directive is to issue updated guidelines or policies “to adequately promote the President’s […] authority to conduct foreign affairs and prioritize American interests, American economic competitiveness […], and the efficient use of Federal law enforcement resources.” Indeed, the executive order includes provisions allowing Bondi to extend the review period for an additional 180 days if she deems it appropriate.

Future FCPA investigations and enforcement actions are also to be governed by the guidelines or policies she eventually issues.

Despite some media sources interpreting the executive order as the President “green-lighting bribery” or raising the spectre of a “wild west” of corrupt deal making, our assessment, in the short- to medium-term at least, is that there will be little to no change in corporate practices. However, KYC responsibilities could be affected in the long-term should the FCPA ultimately undergo significant alterations or even repeal.

Near-Term: Why US Corporate Practices Are Unlikely to Change

There are several reasons why our clients should not expect to see any radical changes by US companies during this initial review period.

Firstly, the FCPA is suspended but not repealed, while also featuring a five-year statute of limitations.  Indeed, Congressional legislation like the FCPA can only be repealed by another act of Congress; an executive order cannot repeal such a law. While Trump’s Republican Party does have a small majority in both branches that comprise thet legislature — the US House of Representatives and Senate — at the time of writing there are no indications that the Trump administration is pursuing a total repeal.

Moreover, the FCPA’s anti-bribery provisions have a five-year statute of limitations, along with a six year requirement for its Books-and-Records provisions, which “require publicly traded companies to maintain accurate and transparent records that fairly reflect their transactions”. Consequentially, even if Bondi’s updated enforcement guidelines and policy significantly changes how the Department of Justice (DoJ) pursues infractions, that would relate only to Trump’s DoJ.

In other words, violations committed during this period could theoretically be prosecuted by a new administration after the next elections in four years’ time. Guidelines issued by the current Attorney General do not constitute law and can be easily overridden or revoked by the next president.

Secondly, anti-bribery legislation in other countries will still impact companies with international operations. Regardless of the FCPA’s suspension, US companies with international operations must continue to comply with the relevant laws of the foreign jurisdictions in which they operate — where they exist, at least — or they can still face fines and prosecutions. While there is no EU equivalent to the FCPA, it did adopt several related regulations and directives in May 2024, including AMLD 6 and AMLR, which require EU member states to treat bribery as a predicate crime to money laundering, which is then prosecuted in accordance with the Member States’ domestic criminal code.

France, for example, passed its Sapin II Law in December 2016, which was designed to bring France in line with international anti-bribery standards such as those included in the FCPA or the UK Bribery Act 2010. Bribery is also criminalized under the Swiss Criminal Code, covering, since 2016, private commercial bribery in addition to that of public officials.

Finally, the executive order does not mention the Security and Exchange Commission (SEC). Jurisdiction over FCPA violations is divided between the DoJ, responsible for criminal enforcement, and the SEC, responsible for civil enforcement. The latter includes the accounting provisions and civil anti-bribery violations for all publicly traded companies on US stock exchanges and those required to file periodic reports with the SEC. While Trump’s executive order addressed the DoJ, it says nothing about the SEC and, as such, even during this period of suspension and review, remains able, at least statutorily, to pursue civil enforcement of FCPA violations.

Long-Term: How Changes to the FCPA May Impact KYC Duties

Should American companies and interests sense that their enforcement climate has permanently changed, whether through repeal of the FCPA or cross-party consensus around a significantly weakened version, where would we likely see changed business practices emerge? And, importantly, how would such developments impact their know-your-client (KYC) duties vis-à-vis American clientele?

Across the EU, US corporate entities and individuals who operate there or do business with EU entities would still be limited by the relatively strict anti-bribery legislation across the union’s more developed economies. Thus, any changed business practices would more likely be seen in jurisdictions with inconsistent application of laws, lax enforcement, and political interference.

Key examples include India, the UAE, and Saudi Arabia, as well as certain southern and southeastern European nations that are regularly flagged by prominent corruption-focused NGOs as lacking both consistent enforcement  in cases of foreign bribery, as well as transparency and accountability in their public sector contracting practices. Under such a scenario, US companies would face fewer restrictions when competing for contracts or establishing business relations and may feel more comfortable resorting to measures previously been out-of-bounds.

At the same time, while such practices would likely  pose a legal risk to the American entity in question, the suspicion or allegations of foreign bribery would impact EU-based clients already engaging in or seeking to do business with such entities. At the very least, this would legally necessitate enhanced KYC measures.

In Switzerland, for example, those dealing with entities that faced or were convicted of engaging in foreign bribery would be required to follow enhanced due diligence procedures, including ongoing transaction monitoring and reporting to the Money Laundering Reporting Office Switzerland (MROS) if their client’s assets are suspected to be linked to bribery or corruption. Similarly, in France, articles contained with Sapin II require companies to carry out risk-mapping and integrity assessments of third parties, with companies failing to conduct proper due diligence when engaging with high-risk entities facing the possibility of being held liable for failing to meet their anti-corruption obligations.

What to Look Out for in the Months Ahead

The 180-day suspension of FCPA enforcement, which could be prolonged by the Attorney General, will be accompanied by a review whose findings will offer the first clear indication as to how far the Trump administration intends to push its deregulation of US companies’ international practices. As discussed, we do not expect even significant changes to FCPA enforcement guidance to immediately impact American corporate practices in the short to medium term.

However, if the current administration begins signaling that full repeal of the act may be pursued during this period in which the Republican Party maintains control of the bicameral legislation and the presidency—which, as of writing, it has not—a lasting shift in US American corporate practices on the global stage could be possible, assuming, of course, that such a repeal would have sufficient votes to pass.

The investigation came just one year after the WSJ initially reported on the US Federal Reserve’s scrutiny of that bank’s methods for investigating its high net worth and ultra-high net worth (HNW and UHNW) foreign clients and a half year after the newspaper reported that this investigation expanded to include the US Securities and Exchange Commission (SEC), Office of the Comptroller of the Currency (OCC), and other Treasury Department offices.

The bank, which acknowledged having weak AML controls, marked 24% of its wealth management accounts as high risk for money laundering. Furthermore, as early as 2022, an internal risk team found that 60% of international accounts that advisers tried to open had errors, including missing documents and overstated income.

The issue was clearly systemic – the bank did not invest adequately into its AML procedures and prioritized the speed of onboarding new clients over proper vetting practices.

Beyond the documentation issue mentioned above, this was further evident in the lack of Spanish speakers within their vetting staff and low pay for temporary Spanish speakers working in the Baltimore office despite the number of customers in high-risk Latin American jurisdictions being onboarded and courted.

In addition, according to the WSJ, the bank had significant bottlenecks in their AML procedures, which led to the delays in the proper approval processes for thousands of accounts, witht which the bank proceeded regardless of insufficient and delayed vetting. Even basic Google searches — which should be considered a bare minimum requirement for due diligence checks especially for higher risk clients — were not conducted.

Although it’s difficult to determine the number of individuals onboarded by the bank amid the AML failures, the WSJ highlighted the cases of (1) an al-Qaeda (AQ) linked individual, and (2) a Canadian national claiming to be a Romanian princess with a net worth of over USD 5 billion.

Both accounts were open despite glaring red flags and, considering some of the high risk jurisdictions from where the wealth management branch’s clients hailed, there were likely countless other customers that should have never been permitted to open accounts.

To the bank’s credit, since 2022 they have clearly taken significant strides in order to course correct. Indeed, they placed various restrictions on at least ten types of clients, shuttered thousands of accounts in mid-2023, pulled back from high risk business in Latin America, and, in July 2024, announced that they recruited a new head of global financial crimes. Finally, the bank is also investing heavily in technology to increase their efficiency in conducting KYC checks and to address the relatively easily fixable issue of paper documentation that helped contribute to some of the AML inadequacies.

While this particular story focuses on one bank, they are certainly not alone in facing hurdles in properly vetting HNW and UNHW clients, particularly those with foreign nationality and especially those connected to higher risk jurisdictions. Such individuals pose unique challenges, including the breadth of language skills that a compliance team must have for adequate vetting, poor access to official records pertaining to related businesses, or even the inability to independently confirm the veracity of such documents.

These individuals often have an increased likelihood of exposure to multiple jurisdictions with extensive personal and business networks that often include other high profile individuals. In other words, they are at higher risk of exposure to sanctions, corruption, political connections, and even organized crime or terror financing. Of course, alongside these difficulties, compliance teams also face internal pressure to expedite the process so that the client can be onboarded.

It is precisely these sorts of challenges that outsourcing due diligence solves. An experienced enhanced due diligence consulting firm has the trained, expert analysts with the language skills, regional and local understanding, and vetted global sources necessary to provide a comprehensive, 360-degree picture of an individual or company.

A firm like Sqope Intelligence provides the intelligence you need, particularly on complex, difficult cases for which internal teams often lack the experience, time or other resources. With over 15 years of experience, a team of highly trained and experienced analysts who speak over 20 languages, our own proprietary source database and a network of nearly 100 investigators globally, we have the ability to paint a clear picture of your client or prospect, allowing you to make an informed decision on who you want to onboard.

UK sanctions on vessels & the Kremlin-affiliated ‘shadow fleet’

On July 31st, the UK implemented the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2024. Despite the wordy and complicated name, the amendments further specified the criteria for direct sanctions on maritime vessels.

Specifically, they amended regulation 57F, which stated that a vessel may be sanctioned for ‘any activity whose object or effect is to destabilise Ukraine or undermine or threaten the territorial integrity, sovereignty, or independence of Ukraine, or to obtain a benefit from or support the Government of Russia.’  Thus, such activity now includes the transport of dual-use goods, military goods, oil and products that originated in Russia, or any other goods or technology that can be deemed to support Moscow’s war efforts in Ukraine.

This effort came after the UK announced the month prior, on June 13, that it would impose sanctions on Kremlin-affiliated vessels, designating four oil-transporting vessels that were part of its ‘shadow fleet’, along with two vessels that had shipped weapons from and to Russia.

These were the first-ever sanctions on Russian-affiliated vessels by the UK, taking effect on the date of the above amendments.  In practice, this means that the vessels are barred from entering the UK’s ports and can be subject to detention by British authorities. Also in June, the EU followed in the UK’s footsteps, sanctioning 27 vessels as part of its 14th sanctions package against Russia. This included three vessels of the four above-mentioned vessels in the ‘shadow fleet’ that the UK had also designated.

But what exactly is the ‘shadow fleet’? According to UK estimates, it’s a group of around 600 vessels, that are unofficially linked to the Kremlin and transport high volumes of oil and oil products from Russia to other destinations, circumventing Western sanctions, including the oil price cap imposed by the G7.  Indeed, British  government stated that just three of the vessels later designated in September, including Nicolay Zuyev, NS Asia, and Zaliv Aniva, had collectively carried more than $5 billion worth of Russian oil since February 2022.

Moreover, for obvious reasons the vessels that make up this fleet engage in concerted efforts to evade detection and detention by Western authorities. Such deceptive shipping practices (DSPs) include both static and dynamic methodologies, such as GNSS manipulation, referring to the falsification of a vessel’s location, or the use of multiple flags.  As it stands, the UK has designated 37 vessels as of last month, 25 of which are part of the ‘shadow fleet’.  These designations, one after another, coupled with the regulation amendments blatantly indicate that the UK has this ‘shadow fleet’ in its sights and that it is doing what it can to minimise Moscow’s ability to circumvent Western  sanctions on oil and other goods via maritime transport.

Sanctions on individuals

The UK government also amended Regulation 6 (designation criteria) to include additional activities for which a person may sanctioned.  The definition of ‘involved persons’, which refer to individuals essentially supporting Russia’s invasion of Ukraine, now includes the category of “persons owning or controlling, directly or indirectly, or working as a director (whether executive or non-executive), trustee or other manager or equivalent of, an entity” that is deemed to support the invasion. Such a change will likely be used to impose secondary sanctions on executives of companies —whether Russian or not — deemed to be contributing to the conflict on the side of Moscow.

Indeed, the UK’s June announcement that designated the maritime vessels also named seven individuals. These include Russian national Yuri Olegovich Denisov, CEO of the Russian financial services company Moscow Exchange Group PJSC — and a very minority shareholder at least as of 2021 — and Latvian/Israeli dual national Mark Blats, CEO of Israeli tech company Texel F.C.G. Tech 2100 Ltd.  The HM Treasury’s official notice explained their inclusion as due to their status as directors or equivalent of entities conducting business in a “sector of strategic significance” to the Russian government. Their associated companies were also designated.

It seems likely that there were also additional justifications for their designations not mentioned in the announcement. The US Office of Foreign Assets Control (OFAC), for example, stated that not only was Blat’s company connected to the Russian defence industry, but he is also an associate of Russian arms dealer Igor Zimenkov and a business partner of Belarusian national Aliaksandr Zaitsau, both of whom were already sanctioned by the US.

While the UK’s maritime designations, whose list has consistently grown over the last several months, clearly indicates that they have the ‘shadow fleet’ in its sights, its combination with the regulation amendments show that the British government is doing what it can to minimise Moscow’s ability to circumvent Western  sanctions on oil and other goods. With widespread and, in some cases, justified criticism that Western sanctions regimes against Russia aren’t as effective as they could be, including because of sometimes blatant circumvention efforts, these are the kind of concrete steps that are seen as able to help address this gap.

With this in mind and given the pace of the designations of particularly the maritime vessels, we can expect the UK’s sanctions lists to grow, especially targeting those that hold executive positions at companies deemed to be even indirectly supporting Russia’s war efforts in Ukraine. This also means that those who may be at risk of such designations will not be the “usual suspects” who have clear and direct connections to the Russian government, making enhanced due diligence, particularly focused on indirect exposure to the Russian government, Russian state-owned entities (SOEs), and even Russia generally, ever more important.

The list of 24 countries includes three others from the Middle East and North Africa (MENA), namely, Yemen, Syria, and Algeria, the latter of which was also added in October during FATF’s plenary session.

Lebanon’s addition comes just under a year after FATF’s Mutual Evaluation Report, released in December, that specifically commented on the risks from Hezbollah, although it wasn’t named and, instead, referenced as a “major local paramilitary organization”.

The report also noted high-level corruption, tax evasion, trade based money laundering risks, illicit trafficking, and smuggling, among others that are intimately connected with the terror financing risks associated with Hezbollah. Indeed, I discussed exactly this during my recent presentation alongside Baker Regulatory in the Channel Island of Jersey.

It further listed various gaps in Lebanon’s regulatory framework.

This includes the scope of coverage of money laundering predicate crimes, a lack of regulatory independence, poor monitoring for financial crimes, a commercial registry with no requirement for criminal records checks on company founders, and a lack of disciplinary measures against Designated Non-Financial Businesses and Professionals.

The report addressed deficiencies in enforcing existing AML/CFT laws due to a lack of resources, as well as ineffective beneficial ownership identification and poor international cooperation, especially with regards to terror finance and other financial crimes.

Lebanon also faces systemic issues arising from banking secrecy, which is in turn facilitated by the cash-driven economy.

This is not to say that the FATF hasn’t acknowledged the efforts made by Lebanon to address the above and also the significant challenges faced as a result of the ongoing armed conflict with Israel.Indeed, it granted Lebanon two years, instead of one, in order to address the issues raised during the grey listing.

While all such listings impact a country’s financial sector through various means, including damaging its reputation and investment prospects, raising transaction costs due to additional compliance requirements, and causing losses in correspondent banking relationships, among others, we anticipate that the impact on Lebanon will be particularly strong. This is in light of the financial crisis that the country has been facing since 2019, which already impacted its global reputation, reliability, ease of doing business, and other metrics. Furthermore, the conflict with Israel, as well as the high risk for terror financing exposure when conducting business with Lebanon, has served to deter foreign investment.

This, along with the political stalemate and lack of resources, indicates that there is a high risk that Lebanon will struggle in addressing its shortcomings, something well recognized by the global financial sector and demonstrated by FATF granting Lebanon that additional year to address its gaps. Despite this leniency, the international community will likely see Lebanon’s prospects as too low and begin even further reducing business and investments there.

A critical component of customer due diligence (CDD) today depends upon search engine results obtained by compliance via manual keyword searches or tools that conduct similar searches at scale. This reputational check relies heavily on media coverage, database indexing, and the efficiency of search algorithms to provide the connection between what the user is searching for and what the content creator was trying to transmit.

That said, over the past decade, this research has been complicated by “filler content”, especially ads, paid content posing as “articles”, broken links, dead landing pages, fake and misleading content, but also – and particularly important for due diligence professionals — amateur journalism that can also appear as social media posts, blog posts, as well as AI-generated content pieces.

Search engine results use a combination of perceived relevance (due to the prevalence of keywords) and popularity of sources (due to their “click-rate”) in order to decide on the hierarchy of listed results.

This situation creates a feedback loop of self-reinforcing rankings, as higher results obtain more clicks, thus remaining highly ranked. In response to the Search Engine Optimization (SEO) business, due diligence specialists have to leverage their OSINT expertise in order to filter through to less elevated content, while simultaneously identifying when individuals or businesses are generating positive content to misrepresent themselves or other red flags.

What are the Red Flags for Manipulated Media?

In the past, curating an online persona or manipulating one was time-consuming and costly, with those seeking to do so often using PR companies with the expertise to monitor sentiment, make a realistic persona, and ensure it be at the top of the search results.

AI tools for generating content becoming widespread at a low cost has made this process easier while allowing for increasingly complex attempts at manipulating KYC screening tools and methodologies. Indeed, AI offers the possibility to create large quantities of tailor-made content in increasingly plausible tones — as their imitation of humans improves with every prompt from their users — something that human-led PR companies could previously do only with extensive resources and costs.

AI-created “news” or social media posts can serve to raise doubts as to the true identity of the individual. For example, when investigating connections between a wealthy individual and their discreet investments in the Persian/Arabian Gulf, abundant AI-generated content could “flood” the internet with reports of their passion for “Persian cuisine” the individual’s review of “Prince of Persia”, or even their purchase of a Gulfstream private jet, thus curating the results . This might sound bizarre but such simple approaches are not uncommon and the fast generation of content can easily outsmart the capacities of screening tools or even smaller compliance departments with more limited resources and funding.

Fake personas

The majority of private financial and government institutions use screening tools designed to automatically filter out individuals based on identification data, name variations, and declared jurisdictional exposure (countries of residence, company registration information, business sectors, etc.). Such tools rely on pattern recognition and, therefore, can often be misled by even expected variations in identification information, including variations on names and name spellings, including transliterated versions and date, such as differing formats or slight adjustments to the month or year, as well as by the above discussed purpose-driven content intended to mislead the algorithms.

One clear indication of suspicious activity manifests as results involving several individuals with identical or similar profiles, including name variations, professional backgrounds, country and/or city of origin, and so on. The purpose of what can be largely fake profiles tailor-made to match any negative online content is to create plausible deniability for the real subject of the search query.

One example would be Irish citizen James Bernard Smith, who was wanted in the US in 1990 for drug trafficking. AI could be used to create personas with the same or similar name, which would make it unclear who was the actual person on the wanted list. In other words, instead of being James Bernard Smith, it could perhaps be Jim Smith, Jimmy Bernie Smith, or other variation mentioned in in intentionally misleading blog posts, social media accounts, forums, or even less legitimate news articles criticizing Washington’s “War on Drugs”, calling for legalization, alluding to their criminal records, or even pretending to solicit the purchase of drugs online.

Such entirely fabricated posts can and are used to confuse KYC checks, which is obviously also much easier when one has a more commonly used name. Thus, someone like James Bernard Smith can use fake online personas to create doubt and claim misidentification in the database or negative news, which, if sufficiently convincing, could prevent further digging.

Moreover, in extreme cases, the above type of media manipulation can be taken one step further and can be used as part of the legal justification for why there is sufficient doubt vis-à-vis the allegations levied against the individual. In other words, evidence from manipulated media can be utilized as part of an affidavit claiming, for example, that a person was never in a particular country despite evidence or allegations to the contrary. Indeed, such affidavits can sometimes be deemed sufficient to overcome good faith KYC checks in jurisdictions with less stringent regulations and requirements.

Unflagged Promotional Content

Another way of passing through the cracks of automated screening and the “first line” of defense is via legitimate positive or neutral publicity of business activity or other innocuous reputational context, including related to philanthropy, family news, and interviews by an individual with an otherwise negative media profile. This is meant to skew the proportion of search results in favor of positive coverage, as well as to create doubt about the objectivity, accuracy, or credibility of the negative information. In this context, the positive publicity need not be false, as many mainstream or specialized outlets offer the possibility of paid marketing space for promotional or “op-ed” content.

Moreover, the credibility or popularity of such outlets lends credence to the promotional content disguised, with the exception of an often-time small disclaimer at the end, if it is present at all, as news and outweighing or at least balancing out the negative. Most targeted by such efforts are business and economic news outlets . Taking an analytical look at the tone of the “article” and the identity of the author can help highlight paid material, which is useful both to recognize bias in a day-to-day setting and for analysts digging into the media profile of a particular individual.

Who might undertake these activities and why?

Capital flight has always been common in the context of fluctuating geopolitical fault lines, leading high and ultra-high net worth individuals (HNWIs and UNHWIs) to move their assets and funds towards jurisdictions deemed safer or more tax friendly, such as Switzerland, the UAE, the British Virgin Islands, Cyprus, and Panama. Thus, HNWIs and UNHWIs from places facing political instability, insecurity, or even increasing regulatory pressure and public scrutiny look to move their funds to more opaque but “safer” jurisdictions.

Such individuals who also have questionable activity in their pasts are the most likely to engage in such disinformation in order to reinvent themselves as transparent and legal and increase the likelihood that they will be onboarded. . Indeed, regulatory frameworks across the globe, including in the common and above-mentioned destination countries, are tightening. Thus, individuals who recognize that they may be rejected sometimes look to manipulate their reputational profile, ranging from the above-discussed tactics to even changing their names, using alternative spellings, or employing aliases in order to put distance between themselves and their past.

Nonetheless, the compliance and due diligence industries have also adapted to tackle these and other attempts at tampering with reputational verification, as well as the innovative and increasingly complex methods used. Keeping up-to-date with the tactics employed and challenges faced, as well as the best ways to identify and address them is essential. Combined with a risk-based approach, compliance and due diligence professionals should aim to balance screening tools with human expertise and in-depth analysis to identify the kind of red flags that tech can continue to miss. Indeed, with increasing such examples seen in recent years, professionals rely on Sqope Intelligence with these precise scenarios, trusting our team to help identify the facts and support their KYC process.

The grey list includes 20 other countries, with Monaco being the third European country to be added to the list alongside Bulgaria and Croatia.

The FATF announcement comes as no surprise and follows a January 2023 report from the Council of Europe’s AML body, MONEYVAL, which assessed Monaco’s compliance with FATF recommendations made after a March 2022 on-site visit to the country. The recommendations led Monaco to adopt new laws and regulations to strengthen its AML and CFT measures, including new reporting rules for banks and other financial institutions, as well as improved information sharing between domestic regulatory authorities.

While MONEYVAL and FATF recognized Monaco’s significant progress and its efforts to address the gaps highlighted by FATF, the country ultimately fell short of its goals and failed to make adequate changes to prevent illegal financial flows, with the country often viewed as a destination for such activity.

In response, and in order to be removed from the grey list, Monaco created a reform schedule to be implemented by January 2026, with milestones in May and September 2025. Some of these planned reforms include enhanced investigations and prosecutions, confiscation and recovery of illicit assets, further strengthening supervisory systems, and additional improvements to the sharing of information both domestically and internationally.

When it comes to reactions to the grey listing, these vary significantly from country to country. Much of this list is comprised of developing nations with some even in the midst of armed conflict, of which many ultimately remain grey listed long term due to inadequate steps taken to achieve removal. As a result, statistics regarding the negative economic impact of this designation doesn’t accurately apply to Monaco, which represents a stable and safe financial hub that attracts ultra-high net worth individuals (UHNWIs).

Thus, while countries with this designation often see a changed perception of risk among international investors, with a decline in confidence leading to a reduction in investment and demands for higher returns to compensate for this perceived risk, the economic impact on Monaco will be mitigated, much as it was in the case of the UAE during its own, albeit short tenure on the grey list.

Also like the UAE, the fact that the Principality has already made notable strides to address the FATF recommendations and has concrete plans and deadlines to close the remaining gaps further suggests that investor confidence will not be significantly harmed to a point of the country losing business.

That’s not to say that the Principality won’t feel any impact of the grey listing and particularly the enhanced scrutiny that comes hand in hand with such an FATF designation. This is liable to manifest in higher operational costs and additional procedures for local and international financial institutions operating in or transacting with Monaco. Likely examples include an increased need for actors there to apply enhanced due diligence (EDD) to comply with MONEYVAL recommendations and for external parties to apply similar EDD processes to address differing requirements for grey listed countries. At the same time, penalties from Monegasque authorities for non-compliance will also intensify.

Perhaps most importantly, Monaco will need to demonstrate that it is actively working to improve its AML and CFT policies, including by meeting its stipulated deadlines for implementing reforms, in order to preserve what we assess to be the initial and limited impact of the grey listing.

FIs/NBFIs operating in offshore jurisdictions have the more onerous task of KYC for pre-existing and new clients that are predominantly not domiciled in the same country and therefore come with their own unique context-specific risks.

Notable triggers for KYC refresh projects stem from a myriad of factors, including the implementation or removal of sanctions, changes to regional PEP designations, and mandated reviews on “riskier” customers, to name a few. Operationally this continues to be the norm; but external pressures for ongoing maintenance are made more complex by politics, an increase in customers with a more “universal” level of exposure, and/or stemming from riskier countries.

With sizeable market shifts in the wake of the current sanctions’ climate, customers’ commercial activities have been forced to pivot and diversify in response.

As an example, those that had sizeable exposure to Russia pre-2022 or even pre-2014 have largely faced reputational and regulatory pressure to shift assets or divest resulting in new sectoral and regional exposure that may not have existed at the time of their onboarding or last review.

In this vein, customers with such exposure also likely require ongoing monitoring to ensure that any continuing operations or connections in or to Russia are within regulatory law and are not proxy to other interests. Indeed, conducting targeted and periodic due diligence reviews on such clients is necessary to demonstrate compliance to regulators.

Sanctions exposure and the risk of sanctions circumvention is only one such factor. Geopolitics can similarly affect the risk profile of clients. In just 2024, there are unprecedented incidences of elections in 64 countries and multiple changes to governments are predicted. As a result, reviews on pre-existing customers are critical to ensuring their respective risk profiles are up to date, their political exposure assessment remains accurate, and possible knock on effects that result from political changes are considered in a customer’s geographical risk evaluation. In particular, an understanding of public and private sector interactions in places with weaker oversight is paramount to fully grasp the risks associated with individuals that have notable political exposure, whether they are PEPs themselves or are unflagged but regularly interact with government agencies, state owned enterprises (SoEs), or other entities that have political links in the countries in question.

A new phenomenon, particularly in UK offshore jurisdictions (Channel Islands and Crown dependencies), is similar and rising oversight from regulators as onshore locations. In this vein, FIs/NBFIs domiciled in offshore jurisdictions face their own unique challenges, namely, balancing compliance requirements while remaining attractive destinations for complex ownership structures and trusts. The result is an elevated need for beneficial ownership identification, which can be cumbersome in terms of the often sizeable operational costs and manpower required to perform a comprehensive review.

Due to their diverse client base, offshore FIs/NBFIs are largely conducting KYC on clients with connections to countries that may be more unfamiliar to employees with compliance functions. This is of particular concern in reference to political exposure and PEP designations in more opaque jurisdictions and can have implications on the accuracy of KYC refresh projects when one “doesn’t know where to look” and significant risk indicators can be missed.

Barring the challenges related to jurisdictional and sectoral exposure, attempting to ascertain source of wealth in areas with less access to information poses multiple risks, including in the form of proxy holdings and illicit sources of funds. Data transparency remains an area of concern, with opaque low- and middle-income countries (LMICs) now producing more high net worth individuals (HNWIs) than ever before. Areas without a centralized commercial registry or more limited press freedom hampers accurate identification of corporate holdings and informed reputational risk assessments.

Given the nature and complexity attached to KYC performed by offshore institutions, it is not feasible for FIs/NBFIs to hold targeted expertise in every region, particularly around countries’ unique risks vis-à-vis data transparency, political environment, and the robustness of AML frameworks. Internal KYC processes may not be effective or contextually cognizant of risk indicators connected to a customer’s commercial activity and geography, referring back to the above-noted challenges of jurisdictional and sectoral exposure. Additionally, a client’s global exposure is often not immediately obvious and can be difficult to discern, even after gathering documentation from the customer, which can lead to a misclassification or underestimation of a customer’s risk profile.

Indeed, the ongoing and persistent need for KYC remediation processes can be burdensome on resources to FIs and NBFIs, particularly amid the ever-changing political situations, increasing globalization of assets and activities, and the related complexity and context that requires niche understanding. This can be mitigated by increasing the knowledge of those engaged in the first line of defence and having robust options for outside expertise on the variety of complexities, from jurisdictional risk to sanctions and money-laundering typologies to implications of political exposure within the local context. This can significantly alleviate operational and reputational risks that could ensue if KYC remediation projects are not carefully conducted.

Notably, FATF highlighted the limited supervision of certain professions deemed particularly vulnerable to money laundering, including real estate agents and those dealing in precious stones and metals. They further noted the UAE’s limited enforcement of sanctions against individuals and entities designated by the US, EU, and UK, as well as shortcomings in international cooperation mechanisms concerning exchanges of information and joint investigations for AML/CFT. In relation to the latter, the country was also found to have inadequate risk assessment and identification methodologies.

The UAE’s inclusion on the Grey List was acknowledged by the country’s leadership and key economic partners as a major setback, leading the government to pay particular attention to addressing their AML/CFT deficiencies. Indeed, inclusion on the grey list causes increased scrutiny from foreign financial institutions and other businesses engaging with Emirati individuals and entities, especially for cross-border transactions, often leading to lengthier and costlier due diligence processes.

This is of particular significance to transactions involving both sectors vulnerable to money laundering and terrorism financing, as well as those linked to higher risk individuals, such as Ultra High Net Worth Individuals (UNHWIs) and those with political exposure. The listing also results in the UAE coming under enhanced monitoring and reporting by the FATF, which tends to involve the regular submission of reports tracking the implementation of the FATF’s action plan.

In response to its listing, the Emirates embarked on an expedited route to ensure its prompt removal, convening several high-level meetings that included relevant government ministers and other senior officials. Such meetings focused on implementing the FATF’s action plan, which was announced as completed in early 2024 ahead of the organization’s planned onsite visit.

This plan included increased cooperation with regional and international players in relevant investigations, concrete efforts to improve the authorities’ understanding of and mechanisms for detecting related risks, increased investigations and prosecution of cases involving suspected financial crime and terror financing, as well as providing additional funding to its Financial Intelligence Unit (FIU).  Some examples of tangible changes made are reflected in the UAE tripling the number of money laundering fines it issues, sanctioning of non-compliant financial institutions, and conducting some high-profile arrests of individuals accused of financial crime.

Given the nature of the country’s economy and one of the Arab world’s most stable financial hub, the Emirates was not as directly impacted by the grey listing as other countries have been. At the same time, they place a high premium on its reputation in the international arena and just the stain of a grey listing appears to have been significant enough to exert notable and relatively swift efforts toward its removal. This is especially important considering that it has developed a reputation as a hub for sanctioned Russian nationals, with increased sanctions enforcement and fines for non-compliant institutions certainly able to affect the ability for such individuals to continue operating in the UAE.

Indeed, their removal and some of the actions taken was seen as able to boost investor confidence in the country and reduce some existing, limited barriers for trade and finance, particularly in relation to high-risk sectors which normally require increase due diligence and scrutiny under the grey listing.

Requirements for increasing cooperation with the UAE’s regional and international partners on financial crime via data sharing is likely to also provide a boost to the anti-financial crime community. This is of particular significance in light of the country’s regional standing as the Arab world’s leading financial hub (with substantial, increasing investments across the world), as well as solid infrastructure, which enables it to employ robust modern mechanisms in AML/CFT investigations. The Dubai International Financial Centre (DIFC), as well as Dubai and Abu Dhabi more generally, represent the region’s largest financial centers. The DIFC is home to more than 200 wealth and asset management companies, including 13 of the world’s top 25 wealth and asset managers.

This highlights both the significance of the UAE, the importance of its cooperation in investigations that involve the jurisdiction, and the need for its compliance to reach international financial standards. Their task now is to maintain the changes and standards that allowed for its removal from the grey list in order to ensure that it stays off of it – permanently.