Envoys from the 28 EU member states on Wednesday unanimously rejected a proposal by the European Commission to add Saudi Arabia and other nations to the bloc's money-laundering blacklist.
The ill-fated plan, drawn up by the EU's executive arm, infuriated Saudi Arabia as well as the United States and exasperated European capitals.
The EU's 28 interior ministers will formalize the rejection at talks in Brussels on Thursday, a European source told Agence France Presse.
The EU governments "cannot support the current proposal," said a strongly worded draft statement that will be approved by the ministers.
EU diplomats have complained that the way the commission had drawn up the list was unclear and potentially vulnerable to legal challenges.
The list "was not established in a transparent and resilient process that actively incentivizes affected countries to take decisive action while also respecting their right to be heard," the draft said.
The controversial list faced a diplomatic onslaught.
The US ambassador to the European Union, Gordon Sondland, on Friday called the list "dogmatic posturing", furious that the US territories of Guam, Puerto Rico, American Samoa and the US Virgin Islands were included.
Those blacklisted already include the likes of Iran, Iraq, Pakistan, Ethiopia and North Korea.
Inclusion on the EU list does not trigger sanctions, but it does oblige European banks to apply tighter controls on transactions with customers and institutions in those countries.
