The European Commission today adopted two new anti-money laundering directives; the first, a proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (the â€œ4th AML Directiveâ€), and the second, a proposal for a Regulation of the European Parliament and of the Council on information on the payer accompanying transfers of funds (the â€œFund Transfer Proposalâ€; collectively, the â€œProposalsâ€). The Fund Transfer Proposal is designed to regulate information accompanying transfers of funds to secure their traceability.
The Proposals take into account the recommendations of the Financial Action Task Force (“FATF“) introduced in February 2012 (the â€œFATF Recommendationsâ€) that require a more risk-based approach to anti-money laundering (“AML“) and counter terrorist financing (“CTF“), and introduce into the EU, a minimum principle-based approach to strengthen administrative sanctions and coordinate actions when dealing with cross-border cases.
EU Internal Market and Services Commissioner, Michel Barnier, has stated that the Proposals are aimed at ensuring organized crime and the mafia cannot launder funds through the EU banking system or gambling sector.
What Has Changed Since 3rdÂ Directive?
The Fourth AML Directive provides for a more targeted and focused risk-based approach.Â This means that reporting entities will need to clearly understand the money laundering and terrorist financing risks which affect them, and adapt their AML/CFT system to the nature of these risks â€“ with enhanced measures where the risks are higher and the option of simplified measures where the risks are lower. Thus, reporting entities will be able to target their resources more effectively and apply preventative measures that correspond to the risks of particular sectors or activities and to develop compliance plans based on evidence of risks, not on prescribed requirements.
The definition of Politically Exposed Person (“PEP“) has been expanded to include domestic PEPs (i.e. those resident in EU Member States in addition to â€˜foreignâ€™ PEPs, for example, heads of states, members of governments, members of parliament, judges of supreme courts). PEPs represent a higher risk of corruption by virtue of the positions they hold.Â The FATF Recommendations expanded the requirements to apply enhanced due diligence to foreign PEPs to domestic PEPs and international organisations, and to the family and close associates of all PEPs, reflecting the methods used by corrupt officials and kleptocrats to launder the proceeds of corruption.
Beneficial Ownership & Improvement on Corporate Transparency
Recognizing that there is a lack of transparency around beneficial ownership, the 4th AML Proposal requires all bodies corporate, legal entities and trustees to hold adequate, accurate and up-to-date information on beneficial owners because of their increased vulnerability to misuse by criminals and terrorists. Revised clarification is also given as to how beneficial owners can be identified to allow for greater transparency.
The 4th AML Directive covers all of the gambling sector whereas previously only casinos were obliged to adhere to these regulations. The change in scope is intended to cover electronic commerce to address evidence before the EU that other areas of gambling are vulnerable to criminal activities.
The European Commission further advised that it is an aim of the Directive to strengthen cooperation between the different national Financial Intelligence UnitsÂ whose tasks are to receive, analyze and disseminate information and reports about suspicions of money laundering and terrorist financing.
Lower Reporting Threshold
The reporting threshold in respect of cash is reduced to â‚¬7,500 from â‚¬15,000 to prevent misuse of the reporting thresholds by organized crime. In additional, reporting entities will be required to conduct due diligence when carrying out occasional transactions at the new lower level.
What Happens Next?
Once finalised and adopted by the European Commission, the 4th AML Directive must then be transposed into national law by the individual member states within a period of two years.