Summary of the Key Changes
Law enforcement authorities and governments around the world are working together to enhance existing anti-money laundering (AML) legislation in efforts to halt terrorist financing.
The Fourth Anti-Money Laundering Directive (2015/849/EU) (the Directive) is the most significant new legislation to affect EU member states. It came into force on 25 June 2015. Member states must implement the required changes by 26 June 2017.
- Repeals and replaces the Third Anti-Money Laundering Directive (2005/60/EC) and tightens cross-border controls.
- Although final accountabilities for AML compliance rest with compliance officers the Directive widens the extent of personal responsibility and liability for all professionals.
- The Risk-based approach to customer due diligence (CDD) requires enhanced efforts for higher risk customers.
- Companies must identify individuals who have ultimate beneficial ownership and companies must maintain a beneficial ownership registry. Banks and other obliged entities will have access to the registry depending on what a Member state implements. A beneficial owner of a company has a minimum of 25% direct or indirect ownership.
- The definition of a politically exposed person (PEP), includes domestic, as well as foreign, PEPs and those within international organisations. The definition applies to individuals such as heads of state, government and parliament members, members of the judiciary and directors of state-owned enterprises.
- The threshold to trigger AML procedures from cash payments is lowered from €15,000 to €7,500 (to trigger AML procedures member states will be able to set their own thresholds even lower based on risk perception levels).
In February 2012 the Financial Action Task Force made recommendations on combating money laundering; hence those business which have already adopted those recommendations will only need to make minor changes to implement the new Directive.
Those businesses that still follow the third Anti-Money Laundering Directive will need to make further reforms particularly in respect of:
- the broader criteria of politically exposed persons (PEPs),
- lower threshold for reporting cash transactions and
- the addition of a beneficial ownership registry for all connected individuals associated with a company.
As a result, the new risk-based approach and the need to adapt existing systems are the biggest challenges facing businesses. For example which approach should be adopted when considering the enhanced due diligence procedures that are required? On what basis will the new, more risk-based and evidence-based decision-making requirements be made?
All this will require new methods, information sources and monitoring approaches to develop enhanced risk assessment tools. Businesses should also consider how they can align and include the US Foreign Account Tax Compliance Act (FATCA) requirements for high-risk with the provisions for the risk-based CDD requirements in the Directive as this will allow for further efficiencies.
The above is a general position of the law as and does not constitute legal advice.
For further information, please contact Nath Solicitors on 0207 681 6073 or email email@example.com.