European Union Fourth Anti-Money Laundering Directive
The European Union Fourth Anti-Money Laundering Directive (the “New AML Directive”), enacted on 25 June 2016 which was due to be implemented on 26 June 2017, replaces the previous Third Directive. It is yet to be enacted into local legislation yet but when the national law is transposed its effects will be wide reaching. Below we examine the main provisions and its potential effects for certain sectors:-
The main provisions of the New AML Directive are the following:
Extension of the scope of anti-money laundering legislation requirements by reducing the threshold for cash transactions from €15.000 to €10.000
Establishing clear transparency requirements about beneficial ownership for companies since EU Member States are obliged to create registers containing information on the beneficial ownership of corporations. Competent national authorities and obliged entities capable of evidencing legitimate interest will have access to the central register system.
Expansion of the definition of PEPs to include members of the governing bodies of political parties, which will result in the necessity to update existing PEP lists. The supervised entities should make sure that they are able to identify PEPs and apply the relevant enhanced due diligence. Additionally, they may consider different risk treatment for the domestic PEPs that are also coming from the country where the entity is based.
Greater cooperation and exchange of information between the institution of the Member States to identify, detect, report and prevent crime suspicious transfers.
Greater penalties regarding breaches in the areas of due diligence, suspicious transactions reporting, book-keeping will be applied. There penalties include public reprimand, deprivation of performing an activity, authorisation suspension and fines equal to the double of the amount earned or at least 1 million.
The above main changes mean that service providers, Investments Firms, Credit institutions and other institutions handling client monies will need to seriously re think their strategies for handling the management of cash-intensive clients and consider how the higher risk controls set out might affect their business. Such institutions should consider re-examining client acceptance processes and put in place enhanced due diligence checks to request additional documents on income or earnings, as well as setting additional documentary requirements to be met during the relationship (ie. Increased on-going monitoring).