The legislative process for approving the proposed Fourth EU Anti-Money Laundering Directive (AMLD4) is underway. On February 10, 2015, an agreement was approved between the Council of European Union and the European Parliament on strengthened rules to prevent money laundering and terrorist financing, and at the end of quarter one, 2015, the European Parliament Plenary is set to formally adopt AMLD4.
AMLD4 seeks to update and develop anti-money laundering (AML) and counter-terrorist financing (CTF) rules across the EU, repealing in the process, the Third EU AML Directive. The proposed reforms correspond to the recommendations issued by the Financial Action Task Force in 2012, with increased focus on the risk-based approach (RBA) and uniformity of rules.
So what are the most notable changes? To begin with, the scope of AMLD4 is to extend beyond casinos to include ‘providers of gambling services,’ thereby necessitating the implementation of more stringent AML procedures by businesses in the gambling sector.
In strictly limited and justified circumstances, however, it is proposed that member states shall have the right to exempt certain gambling services from some or all of AMLD4’s requirements, subject to specific risk assessment.
More marked is the emphasis on the RBA. Depending on the nature and severity of risks surrounding particular jurisdictions and sectors, different levels and types of action will need to be implemented for customer due diligence (CDD) purposes. In particular, the onus of determining when and how to conduct CDD checks shall be shifted onto ‘obliged entities’; the newly coined definition for those persons falling subject to AMLD4.
Moreover, the rules on simplified due diligence (SDD) are anticipated to be tightened, no longer catering for certain outright exemptions. Consequently, obliged entities will have to use their discretion to ascertain the existence or otherwise of lower risk customers and/or transactions which may be subject to SDD.
Changes have also been proposed with respect to the enhanced due diligence (EDD) treatment of politically exposed persons (PEPs). Under the proposed RBA, obliged entities will need to apply the same level of EDD to domestic and foreign PEPs, thereby eliminating any prior distinction between the two.
AMLD4 also proposes that in conducting risk assessments, obliged entities should consult Annexes I-III thereof, dealing with the risk variables and factors to consider in determining what CDD measures to undertake. Such chosen measures must be tailored to the level of risk attaching to the customers/transactions involved, and must be properly documented. Obliged entities should furthermore be able to substantiate such measures by appropriate and clear evidence.
Another significant reform is the obligation to establish inter-connected, central registers in each member state containing current, adequate and accurate information on the beneficial ownership of legal entities. It is proposed that such information be available to competent authorities, obliged entities and any persons who can demonstrate a legitimate interest therein, in compliance with data protection rules.
However, in exceptional circumstances which would expose beneficial owners to certain specified risk, it is anticipated that member states will be granted the possibility of allowing “an exemption to the access to all or part of the beneficial ownership information” in respect of obliged entities and persons who can demonstrate a legitimate interest therein.
Moreover, where no dominant shareholder can be identified, AMLD4 proposes that obliged entities may consider senior managing official(s) as the beneficial owner(s), provided all other means of identification are exhausted and no grounds for suspicion exist.
Also noteworthy is the proposal to reduce the threshold for traders in cash transactions of high value goods, from €15,000 to €10,000.
Additionally, tax evasion and other financial offences are set to be added to the list of predicate offences applicable across the EU. However, this will not affect the Maltese AML/CTF regime which includes “any criminal offence” (and therefore, tax crimes) as a predicate offence.
AMLD4 is to introduce the obligation of risk assessments at both EU and national level. Each member state shall be required to conduct national risk assessments to identify and make public, the money laundering/terrorist financing risk to which the jurisdiction is exposed, and thereby take appropriate action.
On a final note, AMLD4 proposes an increased range of administrative measures and sanctions applicable to all obliged entities, upon failure to meet their AML/CTF obligations.
Once the final version of the draft Directive is approved, member states will likely be granted up to two years to transpose same into local legislation. During such time, the AML policies and procedures currently adopted by obliged entities will require to be updated, while existing staff re-trained.
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This article is not intended to offer professional advice and you should not act upon the matters referred to in it without seeking specific advice. The Department regularly assists and provides training to clients on AML matters.
Sarah Grima works in the Financial Services Department of Fenech and Fenech Advocates.