Key elements of the 4th EU Anti-Money Laundering Directive
September 2015 | PROFESSIONAL INSIGHT | BANKING & FINANCE
Financier Worldwide Magazine
On 26 June 2015, the 4th Anti-Money Laundering Directive (EU) No. 2015/849 (4th AMLD) entered into force. EU Member States have to implement the 4th AMLD by 26 June 2017 into national law.
The 4th AMLD recasts the existing 3rd Anti-Money Laundering Directive (Directive 2005/60/EU) and the corresponding Implementing Directive (Commission Directive 2006/70/EC). It takes into account the 40 new recommendations adopted by the Financial Action Task Force (FATF) on 16 February 2012 which the EU Member States have committed to.
Key elements with a potential impact on AML compliance
Under the 4th AMLD, a key role is accorded to the principle of risk analysis and the corresponding adequate safeguards. Both the EU Commission and jointly the European supervisory authorities EBA, EIOPA and ESMA (ESAs) shall conduct an analysis of money laundering and terrorism financing risks. The EU Commission is instructed to send its findings and its recommendations based on this analysis to the Member States and the obliged entities under the Directive so that the Member States can better understand and counteract such risks more effectively. The Members States and the obliged entities under the Directive (the latter with respect to their specific situation) also have to analyse these risks. The obliged entities will have to establish which specific simplified or enhanced measures are to be taken to reduce or prevent the identified risks. Further, the ESAs will promulgate guidelines for the Member States and the obliged entities with respect to the required analysis and measures.
In addition, the 4th AMLD will also provide for an extension of the scope of anti-money laundering legislation requirements: for example, by reducing the threshold for cash transactions above which persons trading in goods qualify as ‘obliged entities’ and in particular in which an obligation to identify the customer is triggered. This threshold will be reduced from €15,000 to €10,000.
The 4th AMLD also extends its applicability to providers of gambling services which are now listed as ‘obliged entities’. The Member States can, however, remove these providers – with the exception of casinos – partially or completely from the list of obliged entities if a low money laundering risk is evidenced.
The scope of the 4th AMLD is also extended by including as obliged entities not only real estate agents involved in the purchase or sale of real estate properties, but also those agents involved in the letting of real estate properties.
As regards beneficial ownership, the EU Member States are obliged under the 4th AMLD to create central registers containing information on the beneficial ownership of corporations, including Anglo-American trust structures. Whilst obliged entities pursuant to current legislation may rely on the statements of corporations and the information provided by them when taking customer due diligence measures, a central register will considerably increase the quality of the available data used to identify the contractual party of the beneficial owner and therefore also meet the demand of the FATF for a higher level of transparency with respect to beneficial ownership.
The 4th AMLD provides that the competent national authorities (such as the Financial Intelligence Units) and obliged entities have to have access to the central register under the national anti-money laundering legislation for exercising their customer due diligence. Persons and organisations capable of evidencing a ‘legitimate interest’ in this information (e.g., an interest relating to money laundering) must get access to the central register except for information regarding trust structures. The Member States, however, are entitled to restrict this access to information regarding beneficial owners completely or partially in exceptional cases.
The 4th AMLD no longer differentiates between politically exposed persons (PEPs) resident in the same country as the obliged entity and in other countries. Further, special obligations apply with respect to PEPs classified as beneficial owner. Furthermore, the 4th AMLD expands the category of PEPs to include members of the governing bodies of political parties, which will result in the necessity to update existing PEP lists.
Whilst already under the current European legislation, banks and certain other companies in the finance sector are obliged to establish group-wide compliance systems, including due diligence requirements relating to money laundering, this obligation will in future also apply to other obliged entities under the Directive. Such obligation will, after the mandatory transposition into national law, also apply to branches and majority owned subsidiaries in foreign countries, which can ultimately lead to the consequence that a company has to discontinue its business operations in another country if money laundering and terrorism financing risks cannot be effectively combated in such foreign countries.
As regards sanctions, the 4th AMLD is following an approach pursued in recent European legislation of requiring specific and far-reaching powers of the Member States to be exercised in case of non-compliance with the requirements of the Directive. For instance, the Member States must ensure in the event of serious, repetitive or systematic failings of the obliged entities to meet certain key requirements of the 4th AMLD that the permissible sanctions include maximum administrative pecuniary sanctions of at least twice the amount of the benefit derived from the breach where that benefit can be determined or at least €1m. In the case of banks and financial services providers, the maximum administrative fine amounts to no less than €5m or 10 percent of the total annual turnover according to the latest available accounts approved by the management body.
The approach of ‘naming and shaming’, which can likewise be observed more frequently in recent European legislation, is also being pursued. That means that the competent authorities shall publish the decisions based on breaches of the requirements laid down by the 4th AMLD, unless overriding reasons require an anonymous publication.
With the 4th AMLD, the EU is, among other things, implementing the stricter requirements of the FATF and intensifying its efforts to effectively combat money laundering and terrorism financing. Both the objective and the path being pursued to achieve it deserve approval, even if one could question whether certain details have been dealt with in the optimal manner.
It is already clear that continued attention has to be paid to the regulations on the prevention of money laundering and terrorism financing. This is partly due to the fact that the 4th AMLD lays down (as in the past) only a minimum standard and it cannot be ruled out that national legislators will use their discretion to impose stricter standards. Attention is, however, also necessary because not only has the EU Commission been instructed to carry out a risk assessment, the ESAs are assuming an important role as they have been requested to draw up guidelines for the national supervisory authorities and obliged entities addressing the scenario of simplified and enhanced customer due diligence, i.e., the requirements regarding the relevant risk factors and the measures to be taken in such situations. It is therefore apparent that although the 4th AMLD will not achieve full harmonisation, the European requirements will gain increasing importance. This is also to be welcomed since it is expected to result in an increased harmonisation of the relevant legislation within the EU.
Jens H. Kunz is a partner and Matthias Schirmer is a senior associate at Noerr LLP. Mr Kunz can be contacted on +49 69 97 14 77 252 or by email: firstname.lastname@example.org. Mr Schirmer can be contacted on +49 69 97 14 77 252 or by email: email@example.com.
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Jens H. Kunz and Matthias Schirmer