After almost a year of protracted discussion, the European Parliament and the EU Council have finally reached an agreement regarding the 4th Anti-Money Laundering Directive. In response to the evolution of practices relating to money laundering and financing terrorism, regulatory changes have been called for to update the outmoded legislation.
The directive is the legal embodiment of recommendations from the Financial Action Task Force, an international body that sets anti-money laundering standards. While the new directive enhances a number of measures, there is specific focus towards the recording of beneficial owners.
All member states of the EU will be required to collate and maintain information relating to the “Ultimate Beneficial Owners (UBO)” of companies. The threshold for beneficial ownership will remain the same and is deemed to be anyone with a 25% or greater stake in a company. Published on the 26th June, all European member states will need to incorporate the directive into their national laws within two years (26th June 2017)
The information – collected in a central register – will be accessible by authorities and to anyone who shows a legitimate interest in money laundering, financing terrorism, corruption and fraud. This could include financial institutions undertaking due diligence, law enforcement agencies and potentially investigative journalists.
These central registers will make it easier for regulators and prosecutors to identify any potential wrongdoing and to identify those businesses that are either intentionally or unknowingly caught up in illegal activity. Specific financial services firms will have access to a wider range of information in order to conduct customer due diligence
Money laundering continues to be a major concern for governments and the new directive will not only provide transparency to by ensuring all business owners are listed, but will ensure that resources are targeted towards the areas that are most at risk.
The new regime will also bring into force new customer due diligence checking requirements, together with obligations to report suspicious transactions and maintain records of payments. Large organisation’s will also be required to provide information on profits or losses before tax, taxes on profits or losses and public subsidies received.
While the directive seeks to update legislation relating to European anti-money laundering (AML) and counter terrorism financing (CTF), there are a number of areas that seek to strengthen international co-operation, harmonising the approach to AML compliance across Europe.
The primary modifications to the directive relate to the areas of:
- Risk Based Approach
- Ongoing Monitoring
- Beneficial Ownership
- Customer Due Diligence (CDD)
- Politically Exposed Persons (PEPs)
- Third Party Equivalence
- Policies & Procedures – Data Protection
The new regulations have raised questions around the wider availability of information including an individual’s name, month and year of birth, nationality, residency and details on ownership. While it’s imperative to protect against fraud and terrorism, it’s hoped that a balance can be found between the obvious risks and a persons right to privacy.
The most severe financial penalties for non-compliance with the new directive will be fines of up to at least €5 million, or 10% of a business’ annual turnover.
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