The European Union’s Fourth Anti-Money Laundering Directive (4MLD) came into force on 26 June 2015. It requires European member states to update their respective money laundering laws and transpose the new requirements into local law by 26 June 2017.
Officials from HM Treasury have indicated that the UK legislation will likely be passed just in time for the deadline. The two laws that require an update are the Money Laundering Regulations and the Proceeds of Crime Act 2002. This means there will be no effect on the implementation of the 4MLD following Brexit.
The directive includes some fundamental changes to the anti-money laundering procedures at law firms, including changes to customer due diligence (CDD), a central register for beneficial owners and a focus on risk assessments. However, with proper preparation and training, the transition to the new regime should be seamless for most firms.
Simplified CDD will no longer be applicable in most circumstances. All transactions/clients require a degree of risk assessment to demonstrate that it presents a lower degree of risk and requires sufficient ongoing monitoring. There will essentially be no blanket exemption from CDD. 4MLD will update the current list of circumstances where simplified customer due diligence would most likely apply and will remove financial institutions which are themselves subject to AML/CTF regulation, listed companies and domestic public authorities from the categories of clients to be regarded as posing a lower risk. Such institutions will need to assess and make a decision as to who is of lower risk taking industry guidance into account. Before applying the simplified measures, they must consult the lower risk situations set out in Annex II of the Directive.
Transactions and relationships where enhanced due diligence (higher risk) will be required include those involving asset holding vehicles and cash-intensive businesses, those where unusual or apparently unnecessarily complex ownership structures are in place and those associated with “higher risk” jurisdictions. They must consult the factors listed in Annex III of the Directive which include higher risk factors.
Member States shall ensure that corporate and other legal entities incorporated within their territory are required to obtain and hold adequate, accurate and current information on their beneficial ownership, including the details of the beneficial interests held. Such information should be held on a central register accessible to competent authorities. The scope of the Directive is broad in that the requirements apply to trusts and other legal entities rather than just companies.
The definition of PEPs has been widened to include domestic individuals occupying prominent public positions, in addition to those from abroad and EDD will always apply.
4MLD includes tax crimes as a predicate offence for money laundering for the first time in the EU. Tax crimes have long been predicate offences in the UK, though this is not the case in many other jurisdictions.
Traders in high value goods must undertake customer due diligence when dealing with cash transactions of EUR 10,000 or more (decrease from EUR15, 000).
The requirement for certain entities to carry out CDD has increased (e.g. from just casinos across the entire gambling sector and for high value goods traders). Obligation for providers of gambling services posing higher risks to apply customer due diligence measures for single transactions amounting to EUR 2,000 or more.
Member states are required to carry out a national risk assessment of its exposure to money laundering and terrorist financing. Risk assessments must be documented, kept up to date and made available to the competent authorities and to each other member state.