Topic: Money Laundering Directives - MLD 4/5/6
Summary
On 25 June 2015, Directive 2015/849/EU (Fourth EU Money Laundering Directive or MLD4) was enacted replacing the previous Third Money Laundering Directive (MLD3). The Directive is designed to bring a more robust risk-based approach to the prevention of money laundering and terrorist financing across all Member States. The Directive provided a two-year window for implementation meaning that all EU member states must be compliant with the Directive by 26 June 2017. The Directive is accompanied by Regulation 2015/847/EU (Fund Transfer Regulation or FTR), which updates rules on information accompanying transfers of funds and amends and replace Regulation (EC) 1781/2006 from the same date.
Both take into account the 2012 recommendations from Financial Action Task Force (FATF) to promote the highest standards for AML and counter terrorism financing.
The MLD4 is more prescriptive in many areas such as its Enhanced Due Diligence requirements (EDD) regarding the on-going monitoring of customers, and more stringent as regards Simplified Due Diligence (SDD) requirements with financial institutions needing to determine and evidence the rationale behind the risk rating applied to each customer. In summary, the key changes are:
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Extended scope
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Enhanced risk-based approach, requiring evidence-based measures
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Emphasis on ultimate beneficial ownership
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Enhanced and simplified due diligence
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Expanded definition of a politically exposed person (PEP)
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Cash payment threshold lowered to €10,000
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Tax crimes
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Third country equivalence regime
Many of the provisions of MLD4 were already met by the existing regime and as such will have minor impact. In June 2017 the Information about People with Significant Control (Amendment) Regulations 2017 and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (2017 Regulations) were published which transpose the MLD4 into UK law. These Regulations replace the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 with updated provisions that implement in part MLD4 and the Funds Transfer Regulation (FTR) 2015/847/EU. The 2017 Regulations also provide the powers to supervise, enforce and investigate breaches of the FTR, as well as related regulations such as setting thresholds for customer due diligence and increased data retention periods to assist with law enforcement investigations.
The MLD4 builds upon the framework established under MLD3, a number of provisions and national discretions have already been transposed into Irish law. In January 2016, the Department of Finance and the Department of Justice and Equality launched a public consultation in relation to member state discretions contained in the both MLD4 and the FTR. In November 2016 the European Union (Anti-Money Laundering: Beneficial Ownership of Corporate Entities) Regulations 2016 were published which require corporate or other legal entities incorporated in the State to obtain and hold adequate, accurate and current information in respect of its beneficial owners. In November 2018 the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Act 2018 was published which transposes the remaining provisions of MLD4 into national law, and to give effect to the recommendations of the Financial Action Task Force. The Act is awaiting commencement.
Fifth Money Laundering Directive (MLD5)
Following the terrorist attacks in Paris and the leaking of the Panama papers, the European Commission came under pressure to amend the adopted text of MLD4. On 5 July 2016 the Commission adopted a proposal to further reinforce EU rules on anti-money laundering to counter terrorist financing and increase transparency of financial transactions and of corporate entities. On 19 June 2018, Directive 2018/843/EU (MLD5) was published in the Official Journal of the EU. The Directive which amends the MLD4, intends to complement the existing preventive legal framework in place in the Union.
Key points of the Directive are:
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Increased scope - designate virtual currency exchange platforms (and wallet providers) as obliged entities, requiring customer due diligence to be conducted;
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Strengthen transparency measures applicable to prepaid instruments - lowering thresholds for identification from €250 to €150 and widening customer verification requirements;
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Remote payment identification - requirement to identify customers for remote payment transactions exceeding 50 euros and
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Third country issued anonymous cards - MLD5 imposes potentially onerous obligations on card schemes to prevent the use of anonymous pre-paid cards issued in third countries;
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New powers to Financial Intelligence Units (FIUs) - facilitate their cooperation by further aligning the rules for such Units with the latest international standards
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FIUs and competent authorities to easily identify holders of bank and payment accounts - Member States to set up centralised registers or electronic data retrieval systems so as to swiftly identify holders of bank and payment accounts
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Harmonise EU approach towards high-risk third countries - Apply enhanced and harmonised due diligence measures towards high-risk third countries
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Improved transparency of information on beneficial ownership - including public access to such information for companies,or trusts engaged in commercial or business-like activities and access to such information on a legitimate-interest basis for family or charitable trusts. Will also include interconnection of Centralised Beneficial Ownership Registers allowing competent authorities, FIUs and obliged entities to identify the beneficial owners in an easy and efficient way
Member States now have until 10 January 2020 to implement the Directive including setting up the central registers of beneficial ownership for corporates and until 10 March 2020 to set up the central registers of beneficial ownership for trusts. Member States have until 10 September 2020 to set up the centralised automated mechanisms to allow timely identification of those who hold or control payment accounts and bank accounts.
Sixth Money Laundering Directive (MLD6)
On November 12, a further legislative package was published in the Official Journal of the EU. Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law (MLD6) and Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005. The two instruments complement the existing anti-money laundering framework by strengthening the preventive framework to combat money laundering and terrorist financing. Member States will be required to transpose MLD6 by 3 December 2020, while the regulation will apply to Member States from 3 June 2021 onwards.