Europe’s upcoming Fourth AML/CFT Directive I - …

1 R E G U LATORY I N ITIATIVE S. Europe's upcoming Fourth AML/CFT Directive I n February 2013, the European Commission adopted two proposals: the Fourth AML Directive and a complementary regulation on what information must accompany fund trans- By discussing the key changes compared with former and international legislation, and outlining the standards and the chal- lenges ahead in the final rounds of discus- sion, the reader will gain an insight into Its scope also encompasses all providers of goods, when payments are made in cash in excess of 15,000 euros.

2 All these addressees are considered obliged enti- ties.' The Directive requires these obliged fers to ensure traceability. The European the challenges facing financial institutions entities to identify and verify the identity Parliament's and European Council's and corporations in meeting the require- of customers (through customer due dili- so-called draft Directive on the preven- ments of the Fourth EU AML Directive . gence [CDD]) and beneficial owners, and to monitor the financial transactions of the tion of the use of the financial system for From the Third EU to the customers.

3 It then includes obligations to the purpose of money laundering and Fourth AML Directive report suspicions of money laundering or terrorist financing (the Fourth EU AML. terrorist financing to the relevant financial Directive ) entered into the final rounds The Third AML Directive currently in intelligence units (FIUs), as well as other of consultation in the autumn of 2014 force, applies to the financial sector accompanying obligations. The Directive and is due to be passed by the end of the (credit institutions, financial institutions) also introduces additional requirements year.

4 It should then be implemented into as well as to professionals such as lawyers, and safeguards (such as the requirement national legislation of the EU member notaries, accountants, real estate agents, to conduct customer enhanced due dili- states by casinos and company service providers. gence [EDD]) for situations of higher risk. 1. See proposal here: :2013:0045:FIN:EN:PDF. 56 ACAMS TODAY | DECEMBER 2014 FEBRUARY 2015 | | R E G U LATORY I N ITIATIVE S. The European Parliament is striving for greater The proposed Directive extends the scope of the current framework and The threshold to trigger AML proce- dures from cash payments has been transparency, whereas the aims at strengthening obligations in the following areas: lowered from 15,000 to 7,500 euros.

5 Lawmakers said offenders were taking Commission is aiming for a Currently financial professionals can advantage of the 15,000 euros threshold. Member states would be allowed to set more flexible compromise take advantage of simplified due dili- gence rules for transactions originating thresholds even lower;. from areas on the member states' list Cooperation between national FIUs, of equivalent third countries. The which analyze and disseminate informa- proposal favors a more risk-based tion about suspected money laundering approach, with enhanced efforts or terrorist financing strengthened.

6 Targeted at higher risk sectors, with Following months of discussions, the regard to CDD; Administrative sanctioning powers of European Council took a softer approach the national authorities reinforced and Rules on beneficial ownership identi- finally agreeing on its own general cooperation between national authori- fication and record keeping require- approach' in June 2014. The Council is ties on cross-border cases required. ments regarding ultimate beneficial not in favor of creating public registries, ownership; The proposed regulation replaces or even non-public ones.

7 Instead, the Regulation (EC) No 1781/2006 on infor- Council is calling for beneficial owner- Definition of politically exposed mation on the payer accompanying trans- ship information to be held in a specified persons (PEPs) expanded to include fers of funds (hereinafter also referred location,' as is currently the case in most domestic as well as foreign PEPs, and to as the Funds Transfers Regulation), EU countries. Incorporation agents, for those within international organiza- which has the aim to improve trace- example, are often required to collect tions.

8 The rule would apply to heads ability of payments. The Funds Transfers beneficial ownership data and make it of state, government and parliament Regulation complements the other AML available to law enforcement and tax members, members of the judiciary and measures by ensuring that basic informa- authorities upon request. directors of state-owned enterprises, tion on the payer of transfers of funds is among others such as close family The Commission's proposal, which was immediately available to law enforcement members; published in June 2014, involves an and/or prosecutorial authorities to assist Tax crimes also are added to the them in detecting, investigating, prose- even more flexible approach regarding list of predicate offenses for money cuting terrorists or other criminals and the storage of information on beneficial laundering.

9 Tracing the assets of terrorists. ownership. Its approach would require unrestricted access for competent author- Scope of rules extended to the entire Striving for a compromise ities, FIUs and, if allowed by the member gambling sector rather than just Parliament, Council and state, the obliged entity ( , the bank). casinos;. Commission It, however, allows flexibility for member The European Parliament is striving states in establishing the means for for greater transparency, whereas the ensuring this, whilst providing indicative Commission is aiming for a more flexible examples of the form that a storage mech- compromise.

10 Anism can take. The Parliament's preferred outcome Beyond this, the Commission calls for The Council is would be a public central register in each EU country, which would list informa- the following points to be amended in the original draft: calling for beneficial tion on the ultimate beneficial owners of a wide range of legal entities, including Extension of the Directive 's scope, introducing requirements for a greater ownership information companies, foundations, holdings and trusts. The parliament proposes that number of traders ( , reducing from 15,000 to 10,000 euros the cash payment the registers should be interconnected to be held in a across the EU and be publicly available following prior identification of the person threshold for the inclusion of traders in goods, and also including providers of certain gambling services).