25 September 2020, 10:31
25 September 2020, 10:31
Anti Money Laundering (AML) is a fundamental issue in the EU as it is the pillar of credibility in the Union, which explains why it has been highlighted as one of its main priorities until 2024.
The first steps the union took came in the form of the first Anti Money Laundering Directive (AMLD) which took precedent on the 10th of June 1991, amidst a rise in global concerns regarding the filtering of drug money through the financial system. This directive focused on traditional banks and credit, putting the focus mainly on customer due diligence and the reporting of suspicious activity.
After that came many subsequent AML Directives, each expanding on the previous until by 2018, the 5th AMLD had widened the range of financial crimes considered, the range of obligatory prevention measure required by Financial institutions (FIs), and also began to include FIs, lawyers, accountants, real estate agents and certain type of crypto providers as obliged entities.
Despite this, a series of major banking scandals erupted through the eurozone which highlighted the inadequacy of the Union’s approach to AML. This prompted a series of discussions on how to improve the AML regime culminating in the sixth (6AMLD) Anti Money Laundering Directive.
6AMLD will come into effect on the 3rd of December 2020 and must be implemented by financial institutions by no later than the 3rd of June 2021. Its main purpose is to enable financial institutions to better prevent money laundering by going back to the drawing board and re-adjusting their approach, mainly by expanding the scope of existing legislation, tightening loopholes and increasing the severity of prosecution across the bloc. It also addresses new organizational crime groups as well as the innovation criminals are using to launder money, which was on full display in the Panama Papers Scandal
It is of paramount importance the FIs operating in European markets comprehend how this new directive affects them and take the appropriate measure to make sure they are well prepared for the june 2021 deadline that necessitates compliance.
It is clearly stated in the 6th aml directive that there must be greater cooperation between member states especially since criminals have been taking advantage of a lack of uniformity in regulation across borders.
The issue of dual criminality, a crime committed in one jurisdiction before its financial proceeds are laundered to another, is also a hot topic addressed by 6AMLD. The directive introduces specific information sharing requirements between jurisdictions so that a criminal prosecution for the connected offences can take place in more than one member-state.
Member states involved in a prosecution will work together to centralize legal proceedings within a single jurisdiction.
To help increase cooperation between member states, 22 predicate offences have been defined so as to ensure that their AML regulations apply a standard terminology and clear definitions, with the main aim of removing loopholes in the domestic legislation of member states. The inclusion of tax crimes, environmental crime and cybercrime are the most notable.
Firms will need to adjust their AML programs to ensure that both their screening and monitoring solutions are updated so that they are able to detect any activity linked to the predicate offences
The directive also outlines an expectation of increased resources, personnel and training to be better able to understand the predicate offences and be better equipped to tackle them.
It is mandatory that all Financial institution be well equipped with technology that is up to standards, meaning that it must be adapted to the new predicate offences.
The new directive will also increase the scope of liability beyond individuals to also include legal persons, meaning entire corporate entities and companies may be held responsible. Punishments for legal persons may range from a temporary ban on operation to judicial supervision or even permanent closure.
Another significant change is the introduction of ‘aiding and abetting’ as an offence, to help suppress the market. Prior to 6AMLD, EU regulations only punished those who benefited directly from the laundered money, but under the new rules any ‘enablers’ will also be liable.
Although this includes family and friends, it is mostly targeted at lawyers, accountants and consultants who will know recalculate their risk when leaning towards ‘aggressive tax avoidance’.
The custodial sentences given to MLRO’s and Senior Management for breach of AML requirements have been increased from a minimum of one year to a minimum of 4 years along with an increase of the minimum fine to €5million.
The UK brought the requirements of 5AMLD into law by January 2020 but has stated that it will not be incorporating 6AMLD because it believes that UK law matches or even exceeds the new requirements.
During the implementation period, obligated firms should strive to understand the changes that will be brought on by 6AMLD, including new predicate offences that must be monitored and the new risk in which they’ll be operating. Firms will also need to reassess their technological capabilities and make sure that their transaction monitoring and screening software is well equipped to handle the new regulatory scrutiny.
The fundamental approach of every firm has to be an Enterprise Wide Risk Assessment (EWRA), to allow firms to understand the risk environment for their business. There is no one size fits all approach and adequate time must be put in to apply an assessment specific to the size, scope and nature of the business.
A well equipped Transaction Monitoring system must be in place to ensure that it can cover all 22 predicate offences and also be able to adapt to any changes in regulatory requirements.
At DX compliance we provide top tier Transaction Monitoring systems which will help you glide through the 6AMLD phase.
We provide an in depth risk analysis for you to be able to equip you with a custom made transaction monitoring tailor-made to suite your needs.
By using DX you’ll never have to worry about regulatory changes again.
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