Tighter legal framework on money laundering- The Fourth EU Anti Money Laundering Directive

Author: Multilysis Services Limited
Date: 2017-05-31

In an effort to combat money laundering and the financing of terrorists’ activities and to increase transparency, the European Commission issued the 4th AML Directive in May 2015 and repealed the previous one. The Directive should be fully implemented by all EU Members States by 26.06.2017.


The core of the new legislation is the verification of the identity of the beneficial owners. With regard to legal persons, the definition of the beneficial owner shall consist of natural persons who have the ultimate ownership and control of the entity.   


The Directive provides for

 

  1. increased transparency through the creation of beneficial owners’ national central registers
  2. expanded definition of politically exposed persons (PEPs) and
  3. enhanced risk – based approach requiring evidence-based measures.  


The Directive is applicable to all “obliged entities” and these include the following: 1. credit institutions, 2. financial institutions, 3. auditors and accountants, 4. notaries and independent legal professionals, 5. Trusts, 6. estate agents etc.


The legal framework tightens control of PEPs, their relatives, and personals known to be close associates to these PEPs, as the Directive broadens the “PEP” definition.  Important public figures are inter alia heads of states, heads of government, ministers, members of parliament, members of the governing bodies of political parties, members of supreme courts, board members of central banks, ambassadors, mayors, etc.  There is a distinction between domestic and foreign PEPs.   When a person stops being a PEP, obliged entities should for the subsequent 12 months continue considering that the same level of risk is created (enhanced due diligence should be carried out).


The Directive highlights that obliged entities must apply enhanced due diligence measures for PEP clients, transactions or business relationships with politically exposed persons.   Furthermore, the Directive sets out a framework for minimum penalties regarding breaches in the areas of due diligence, suspicious transactions recording, book-keeping and other controls.  


The Directive sets out an indicative list of factors and types of evidence as to the existence of potentially higher risk:

 

  • The business relationship is conducted in unusual circumstances
  • Customers that are residents in geographical areas of higher risk
  • Legal persons or arrangements that are personal asset-holding vehicles
  • Companies that have nominee shareholders or shares in bearer form
  • Businesses that are cash intensive
  • The ownership structure of the company appears unusual or excessively complex given the nature of the company’s business
For more information on Tighter legal framework on money laundering- The Fourth EU Anti Money Laundering Directive.

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