The European Commission is to publish a legislative proposal with
amendments to the 4th AMLD by the second quarter of 2016
The EU's Fourth Anti-Money Laundering Directive was adopted on 20 May 2015. Its main goal is to prevent the EU financial system from being used for money laundering and terrorist financing purposes.
Background to the proposals
Notwithstanding the UK's negotiations with Europe, the Fourth Anti-Money Laundering Directive (EU) (2015/849) (MLD4) will repeal and replace the Third Money Laundering Directive (2005/60/EC) (MLD3) and the MLD3 implementing Directive (2006/70/EC).
Member States are required to bring into force the laws, regulations and administrative provisions necessary to comply with MLD4 by 26 June 2017. Though, the Commission has called on Member States to bring forward the date for effective transition and entry into application of MLD4 to the fourth quarter of 2016 at the latest.
The central tenet of MLD41 is that Member States must ensure that money laundering and terrorist financing are prohibited.
What does MLD4 cover?
- customer due diligence (CDD), including provisions on simplified due diligence and enhanced due diligence;
- beneficial ownership information relating to corporate and other legal entities, and trusts, including provisions on central registers;
- reporting obligations, including provisions on financial intelligence units (FIUs), suspicious transaction reports and prohibitions on disclosure;
1 Under Article 1(2)
Some key changes
- The Commission calls on Member States to bring forward the transposition of MLD4 by at least 6 months, bringing its entry into force at the end of 2016 at the latest.
- The Commission proposes to include detailed provisions which define the concrete enhanced due diligence (EDD) measures which should be applied to dealings with 'high risk third countries'.
- They also propose bringing anonymous virtual currency exchange platforms (such as bitcoin exchanges) under the control of competent authorities by extending the scope of MLD4 and applying the licensing and supervision rules of the Payment Services Directive to these platforms.
- data protection, record keeping and statistical data; and
- policies, procedures and supervision, including provisions on training, co-operation and administrative sanctions and measures.
Who does MLD4 apply to?
· Financial services institutions
- Auditors, external accountants and tax advisers
- Notaries and other independent legal professionals (when they participate in any financial or real estate transaction, or assist in the planning or carrying out of certain specified transactions)
· Trust or company service providers
- Estate agents
- Other persons trading in goods (to the extent that payments are made or received in cash in an amount of €10,000 or more)
· Providers of gambling services
Why the need for last minute changes?
After the recent terrorist attacks in Paris, the EU institutions and national Governments decided to take further urgent action. Their Action Plan COM(2016) 50/2 (Action Plan)2 has two main objectives:
- prevent the movement of funds and identify and trace terrorist funding; and
- disrupt sources of revenue for terrorist organisations.
The Action Plan
High risk third countries
The Commission will amend MLD4 to include a list of all compulsory checks (due diligence measures) that financial institutions should carry out on financial flows from countries having strategic deficiencies in their national anti-money laundering and terrorist financing regimes. The exact nature of these measures are not currently explicitly defined in the legal text and the Commission claims that applying the same measures in all Member States will avoid having loopholes in Europe, where terrorists could run operations through countries with lower levels of protection.
By 2nd Quarter 2016:
Details of proposed MLD 4 amendments (as discussed in the Action Plan) to be finalised
High risk third country blacklist to be confirmed
Scope of new legislative instrument which will allow Member State authorities to consult bank and payment account registers will be explored
By 4th Quarter 2016: Aiming to have MLD4
effectively transposed in Member States
Legislative proposal harmonising money laundering criminal offences and sanctions to be published
An assessment for an EU regime for the freezing of assets of terrorists under Article 75 TFEU to be concluded
Legislative proposal against illicit cash movements to be published
Centralised national bank and payment account registers or central data retrieval systems in all Member States
Currently, not all Member States have centralised registers at national level, which provide all national bank and payment accounts listed to one person, and they are not bound under EU legislation to do so.
The Commission will therefore propose to establish centralised bank and payment account registers or electronic data retrieval systems by amending MLD4, which would provide Financial Intelligence Units (FIUs) and other competent authorities with access to information on bank and payment accounts.
FIUs are public authorities that exist in every Member State. They gather and analyse information about any suspicious transactions spotted by banks or any relevant information when it comes to money laundering or terrorism financing. If their analysis of a file shows enough evidence for criminal prosecution, they transmit the file to law enforcement authorities for further action.
The Commission will also explore the possibility of a distinct self-standing legal instrument to broaden the access to such centralised bank and payment account registers. In particular, such an instrument would allow the consultation of these registers for other investigations (e.g. law enforcement investigations, including asset recovery and tax offences) and by other authorities (e.g. tax authorities, asset recovery offices, other law enforcement services and anti-corruption authorities).
Terrorist financing risks linked to virtual currencies
To prevent their abuse for money laundering and terrorist financing purposes, the Commission proposes to bring virtual currency exchange platforms into the scope of MLD4, so that these platforms have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges.
Risks linked to anonymous pre-paid instruments (e.g. pre-paid cards)
Pre-paid cards have been used by terrorists to finance the logistics of terrorist attacks anonymously. The Commission proposes to lower thresholds for identification and widen customer verification requirements.
Cards sold by supermarkets, tobacconists or newsagents, often need to be
activated online before they can be used. The Commission is currently
Legislative proposal reinforcing customs' powers and cooperation and addressing terrorism financing related to trade in goods to be published
Legislative proposal against illicit trade in cultural goods to be published
Assessment to be published on money laundering and terrorism financing risks and recommendations to Member States on measures to address those risks
examining ways to ensure that customer due diligence is carried out by the time the card is activated. Due account will be taken of proportionality, in particular with regard to the use of these cards by financially vulnerable citizens.
Enhance the powers and cooperation of EU FIU's
This entails the further alignment of rules for such FIUs to the latest international standards and provides the FIUs with swift access to information on the holders of bank and payment accounts through centralised registers or electronic data retrieval systems at national level. As a second step, obstacles to the access, exchange and use of information must be identified and tackled. The Commission is conducting a mapping exercise and the results should be available from the end of 2016.
Tackling illicit cash movements
According to rules which came into force in 2007, under the Cash Controls Regulation3, natural persons carrying cash of a value of €10,000 or more have to declare this to customs upon entering or leaving the EU.
The Commission wants to improve the situation in four main areas including:
- allowing authorities to act on suspicious cash sent in post and freight shipments which are currently only covered by the standard customs declaration which does not provide the requisite level of detail regarding the origin and intended use of the cash;
- improving the exchange of information on cash declarations and infractions (failure to declare or incorrect declarations) between authorities;
- considering to extend the definition of cash to include precious metals; and
- allowing authorities to temporarily detain amounts below the threshold when there are clear suspicions about the origins of the cash being carried.
A Commission proposal to amend the Cash Controls Regulation is planned by the end of 2016.
Tracking and freezing terrorist assets
There are several UN regimes in place to freeze the assets of persons with links to terrorism. Within the EU such freezing measures are currently implemented under the Common Foreign and Security Policy and Article 215 Treaty on the Functioning of the European Union (TFEU). The TFEU also provides in Article 75, under certain conditions, for the possibility to take administrative measures to achieve the objectives of Article 67 TFEU as regards the preventing and combating of terrorism. These measures would put in place common standards on the assets to be frozen, identify which actors are to be involved and which remedies and safeguards apply.
As part of the assessment of a possible EU regime for the freezing of assets of terrorists under Article 75 TFEU, the Commission is also currently exploring measures of mutual recognition of national freezing decisions (e.g. by way of a European Asset Freezing Order).
The Commission will seek to ensure that criminals who fund terrorism are deprived of their assets. In order to disrupt organised crime activities that finance terrorism, it is essential to deprive those criminals of the proceeds of crime. Beyond being a sanction, confiscation of criminal assets is also a preventative tool. To this end, the Commission wishes to ensure that all types of freezing and confiscation orders in the area of serious crime available within Member States are enforced to the maximum extent possible throughout the EU.
Targeting the sources of funding
Although the existing framework to combat terrorism financing – as set out in UN Security Council Resolutions and reflected in the proposal for a Directive on combatting terrorism - includes a prohibition to make any economic or financial resource available to the listed individuals and
- Regulation (EC) No 1889/2005 on controls of cash entering or leaving the Community
entities, one shortcoming today is that existing EU instruments are not adequate for customs authorities themselves to intervene effectively.
The Commission will consider an explicit legal basis to allow for provisional detention of goods and for the necessary investigations to be undertaken, notably by FIUs.
For example cultural goods illicitly removed from Iraq and Syria can be a significant source of terrorist income. Where this income relies on proceeds from European markets, identifying and cutting off the trade could have a real impact on an important source of funding of terrorist activities.
Currently, two Regulations impose trade restrictions on cultural goods illicitly removed from Iraq and Syria4, and provide a legal basis for import controls. However, their effectiveness is limited. The burden of proof required for customs to establish the origin of such goods is high. The
Commission will consider a wider response to overcome some of these problems. Options that will be considered involve the introduction of a certification system for the import of cultural goods into the EU coupled with guidance to stakeholders such as museums and the art market.
If you have any further questions on the Commission's Action Plan and what it might mean for you, please do not hesitate to contact us.
- Council Regulation (EU) NO 36/2012 concerning restrictive measures in view of the situation in Syria and Council Regulation (EU) No 1210/2003 concerning specific restrictions on economic and financial relations with Iraq
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