As politicians and the media focus on the potential consequences of the outcome of the UK’s EU Referendum, there is some hint of business-as-usual as the European Commission continues its reform of the anti-money laundering regime with proposals to amend the Fourth Anti-Money Laundering Directive.
Whilst the deadline to implement this Directive is not until 26 June 2017, there have been calls for national governments to bring this deadline forward to the end of 2016 at the latest. (See our related blog). In addition, on 5 July 2016, the European Commission proposed amendments to the Fourth Directive, with the aim of further reinforcing rules introduced to counter terrorist financing and increase transparency. The Commission has encouraged Ministers to implement the proposed amendments to the Directive at the same time, though this timetable is ambitious given that both national governments and the European Parliament will need to reach agreement on the proposals.
So what is being proposed?
Enhancing powers of Financial Intelligence Units
Financial intelligence units (FIUs) are public authorities in Member States that collect and analyse information about suspicious transactions, money laundering or terrorism financing. The UK FIU is part of the National Crime Agency. To assist FIUs it is proposed that centralised bank and payment account registers should be introduced at national level identifying all bank accounts belonging to one person and that access to available information will be enhanced. The Commission will look into the possibility of broadening the access to these registers for other purposes.
These changes are likely to raise privacy and data protection concerns, as it seems that the changes may impact ordinary banking customers as much as those involved in terrorist financing.
High Risk Third Countries
High risk third countries are considered to have strategic deficiencies in their regimes on anti-money laundering and counter terrorist financing. The Directive gives the Commission authority for identifying such countries, with the aim of enhancing vigilance, rather than imposing any sanctions or terminating business relationships.
The Directive already requires banks and financial institutions to apply enhanced due diligence measures when doing business with entities in high risk third countries. However, the measures are implemented differently across Member States, which apparently leads to forum shopping. Enhanced measures drawn up by the Financial Action Task Force are proposed – including a list of such countries – and this will be adopted at EU level on 14 July.
Bringing virtual currencies within scope
It is proposed that virtual currency operators and custodian wallet providers should be covered by the AML regime, so that they are bound by the requirements to verify customers’ identities and monitor financial transactions. This is something the Crown Prosecution Services has called for back at home. In a recent Home Affairs Committee inquiry into the proceeds of crime, the CPS stated that: “a power for law enforcement to seize, hold and sell virtual currency is required if we are to keep abreast of changes in the manner sophisticated criminals operate.”
The Commission has proposed minimising the use of anonymous pre-paid cards by lowering the thresholds for identification from €250 to €150 and making anonymous use impossible online. Cards issued by non-EU countries would only be capable of use in the EU if they comply with requirements equivalent to those set out in EU legislation.
Transparency of beneficial ownership
The Commission has said that the Panama Papers have highlighted the need for further measures relating to the beneficial ownership of companies, trusts and other corporate vehicles.
- It is proposed that the public will have access to certain beneficial ownership information regarding companies and trusts that engage in economic activities, with a view to making a profit. Information about other trusts will only be granted to those who can demonstrate a legitimate interest.
- The threshold for identifying beneficial owners of corporate entities is to be reduced from a shareholding of 25% plus one share, or an ownership interest of more than 25%, to 10% in respect of certain limited types of entities, which present a risk of being used for money laundering or tax evasion.
- Systematic monitoring of existing customers is proposed, so that beneficial ownership can be identified for existing as well as new customers.
- Member States will have responsibility for implementing measures in relation to trusts administered in their Member State.
- It is proposed to remove the requirement for a trust to generate tax consequences in order to be included in a central register.
- The Commission proposes setting up direct connections between national beneficial ownership registers. It is said that the authorities and public will have access to EU wide beneficial ownership information.
Transparency around beneficial ownership was one of the key debates at the Anti-Corruption Summit in London earlier this year. Indeed, under changes brought into the UK on 6 April 2016, companies and LLPs subject to the Small Business, Enterprise and Employment Act 2015 are now required to create and maintain a register of people with significant control (“PSC”). (See our related blog). Companies delivering Confirmation Statements from 30th June will also be required to file their PSC Register with Companies House. (See our related blog.)
Given that many of the measures under the AML regime focus on co-operation and information sharing, it will be interesting to see what provisions will be put in place to replace the existing ones under the EU regime.
Lynne Owens, Director of the National Crime Agency has confirmed that ““The NCA works with partners in over 150 countries because organised crime is not constrained by geographical or jurisdictional boundaries. To tackle it effectively we must be able to cooperate closely and share intelligence in an agile way. If it cannot be met through EU mechanisms we will find others.”
Given that anti-money laundering is of global concern it is highly likely that the UK would continue to play a central role in tackling it.