The Fourth Money Laundering Directive (4MLD) was adopted on 20 May 2015 in order to improve the effectiveness of the European Union's (EU) efforts to combat the laundering of money from criminal activities and to counter the financing of terrorist activities. On 5 July 2016, the European Commission (EC) published its legislative proposal to amend the 4MLD on the basis of Articles 114 and 50 of the Treaty on the Functioning of the EU. The proposal comes as a response to the terror attacks in Europe and the leak of the Panama Papers.
The EC proposals have a twofold aim: to strengthen oversight over the financial instruments used by terrorists such as cash, trade in cultural artefacts, virtual currencies and anonymous pre-paid cards; and to prevent the large-scale concealment of funds in offshore jurisdictions and enhance corporate transparency. The proposals are consistent with global developments, such as the United Nations Security Council Resolutions 2199 (2015) and 2253 (2015), and the G20 statement of 18 April 2016, which both call for further action against money laundering (ML) and terrorist financing (TF).
The key amendments proposed by the EC are listed below:
1. Inclusion of virtual currency exchange platforms within the scope of the 4MLD as obliged entities
The EC proposes an amendment of article 2 of the 4MLD, which defines the obliged entities that fall within the scope of the Directive. The EC proposes the inclusion of virtual currency exchange platforms and custodian wallet providers. It also provides a definition of the term "virtual currency". Despite the risks attached, virtual currency transfers are not currently monitored by public authorities within the EU.
2. Reduction of the maximum transaction limits for certain pre-paid instruments
Under article 12 of the 4MLD, in some member states obliged entities are not obliged to apply certain customer due diligence (CDD) measures with respect to electronic money, provided certain conditions are met. However, considering the terrorism financing risks attached to pre-paid cards, the EC proposes to (i) lower the thresholds (from 250 to 150) in respect of non-reloadable pre-paid payment services instruments to which such CDD measures apply and (ii) suppress the CDD exemption for online use of prepaid cards. The EC proposals are in line with rules already laid down by the 4MLD for pre-paid cards and would not require additional obligations on behalf of the distributors of these instruments.
3. Ability for the Financial Intelligence Units to request information on ML and TF from any obliged entity
The EC proposes the amendment of article 32 of the 4MLD in order for it to be in line with the latest international standards and to facilitate Financial Intelligence Units (FIUs) cooperation. According to the proposal, FIUs should be able to obtain additional information from obliged entities and to have access on a timely basis to their financial, administrative and law enforcement information. This will help FIUs to undertake their functions properly, even without a previously submitted suspicious transaction report. Under the current regime, the information available to FIUs is limited in some member states by the requirement that a prior suspicious transaction report has been made by an obliged entity.
4. Greater access to information on the holders of bank and payment accounts for the FIUs
The EC proposed the amendment of article 57 of the 4MLD, requiring member states to set up automated centralised mechanisms, which will allow the identification of holders of bank and payment accounts. Member states will be able to set up either a central registry or other centralised mechanisms, such as data retrieval systems. The proposal would allow for faster detection, both nationally and internationally, of suspicious ML and TF transactions.
5. Enhancement and harmonisation of due diligence measures for high-risk third countries
Member states are not currently required to include a specific list of enhanced consumer due diligence (ECDD) measures in their national regimes. Consequently, there are many differences among the member states' approaches, as well as deficiencies. The EC proposes the harmonisation of ECDD measures in compliance with the relevant FATF lists. The harmonisation will limit or even eliminate the risk of forum-shopping and address the regulatory gaps.
6. Facilitated access to beneficial ownership information
In the aftermath of the Panama Papers leak, the EC aims to address regulatory gaps and improve the transparency of beneficial ownership information. More specifically, the EC proposed to grant public access to beneficial ownership information for both companies and trusts engaged in commercial or business-like activities by amending the 1st Company Law Directive. The EC also proposed allowing access to such information on a 'legitimate-interest' basis for family or charitable trusts. The EC proposed clarifying that, with regards to trusts, the member state responsible to ensure registration is the one where the trust is administered.
7. Interconnection of national central registers
The EC will issue a report by June 2019 assessing the conditions, technical specifications and procedures for ensuring the interconnection. The interconnection will allow competent authorities, FIUs and obliged entities to identify the beneficial owners in an easy and efficient way and will increase the transparency requirements on companies and trusts. It will also allow the public to access the beneficial ownership information across the EU.
8. Additional technical clarifications
The EC proposes certain clarifications with regard to competent authorities under 4MLD, the exclusion of closed loop cards and full consistency with provisions on electronic identification.
The transposition deadline for the original 4MLD is 26 June 2017, but the EC has proposed expediting this to 1 January 2017 for both the original 4MLD and its amendments.