Last June, all EU countries implemented strengthened EU rules to combat money laundering, tax avoidance and terrorism financing. The fourth Anti Money Laundering Directive (AML4) came into force on 26 June and sets more strict rules and regulations in all EU states.

The AML4 reinforces the risk assessment obligation for banks, lawyers, and accountants as well as the sanctioning powers of competent authorities. It also sets transparency requirements on beneficial ownership for companies and facilitates cooperation and exchange of information between Financial Intelligence units of different EU countries, to combat money laundering and terrorist financing.

The impact for companies

Companies in scope will have to carry out a more detailed due diligence assessment on customers and partners, looking in depth into corporate structures and mapping Beneficiary Owners for each business. This may affect the duration of client’s on boarding processes and require additional investment into the know-your-client (KYC) process – resulting in the need for more staff and training or for the outsourcing of the function to a reliable partner. Ideally, this partner would need to have a global footprint to be able to perform the checks in local language.

As of 26 June 2017, some of the changes and new requirements in the EU legal framework include:

the scope of obliged entities now includes providers of gambling services, traders accepting cash payments above EUR 10,000 and occasional transactions that constitute a transfer of funds (including money remittances) exceeding EUR 1,000

  • a strengthened risk-based approach
  • registers on beneficial ownership information to facilitate the identification of beneficial owners of legal entities and some legal arrangements
  • reduced anonymity of e-money products
  • a new level of sanctions, which is increasing the deterrent effect
  • a new regime for cooperation between FIUs in the EU.

These new measures are expected to decrease risk levels in all sectors substantially. The European Commission will monitor the implementation of the measures, carry out the compliance reviews and publish a report assessing implementation by June 2019.

What can you do now?

  • Review your customer and partners due diligence process to ensure it is in compliance with the new regulation.
  • Implement new internal governance to increase transparency about your clients’ and the portfolio of assets and combat fraud and money-laundering.
  • While UBO register is not yet implemented across all countries, it is recommendable to implement single data collection processes within your company. There is no unified requirement or definition for the UBO register across all countries so creating your own set of requirements based on the most strict country benchmark can help you be ready and speed up your client on-boarding when the UBO lists gets implemented in your country.
  • Consider investing in additional staff and ongoing training to ensure your KYC process is on par with the regulations. Achieving this may be more complex as new regulations are implemented constantly and the AML5 directive is around the corner.

Having properly staffed KYC procedures is not only very costly; it results in inability to maintain lean structure for your business. Outsourcing your KYC compliance process to an external provider with robust technological solutions in place, access to the most up-to-date bases and a multi-lingual staff may be the optimal solution for many companies.