Money laundering

The Fourth Money Laundering Directive came into force on 26 June 2017. The new Money Laundering Regulations 2017 contain some key changes over the previous law that will take some time to implement.

What do you need to know?

UBO is changing

The ultimate beneficial owner of a corporate client will need to be determined and due diligence checks performed. A UBO is anyone who owns or controls 25% or greater percentage in a corporation. If you don’t know who the UBO is of a client, you must take “all reasonable steps” to determine this. If no beneficial owners can be identified, then the details of senior managers must be recorded.

CDD is changing

There will no longer be automatic exemptions from conducting client due diligence. Previously UK public authorities, pension schemes, or companies listed on regulated markets or who follow equivalent AML rules could have simplified due diligence automatically applied. This is no longer the case. Simplified due diligence can be applied, but the decision for this must be backed up with evidence and form one part of a justification for the level of due diligence to be applied.

Additionally, CDD will be required by anyone trading goods in cash with a value over €10,000 (current level is €15,000). CDD will also be required by casinos where customers wish to place a stake or collect winnings of at least €2,000.

PEP is changing

The rules for politically-exposed persons (“PEPs”) are no longer limited to those outside the UK. British-based PEPs will now be subject to the same scrutiny as foreign PEPs. The Directive notes that these rules are preventative and PEPs should not be stigmatised as being high risk.

Third party equivalence is changing

Under the previous money laundering directives, a “white list” of jurisdictions whose AML procedures were considered equivalent to those in the EU allowed institutions to operate with a greater degree of freedom where the risk was thought to be lower. However the Fourth Directive has rescinded the “white list” and country-specific risk determinations must be made for any jurisdiction outside of the EU.

The new risk-based approach

Overall, the Fourth Money Laundering Directive promotes a risk-based approach. Firms should consider each case on its own merits, assessing red flags and risk factors such as client behaviour or high-risk factors that may be present. After conducting a thorough risk assessment, a decision, backed up by evidence, can then be made. Operating this way helps to reduce the liability a firm may have should something go wrong. If they can evidence why they did what they did and how they acted, it will provide a stronger defence.

New training requirements

Regulation 24 of the new law adds a new requirement for data protection training on matters related to money laundering. In addition, there is now a legal requirement to keep records that employees have undertaken money laundering training.

Implementing the Fifth Directive

Even while national parliaments are scrambling to rush through their AML updates, the EU is already drawing up rules for a Fifth Money Laundering Directive. Designed to further increase transparency and assist law enforcement agencies, there may not be very much time for businesses to get used to one set of changes before having to prepare for the next ones.

The Fifth Directive is expected to include a requirement on member states to have a central register of politically exposed persons requiring enhanced due diligence, plus making information from the register of beneficial ownership available to the wider public.

What is VinciWorks doing in its AML training?

We have already updated all of our AML courses for the Fourth Money Laundering Directive. Most of the changes were in the CDD section to switch from the prescriptive approach of the Third Directive (particularly for simplified and enhanced due diligence) to the risk-based approach of the Fourth Directive.

We will change references from “Money Laundering Regulations 2007” to “Money Laundering Regulations 2017” once the new Regulations have been finalised, and make any final necessary tweaks to the course content at that time. We have also created a short course on the Fourth Directive. The course is available as both a Powerpoint presentation and in SCORM format,

VinciWorks will be releasing new AML training in 2017, which you can learn more about here.

Webinar – Fourth Money Laundering Directive: your questions answered?

To help firms prepare for the Fourth Directive, VinciWorks hosted a webinar with Anti-Money Laundering Expert Amy Bell. Amy is chair of the Law Society’s Money Laundering Task Force and the author of the Law Society’s e-learning and Toolkit on the Bribery Act. You can view a recording of this webinar by completing this short form.