Proposal for 4th Money Laundering Directive released
Summary:In early February 2013, the European Commission published a proposal for a new Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing—the 4th Money Laundering Directive.
The new directive would implement recommendations by the Financial Action Task Force on Money Laundering and improve the functioning of the existing regulations. Notwithstanding the severe tone of the Commission’s statements—referring in the press release announcing the new proposal to the need for “stronger rules to respond to new threats”—the approach set forth in the proposed new directive represents more of an evolution than a revolution in the current system of combating money laundering and financing of terrorism.
The evolutionary changes involve:
- Extending the directive to cover dealers accepting payment for goods in cash in an amount of EUR 7,500 or more (the current threshold is EUR 15,000)
- Strengthening of the risk-based approach by introducing mandatory risk assessment at three levels: European, national and institutional
- Tightening the rules for use of simplified due diligence—no automatic exclusion with respect to low-risk entities or products, as well as a mandatory risk analysis before applying simplified due diligence
- Clarifying the definition of a beneficial owner with a provision that the threshold of 25% applies to each level of direct and indirect ownership, and introduction of the ability to indicate persons exercising control, e.g. management
- Imposing on legal persons an obligation to hold information about their beneficial owners
- Expansion of the definition of “politically exposed persons” to include domestic PEPs
- Introduction of an obligation to identify PEPs among beneficial owners as well as beneficiaries of life insurance policies
- Expansion and tightening of cooperation among financial intelligence units (regulators responsible for combating money laundering in the individual member states, such as Poland’s General Inspector of Financial Information)
- An obligation to introduce group-wide strategies and procedures for exchange of information to combat money laundering and financing of terrorism, which are also to be applied to branches and subsidiaries in member states and third countries in the case of capital groups
- Assuring the ability to exchange information within a group.
However, the proposal for minimum administrative sanctions for violation of anti-money laundering obligations may be regarded as revolutionary. The Commission calls for penalties of:
- Up to 10% of total annual turnover in the case of legal persons
- Up to EUR 5,000,000 in the case of natural persons
- A requirement to make a public statement indicating the nature of the violation and the person who committed it.
The threatened sanctions will undoubtedly motivate institutions required to conduct analyses under the current anti-money-laundering procedures in order to assure that they are properly complying with all of their obligations in this respect. In order to limit legal risk, there will also be an increased need for external advisers on anti-money-laundering compliance.
The proposal for the 4th Money Laundering Directive is at the preliminary stage of the EU’s legislative process, and is not expected to be adopted before the end of this year, although the upcoming elections to the European Parliament should be a disciplining factor. The proposed period for implementation of the new directive into national law is two years from adoption.
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