Further to the evolution of International AML/CFT standards recommendations issued by the Financial Actions Task Force (FATF), the European Commission has implemented the new standards by recently adopting the proposals for an amended version of the Anti-Money Laundering Directive (4th AML Directive) and Regulation. The updated FATF international AML/CFT standards include:
- Introduction of a risk-based approach;
- Improvement of transparency measures;
- Establishment of a framework for increased international cooperation, identification of clear operational standards and covering of new threats and new priorities.
The main proposed changes as implemented by the 4th AML Directive are outlined below:
The Risk-Based Approach
The risk-based approach is a mechanism guiding the implementation of requirements as set out in the Directive.
The scope and method of the due diligence are significantly altered in that minimum standards were abolished (i.e. minimum standards of documentation to collect, a minimum amount of questions to ask the prospective client, etc). The monitoring authorities viewed the application of minimum standards as limiting in nature. The application of a risk-based approach entails that the subject person is granted the discretion to determine which due diligence measures are to be adapted to a risk basis. The subject person should be in a position to satisfactorily justify the due diligence measures adopted.
In practice this entails the removal of “white list” and “blacklist” jurisdictions method with respect to anti-money laundering criteria, as this would go against the idea behind the approach. The amendments remove every reference to the “white list” countries. This implies that the concept of ‘equivalence’ of third country regimes, whereby less onerous standards of due diligence are applied on potential clients and/or due diligence checks conducted by an operator in a third country may more readily be accepted by another, can no longer be applied. The equivalence method should now be replaced by the risk-based approach and any reference in the policies should be appropriately changed. The level of due diligence procedures applied must be justified on the basis of risk, with a list of factors to be considered when making such decisions.
The outcome is that the 4th AML Directive shifts the onus of due diligence from the monitoring authority to the ‘subject person’ in that the latter is required to determine the level of due diligence which it applies on a ‘risk-based approach’ basis.
Transparency measures
In a number of jurisdictions, there is a significant deficit in transparency measures, principally in the field of electronic transfers, susceptible to misuse and abuse. Member states are now required to collect, process, preserve and provide (when necessary), information about the ultimate beneficial ownership. Furthermore, apart from the obligation on subject persons, the companies themselves are now to hold sufficient detailed information on its ultimate beneficial owners, regardless of the form of ownership (trusts or foundations).
The increased number of control measures, which will therefore need to take place even with respect to electronic fund transfers, will help improve transparency on a global basis, making it more difficult for criminals and terrorists to conceal their activities.
Framework
Due to the global character of money laundering and terrorist financing, the FATF has through its Recommendations enhanced the measures of international cooperation to ensure the presence of an international united front against the perpetration of such offences. The new amendments seek to ensure that there are more effective exchanges of information, tracing, freezing, confiscation and repatriation of assets. The recommendations have also sought to identify clear operational standards by setting out the range of investigative techniques and powers which should be made available to law enforcement and operational agencies. The FATF has also ensured that its agenda will address new and aggravated threats, as well as respond to priorities set out by the international community.
Other Key Changes
Tax crimes
The categorization of tax crimes within the money laundering and terrorist financing offences has not been harmonized throughout jurisdictions across the EU. The new amendments include tax crimes such as tax evasion and other serious financial offences, as predicate offences under the AML/CFT regime.
Gambling
The amendments have widening the applicability to include providers of gambling services, extended beyond casinos operators ensuring that practically all areas of gambling will now fall within the scope of the AML Directive. Applicability is triggered, and the requisite due diligence checks therefore become applicable, when the value of a single transaction is of at least €2,000. It has been suggested that Member States should consider applying this threshold both to the collection-of-winnings stage and the wagering-a-stake stage. Furthermore, the providers of gambling services with physical premises should ensure that due diligence, when taken at the point of entry to the premises, can then be appropriately connected to the transactions conducted by the individual.
Traders in Goods
Further to global statistical analysis, the threshold for the applicability of traders in goods with respect to cash transactions has been lowered from €15,000 to €7,500. This significantly widens the scope of the AML Directive and any customers paying in cash from a minimum of €7,500 will trigger the applicability of the due diligence requirements.
National Risk Assessment
The Governments of EU Member States are now obliged to carry out national risk assessments, in order to ascertain, measure and accordingly take action, as well as make publically available the AML/CFT risks to which the jurisdiction is exposed. The national risk assessments should be accompanied by an assessment of European Supervisory Authorities in order to provide regulatory and technical advice and input on standards on specific issues.
PEPs Treatment
The amendments extend the definition of PEPs to include domestic PEPs working in international organizations, which will now need to undergo enhanced due diligence procedures based on the risk-based approach.
