Publication of the 4th anti-money laundering directive: European Union adopts stronger framework to combat money laundering and terrorism financing

Context

The Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (hereafter "4th AMLD" or "the Directive") has been published on 5 June 2015. This publication ends a legislative process initiated in February 2013 with two Commission proposals aiming at strengthening EU rules on anti-money laundering and terrorism financing by taking into account the 2012 Recommendations of the Financial Action Task Force (FATF). The 4th AMLD publication also comes with a revamped Regulation (EU) 2015/847 on information accompanying transfers of funds as part of a single "package".

What's in it?

Some of the new features introduced by the 4th AMLD are summarised hereafter

  • focus on risk assessment and corresponding risk based approach;
  • increased transparency through creation of beneficial owners' national central registers;
  • supra national and national risk assessment;
  • tax crimes now within predicate offences;
  • extension of scope to the whole gambling sector;
  • customer due diligence waiver for certain e-money products;
  • third country policy.

Who does it impact?

The Directive is applicable to all "obliged entities" as defined in Art. 2.1 of the Directive, i.e.:

  • Credit institutions;
  • Financial institutions;
  • Auditors, external accountants and tax advisors;
  • Notaries and other independent legal professionals (under specific conditions);
  • Trusts or company service providers;
  • Estate agents;
  • Traders in goods making or receiving payments above EUR 10,000;
  • Providers of gambling services.

What are the main requirements?

Focus on risk assessment and corresponding risk based approach

In line with FATF recommendations issued in February 2012, rules on customer due diligence are refined and may vary depending of the risk: enhanced vigilance where the risks are greater, simplified measures where risks are lower. Please note that Regulation CSSF 12-02 already implemented most of the recommendations of the FATF in this respect.

The 4th AMLD contains explicit lists of risk factors to be taken into consideration by obliged entities when performing their internal risk assessment and in particular determining application of simplified or enhanced due diligence measures. Guidelines in this area are also expected from European Supervisory Authorities ("ESAs", i.e. EBA, EIOPA and ESMA) by 26 June 2017.

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Supra national and national risk assessment

It may also be noted that, besides the above internal risk assessment (i.e. performed internally by the obliged entities) two other types of risk assessments are foreseen by the Directive: an assessment at EU level to be performed by the Commission and, taking account the latter, a national risk assessment to be conducted by all member states. We estimate that this exercise is likely to provide useful guidance to all entities subject to the Directive when assessing the money laundering risks they face. First report of the Commission is expected by 26 June 2017.

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Increased transparency in the identification of beneficial owners

Member States will be required to hold information on the beneficial owners of all corporate and other legal entities incorporated within their territory in a national central register. Competent authorities and entities subject to the Directive will have access to the register, as well as any person demonstrating "a legitimate interest" (term not defined by the Directive). The Commercial register is quoted by the Directive as an example of such register (in Luxembourg, the "Registre de Commerce et des Sociétés").

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Tax crimes now within predicate offences

Tax crimes relating to direct and indirect taxes are now expressly considered by the Directive as predicate offences. Although the enforcement of this provision in Luxembourg may require specific legislative changes, the Circular 15/609 on anti-money laundering in tax matters recently issued by the Luxembourg financial regulator ("CSSF") leaves very few doubts on Luxembourg authorities' will to comply with the new framework in order to preserve the good reputation of the Luxembourg financial sector.

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Larger scope

The 4th AMLD widens the scope of obliged entities: this is notably achieved by submitting gambling services to the Directive (whether provided in a physical location e.g. casinos and, that's the novelty, by electronic means or any other technology e.g. internet gambling) or lowering the cash transaction threshold for traders in goods (from EUR 15,000 to EUR 10,000). With respect to politically exposed persons (PEPs), the Directive now puts domestic PEPs (in addition to foreign ones) in scope of enhanced vigilance measures.

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Customer due diligence waiver for certain e-money products

Taking into account the development of new payment instruments charged with electronic money the Directive foressees the possibility for Member States to waive most of customer due diligence requirements. This measure is however limited to low value non-reloadable e-money products and subject to risk-mitigation conditions such as sufficient transaction monitoring.

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Third country policy

With a view to establish a common approach towards non-EU countries that have deficient anti-money laundering and counter-terrorist financing regimes ("high-risk third countries"), the European Commission is now specifically empowered to identify (i.e. to point out) these countries. Beyond a foreseeable "name and shame" effect, the presence of customers originating from a country in this list may put significant burden on obliged entities by requiring additional controls.

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What's next?

The publication date triggers a two year period where Member states will be required to implement the 4th AMLD into national legislation. This would mean that the 4th AMLD should be effective in Luxembourg by 26 June 2017 at the latest.

As of this date, all obliged entities will have to comply with the new framework.

Please note that on 5 July 2016, the Commission published a proposal to amend the 4th AMLD. Among other significant changes, the transposition date mentioned hereabove would be moved forward to 1st January 2017. Click here for further details.

How can we help?

We will help you to conceptually, strategically and operationally understand and implement the Directive. Our services are based on a modular approach, allowing you to decide in a very flexible manner which services you would like to benefit from. This may notably include:

  • Organising informational workshops to raise awareness on the key contents of the Directive;
  • Diagnosis (including impact analysis on your business, definition or update of your risk assessment model, gap assessment and recommendations);
  • Implementation (road map definition, implementation and onsite support).

Contact us

Roxane Haas

Partner, AML Services Leader

Tel: +352 49 48 48 2451

Birgit Goldak

AML Services Partner

Tel: +352 49 48 48 5687

Michael Weis

Partner, AML

Tel: +352 49 48 48 4153

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