4th AML Directive - counteracting money laundering and terrorism financing

Analysis

4th AML Directive - counteracting money laundering and terrorism financing

Entrepreneurs will soon be burdened with new duties

Legal Alert 2/2017 | 13 March 2017

Entrepreneurs will need to get ready for changes in the regulations on counteracting money laundering or terrorism financing. Among others, reviewing the current procedures, changing the approach to customer due diligence and training employees will be required.

On 25 June 2015 the following new laws took effect:  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 (AMLD 4) and Regulation (EU) No 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds (Regulation).

The provisions of AMLD 4 should be implemented into the national legal frameworks by 26 June 2017. However, Polish legislators have not proposed any changes into the Polish Act on counteracting money laundering and terrorism financing so far.

In line with the requirements set by EU legislation, obliged entities will need to revise their internal AML/CFT procedures to align them with the new risk-based approach. By implication, more responsibilities will need to be taken on. 

Most important changes introduced by AMLD 4

1. The risk-based approach – a new holistic approach to counteracting money laundering

The obligation to carry out a comprehensive analysis of the risks entails a change of approach to AML/CFT issues and incorporation of FATF (Financial Action Task Force) recommendations of 2012.

AMLD 4 provides detailed guidelines on internal policies, procedures and rules with the aim to improve risk control and risk management efficiency. The possibilities of applying simplified customer due diligence measures have been restricted - now a customer analysis will need to be carried out in each case to allocate a specific risk level to every relationship.  Based on the risk identified, the obliged entity will decide each time what security measures to apply towards the specific customer.  Considering the above requirements, it seems likely that the list of situations in which applying simplified customer due diligence measures is allowed will be removed from the relevant Polish legislation. What is more, obliged entities that decide to apply simplified customer due diligence measures in a given case will need to be able to prove why they perceive the risk as low.

2. Extended applicability of AMLD 4

AMLD 4 has extended the definition of the so-called obliged entity. In line with the new legislation the term 'obliged entity' also applies to providers of gambling services and persons trading in goods, when carrying out occasional transactions in cash amounting to EUR 10 000 or more. The lowering of the threshold from EUR 15 000 to EUR 10 000 is due to the risk associated with large cash payments.

Furthermore, AMLD 4 expressly highlights that it also applies to tax crimes that are included in the broad definition of ‘criminal activity’.

3. Information about beneficial owners

The need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminal activities. Therefore, with a view to ensure transparency, the Member States are now obliged to establish a central register  that will contain information about beneficial ownership and the relations between entities operating in the territory of the member state and beneficial owners.

Corporate and other legal entities incorporated within their territory of a Member State are required to obtain and hold adequate, accurate and current information on their beneficial ownership, and provide it to obliged entities when the obliged entities are taking customer due diligence measures.

4. Extended definition of a politically exposed person (the so-called PEP)

AMLD 4 has extended the definition of a politically exposed person (PEP) to include internal PEPs, i.e. persons from the country of the seat of obliged entities.  In addition, directors, deputy directors and members of the board or equivalent function of international organisations such as WTO, ONZ or FIFA will also be deemed politically exposed persons. This means that obliged entities will need to review their customer lists  to align them to the requirements laid down by the new definition of PEP and to apply enhanced customer due diligence standards where required.

5. Issues connected with personal data protection

AMLD 4 expressly regulates the key personal data protection issues to ensure effectiveness of AML/CFT regulations on the one hand, and the required privacy of natural persons on the other.

To that end, the new regulations specifically govern the following matters:

  • the length of the customer due diligence data retention period;
  • duty to inform the data subject;
  • rules of using the data.
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