Anti-money laundering and terrorist financing activities guideline
According to the Directive, money laundering is: (i) the transfer of property known to have derived from criminal activity; (ii) the concealment of the true nature of property known to have derived from criminal activity; (iii) the acquisition, possession or use of property known to have derived from such criminal activity, or (iv) any participation in any activity listed above.
The Directive focuses on two core elements, the “know your customer” policy and a “risk based approach”, applicable to entities identified by the Directive, including credit and financial institutions, as well as natural and legal persons in their professional capacity as tax advisors, notaries, gambling services, legal consultancies, and real estate agents (“Specified Entities”). The Directive’s list includes also every business trading in goods and receiving cash payments of EUR 10,000 or more, regardless whether payment is made in a single, or via a series of linked, transactions. Hence the Directive allows EU member states to extend its scope to other subjects that could be made the object of money laundering.
In order to ensure that these anti-money laundering principles are enforced, the Directive provides for the Specified Entities to apply either simplified or enhanced customer due diligence measures on their own, based on specific criteria, such as the scope of business or the duration of the business activity. While the simplified customer due diligence measures involve standard client identification, focusing on the identity of the beneficial owner (based on reliable documentation issued by an independent source) and as assessment and monitoring of the purposes of the business relationship, should there be any reason to suspect that a certain transaction serves as money laundering or terrorism financing, enhanced measures set up a reporting obligation to the anti-money laundering authorities.
All these elements are gathered to complete a final evaluation of the risk, ensuring that the Specified Entities check every single transaction and evaluate every aspect of a client in a particular case, with the overarching goal of preventing automatic and simplistic risk evaluation done without real diligence. Furthermore, the Specified Entities should also install internal controls to prevent money laundering and terrorist financing activities.
Interconnected information registers in the near future
According to article 30 of the Directive all Specified Entities are required to provide and store accurate information in respect of their beneficial ownership, including the details of the beneficial interests held, in a national centralised register. This data has to be made available to competent authorities, Financial Intelligence Units (“FUIs”), obliged entities and to others, such as investigative journalists, who can demonstrate a “legitimate interest” in gaining access to the information, in a timely manner.
The Directive also sets up a legal framework for a future interconnection of these registers via the European central platform previously established by Article 4a (1) of Directive 2009/101/EC.
Another requirement listed under article 42 of the Directive provides that the Specified Entities must have systems in place enabling them to respond fully and promptly to inquiries from appropriate financial authorities as to whether they are maintaining, or have maintained during a five-year period prior to that inquiry, a business relationship with specified persons, and on the nature of that relationship. The systems must enable them to respond through secure channels and in a manner that ensures full confidentiality.
New and drastic sanctions implemented by the Directive apply in cases of serious and repeated breach of the aforementioned duties by Specified Entities. Member states must ensure that their regulations provide for sanctions ranging from administrative measures, such as loss of licenses, to fines of up to EUR 5 million or 10 % of the total annual turnover according to the latest available accounts.
The new measures introduced by the Directive aim to protect each jurisdiction’s financial systems and to strengthen confidence in credit and financial institutions. However, member states should consider serious data protection provisions when drafting domestic regulations to ensure that the anti-money laundering measures do not affect each individual’s right to privacy.
The new measures introduced by the Directive aim to protect each jurisdiction's financial systems and to strengthen confidence in credit and financial institutions. However, member states should consider serious data protection provisions when drafting domestic regulations to ensure that the anti-money laundering measures do not affect each individual’s right to privacy.
1The Financial Action Task Force (on Money Laundering) (FATF) is an intergovernmental organisation, founded in 1989 on the initiative of the G7 to develop policies to combat money laundering and terrorism financing.