EU Regulatory Update - The 12 things you need to know about the Fourth Anti-Money Laundering Directive
The 12 things you need to know about the Fourth Anti-Money Laundering Directive
2015 will see another push to increase cooperation between public institutions and the financial sector to crack down on illicit money flows including money-laundering, terrorist-financing and corruption. New reporting and disclosure requirements will be adopted and implemented in order to align national strategies with sector-specific and regional efforts to combat these activities. For example, from this year onward, firms in the extractive industries have to disclose payments made to foreign governments. Pharmaceutical firms will need to provide more data on financial relationships with medical staff and hospitals matching the US Sunshine Act. New account on-boarding procedures will have to be set up by 1 January 2016 in order to comply with OECD’s Common Reporting Standard for the automatic exchange of tax information. In the UK, suggested amendments to the 2010 Bribery Act may materialise and significantly extend the powers of the Serious Fraud Office: accordingly, organisations would be guilty of a corporate offence if they fail to prevent financial crimes.
|EU||Fourth Anti-Money Laundering Directive
Adoption early 2015, implementation till 2017
|OECD||Common Reporting Standard
New accounts and on-boarding procedures by 01/01/2016
|UK||Bribery Act, section 7
Corporate offence for failure to prevent financial crime
Small Business, Enterprise and Employment Bill
Registers of people of significant control
|Denmark||Companies Act, Public Register of Shareholders
Public Register including UBOs>5%
|Ukraine||Identification of Ultimate Beneficiaries of Legal Entities
Registration of UBOs to start mid-2015
|Pharmaceuticals||Code on Disclosure
of Transfers of Value from Pharmaceutical Companies to Healthcare Professionals and Healthcare Organisations
|Extractive Industry||New Accounting and Transparency Directive
Disclosure of payments to foreign governments
The adoption of the Fourth EU Anti-Money Laundering Directive regulation has been postponed for months and it was only recently that the EU Parliament and Council finally cleared the last hurdles for the proposal to move forward. Almost ten years after its predecessor was ratified, the regulation is aimed to implement the anti-money laundering recommendations issued by the Financial Action Task Force (FATF). The publication of this new deal received little attention, which may come as a surprise after some of the more ambitious proposed articles received immense media coverage. Indeed, the provisional final design bears some surprises in the specifics.
UBO Registers are coming
- The establishment of central registers of Ultimate Beneficial Owners is probably the single most anticipated provision in the Fourth AMLD.
- Companies will need to disclose the full legal name, month and year of birth, nationality, country of residence as well as nature and extent of interests of their beneficial owners to a central database in the Member States. The initial ownership threshold for reporting is 25%.
- Although discussed earlier, the regulation does not pin down concrete minimum data standards for these registers. Member States will only need to ensure that the information “can be accessed in a timely manner”, meaning that investigators will probably be spared from sifting through badly scanned copies of company records.
Registers will be public, but mind the small print
- Information on beneficial owners of course needs to be available to the relevant law enforcement authorities, financial intelligence units and entities obliged to conduct due diligence checks.
- The initial proposal did not include any provisions for this information to be made public, a requirement added by the European Parliament. Critics cited data protection and privacy concerns as arguments against open registers.
- In order to prevent misuse, access to beneficial ownership information will therefore be restricted to public parties with a “legitimate interest” in the matter and may be subjected to online registration and administrative fees. This is regarded by some as a major loophole to make the registers non-public in practice.
- The EU press release lists “investigative journalists and other concerned citizens” as example for parties with legitimate interest, indicating a rather broad understanding of the term.
- The Fourth AMLD in its current form provides that public access shall only be limited “if this would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation.”
Threshold for cash payments lowered although not halved
- Large cash transactions are especially vulnerable to money-laundering and require higher levels of caution. Traders are required to conduct customer due diligence checks for cash transactions over a certain threshold, with the Fourth AMLD this limit will be reduced from the current level of €15,000 to €10,000.
- The Commission’s initial proposal saw this limit halved but has not made it into the current text of the Directive.
More caution with PEPs
- Financial institutions will need to execute higher levels of caution when dealing with Politically Exposed Persons (PEPs), their family members and close associates. With the new Directive, domestic PEPs will have to be treated like foreign politicians and require enhanced due diligence. The same rules apply to senior figures in international organisation. Any distinction will have to be cancelled.
- The recommended time period in which a PEP should be subjected to risk-sensitive measures after they left office will remain at 12 months and will not be increased.
Next steps for the Directive
- The formal adoption of the Fourth AMLD by plenary vote and Council of Ministers is scheduled for late March, but may well slip into April. Adoption will be followed by a round of consultations and ratifications on national level.
- While it may well take until late 2016 until the Fourth Directive is transposed into national law across the whole EU, several countries are moving forward with their own legal initiative to make shareholder information more accessible.
- Denmark will be the first country to publish a register of all shareholders and beneficiaries holding more than 5% on 15 June this year while Ukrainian companies will have six months to list their owners when the respective law goes into effect this summer.
- In the UK, provisions for a “register of people of significant control” are part of the Small Business, Enterprise and Employment Bill 2014-15, which is currently at report stage in the House of Lords.
The Fourth Anti-Money Laundering Directive is a considerable regulatory advancement, yet its success will depend upon the consistent interpretation and implementation across EU Member States. Public lists of shareholder information including beneficial owners are without a doubt great tools detect suspicious financial activity. Yet it remains to be seen how open this data will be: ultimately, ‘legitimate interest’ but also ‘legitimate claims’ for data privacy and security concerns will be defined by individual member states - and not Brussels.
Update: The 4th AMLD was finally adopted on 20 May 2015, almost two months later than initially planned. The official wording can now be found in the Official Journal of the European Union. If you have any further questions or want to get in touch, please email email@example.com.