The fourth European Anti-Money Laundering Directive came into force on 26th June 2015. It is only now that the UK is transposing its requirements into local law. The Treasury hopes the UK legislation will be passed in time for the 26th June 2017 deadline.
The two UK laws in need of updating are the Money Laundering Regulations and the Proceeds of Crime Act 2002.
The Directive includes significant changes to the anti-money laundering procedures at law firms. These include:
With timely preparation and training, the transition to the new framework should be straightforward for most firms.
Customer due diligence will now be required by anyone trading goods in cash with a value over €10,000 (current level is €15,000).
Under the directive, corporates and other legal entities will be required to maintain accurate and current information on their beneficial ownership. They must provide that information to the government. That information on beneficial ownership will be held by each member state in a central register that will be accessible to banks, law firms and “any person or organisation that can demonstrate a legitimate interest”.
These interconnected registers will contain the names, dates of birth, nationality, country of residence and the nature and extent of the beneficial owners’ interests in the transaction.
This is potentially good news for law firms. A primary requirement, and administrative burden, of CDD at the moment is identifying beneficial owners. Access to a pan-European register will likely make CDD research much easier.
Every law firm will be required to have written AML/CTF risk assessments, policies and procedures. They will also need a process by which they can test how effective these are.
This requirement should be implemented in a manner which is proportionate to the size of the law firm. Uk Law Societies already provides assistance to firms in developing risk assessments, policies and procedures.
For law firms this will mean:
Under the Third Directive and the current Money Laundering Regulations, firms are able to automatically apply simplified CDD in the following circumstances:
Under the Fourth Directive, firms will be able to use these circumstances as part of a justification for simplified due diligence after conducting a risk analysis. However, the exemption from enhanced CDD will not be automatic. Any decision to apply simplified CDD will need to be backed up by documentation.
UK Law Societies have raised concerns that some of these situations will create an undue burden on firms. Especially firms which use pooled client accounts.
Enhanced due diligence for politically exposed persons (PEPs) is being extended. This means you will need to consider if a beneficial owner is a PEP. People with high level appointments in the UK will now be a PEP, and enhanced measures will need to apply for at least 18 months (rather than the former 12) after a PEP leaves office.
The directive includes notes castigating firms for refusing the business of a PEP:
“The requirements relating to politically exposed persons are of a preventive and not criminal nature, and should not be interpreted as stigmatising politically exposed persons as being involved in criminal activity. Refusing a business relationship with a person simply on the basis of the determination that he or she is a politically exposed person is contrary to the letter and spirit of this directive and of the revised FATF Recommendations.”
The Directive has suffered many delays, but the likely timeline is:
There are three key points:
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