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4th EU AML Directive Is In The Corner. Are You Ready?

CubeIQ Limited
Published by in Risk & Compliance ·

The 4th Money Laundering Directive EU/2015/849 (MLD4) that was adopted by the European Council on April 20, 2015, by voting which took place in the European Parliament on May 20, 2015 and published on June 5, 2015.

MLD4 is designed to strengthen the EU's defenses against money laundering and terrorist financing, while also ensuring that the EU framework is aligned with the Financial Action Task Force's (FATF) international Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) recommendations.

MLD4 amends Regulation No EU/648/2012 of the European Parliament and the Council, and repeals and replaces the 3rd Money Laundering Directive 2005/60/EC (MLD3) of the European Parliament and of the Council and the implementing measures Directive 2006/70/EC of European Commission. MLD4 comes with a renewed Regulation EU/847/2015 on information accompanying transfers of funds as part of a single "package".

Member states are required to bring into force the laws, regulations and administrative provisions necessary to comply with 4MLD by 26 June 2017 which is the date that the Directive comes into force.

The main modification points from the 3rd AML Directive to 4th AML Directive are:

Emphasis on ultimate beneficial ownership and enhanced customer due diligence.
The 4th EU AML Directive defines new rules for accurate and updates beneficial ownership identification and record keeping.

Expanded definition of a Politically Exposed Person (PEP).
The 4th EU AML Directive the PEP definition is expanded to also include all national PEPs as being high-risk customers due to the risk exposure attached to their positions.

Cash payment threshold lowered to €10,000 (or equivalent).
The 4th EU AML Directive has lowered the cash payment threshold for anyone trading goods in cash to €10,000 from €15,000 in the last Directive. This threshold can be lowered at the national level.

Expanded to include the entire gambling sector beyond just casinos.
The 4th EU AML Directive is expanding Customer Due Diligence (CDD) to casinos and the entire gambling sector that must perform CDD on customers placing a stake or collecting winnings of €2,000 or more.

Expanded to include the majority of businesses (not only Banks or Financial Institutions).
Business proprietors are now required to review and carry out Enhanced Due Diligence (EDD) on the identity of customers particularly those deemed to be of higher risk. All financial transactions must be monitored and any suspicious activity (whether the transaction has been carried out or declined) must be reported by business proprietors to the financial intelligence unit (FIUs). Moreover, tax crimes have been added to the list of defined offenses for money laundering.

Enhanced risk-based approach, requiring evidence-based measures
The 4th EU AML Directive favors a risk-based approach to due diligence and money laundering at every level. Businesses included in the 4th EU AML Directive are obliged to make their own risk assessment for their line of business. This means that they should have a written risk assessment procedure for how their line of business could be used for money laundering and terrorism financing. In the 4th EU AML Directive it is no longer enough to cross off a checklist for how a risk assessment should be performed. The new approach, called “a holistic risk based approach” that has been introduced in the Directive involves the use of evidence-based decision-making to target the risk of money laundering, terrorist financing and tax evasion crimes facing the EU and those operating within it. The “holistic risk based approach” includes, besides monitoring transactions, sanction list screening to analyze and look for deviations in a customer’s behavior.

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