The Fourth 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 will strengthen EU rules against money laundering and ensure consistency with the approach followed at international level.
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 Third Money Laundering Directive 2005/60/EC (MLD3) of the European Parliament and of the Council and the implementing 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 MLD4 by 26 June 2017.
Key Changes in the Fourth (4th) Money Laundering Directive.
Risk-based assessment and corresponding risk based approach.
- MLD4 brings in a new, enhanced risk-based approach, coupled with multilevel interconnected risk assessment requirements set at the Member State, institutional and customer levels.
- Obliged entities (“OE”) such as banks are required to take enhanced measures where the risks are greater, and can take simplified measures where risks are demonstrated to be smaller.
- Enhanced customer due diligence procedures (CDD) are required with tighter rules on CDD using risk-based and evidence-based decision-making methods, information sources and monitoring approaches which will necessitate the development of more sophisticated and flexible risk assessment tools.
- EU Supervisory Authorities (“ESAs”) will have to provide guidance by developing and supplementing Member States with a minimum list of risk factors.
Creation of beneficial owners' national central registers.
- MLD4 contains specific provisions on information of the Beneficial Ownership (“BO”) and Ultimate Beneficial Ownership (“UBO”) of companies.
- Information on beneficial ownership will be stored in a central register, accessible to competent authorities, financial intelligence units and, as part of customer due diligence to obliged entities such as bank.
- 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%.
Supra National and National risk assessment.
- The importance of a supranational approach to risk assessment has been recognized at international level.
- MLD4 contains specific provisions for strengthens co-operation between national FIUs that are involved with the analysis and dissemination of information about suspected money laundering or terrorist financing.
- MLD4 reinforces national authorities' administrative sanctioning powers and requires them to co-operate on cross-border cases.
- EU Commission has been entrusted with the responsibility of coordinating the assessment of money laundering and the risk of terrorist financing that affect the internal market and relate to cross-border activities.
Inclusion of a greater number of traders.
- Extension of the directive's scope, introducing requirements for a greater number of traders by reducing from €15.000 to €10.000 the cash payment threshold for the inclusion of traders in goods, and also including providers of gambling services.
- Large cash transactions are especially vulnerable to money-laundering and require higher levels of caution. Traders are required to conduct customer due diligence (CDD) checks for cash transactions over MLD4 threshold of €10.000.
- As gambling services posing higher risks, MLD4 requires service providers to conduct due diligence for transactions of €2.000 or more.
- In proven low-risk circumstances, member states may exempt certain gambling services from some or all requirements, in strictly limited and justified conditions. Such exemptions will be subject to a specific risk assessment.
- Casinos will not benefit from exemptions.
Traceability of fund transfers.
- Existing legislation already requires payment service providers to accompany transfers of funds with information on the payer; MLD4 also requires information on the payee to be included.
- Under the new rules, the European Banking Authority, the European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority will be asked to issue guidelines addressed to competent authorities and payment service providers on measures to be taken when they receive transfers of funds with missing or incomplete information on the payer or the payee.
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.
- MLD4 expands the definition of a politically exposed person (PEP) to include domestic, as well as foreign, PEPs which require enhanced due diligence. The definition applies to individuals such as heads of state, government and parliament members, members of the judiciary and other persons holding a governmental position.
- MLD4 also expands the definition of a politically exposed person (PEP) to senior figures within international organizations such as board of directors and executives of state-owned enterprises.
- 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 is 18 months.
- As concerns sanctions, MLD4 provides for a maximum pecuniary fine of at least twice the amount of the benefit derived from the breach or at least €1 million.
- For breaches involving credit or financial institutions, it provides for:
- A maximum pecuniary sanction of at least €5 million or 10% of the total annual turnover in the case of a legal person.
- A maximum pecuniary sanction of at least €5 million in the case of a natural person.
Who impacts Fourth (4th) Money Laundering Directive
The Directive is applicable to all "obliged entities" as defined in Art. 2.1 of the Directive, i.e.:
- Credit institutions
- Financial institutions
- Auditors, external accountants and tax advisors
- Notaries and other independent legal professionals (under specific conditions)
- Trusts or company service providers
- Estate agents
- Traders in goods making or receiving payments above EUR 10,000
- Providers of gambling services
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