New EU Anti-Money Laundering Rules Come Into Effect

 

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It’s been in the works for a while, but new European anti-money laundering rules finally came into effect in late June.

The European Union’s 4th Anti-Money Laundering (AML) Directive was approved by European Parliament in late May and came into effect in late June but member states will have two years from then to create national laws based on the directive’s rules.

The AML Directive mainly applies to banks and other financial institutions as well as auditors and accountants. Other businesses affected by these rules include casinos, lawyers and real estate agents. Businesses which make or receive cash payments for goods worth at least EUR 10,000, regardless of whether payment is made via a single or a series of linked transactions, must also comply with these rules.

Some of the highlights of the new rules include:

  • Stricter customer due diligence requirements
  • Obligation to report suspicious transactions and maintain records of payments
  • Implementation of controls to combat money laundering and terrorist financing activities.

According to Public Finance International, the directive also states that EU member states will be required to “keep central registers of information on the last ‘beneficial’ owners of corporate and other legal entities, as well as trusts, in a bid to ‘step up the fight’ against tax crimes and terrorist financing.” Full access to company beneficial ownership data will be granted to law enforcement and relevant government bodies.

Penalties for non-compliance with the new AML Directive are fines of up to at least €5 million or 10% of a business’ annual turnover.

It looks like the 4th Anti-Money Laundering Directive will certainly increase payments transparency in the EU over the coming years. Although the directive goes beyond the principles agreed ty by G20 leaders in November, concerns remain that the new rules will not achieve complete transparency. This is because some of those involved in corruption can still hide behind anonymous shell companies. This should be rectified to some extent due to the new obligation imposed on Member States to have central registers containing information on beneficial owners.

With regard to shell companies, the Financial Times noted back in November:

A World Bank report in 2011 found that 70 per cent of the biggest corruption cases between 1980 and 2010 involved anonymous shell companies. The US and the UK were among the jurisdictions most frequently used to incorporate legal entities that hold proceeds of corruption.

Increased transparency only benefits the payments industry as a whole. It will be interesting to see how Member States transpose this directive into legislation in the coming years.

Rachel Gauci is Legal Counsel for Credorax. 

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About Rachel Gauci

Rachel Gauci serves as Legal Counsel for Credorax, forming part of the legal team in the Malta office. She has over 3 years of experience in payment services legislation and anti-money laundering law.

Adv. Gauci holds a law degree from the University of Malta. Credorax, was the subject of the case study in her doctoral dissertation entitled, 'A Critical Analysis of the Payment Services Directive and its Practical Application'.

Prior to her role as Legal Counsel, Rachel was a Compliance Officer and an Anti-Money Laundering Legal Officer at Credorax.
Rachel provides legal advice on licensing requirements, contract negotiations, and any other ancillary issues concerning merchants, as well as legal advice concerning Credorax's core regulatory issues.
Connect with her: LinkedIn