Working to Stop Money Laundering and Terrorist Financing.
With the focus of preventing the use of the financial system for the purposes of money laundering or terrorist financing, the 4th Anti-Money Laundering Directive entered into force on 25 June 2015. Member States have until 26 June 2017 to transpose the requirements of the Directive into local legislation.
1 Summary overview: Impact on Belgian AML law
Strengthen risk assessment process: more emphasis on criteria determining Customer Due Diligence - simplified versus enhanced – obligation to use at least the list of risk factors included in the Directive
Create more transparency regarding beneficial owners: broader definition and set-up, maintenance, and use of a central register regarding ultimate beneficial owners
Enlarge the scope of Politically Exposed Persons (PEPs):include not only foreign PEPs (living abroad) but also domestic PEP’s
Increase in the range of applicable sanctions
2 The Details: Main changes brought by the 4th AML Directive
The Directive will, for a number of institutions, require an upgrade of theirrisk-based approach. The European Commission, Member States, and “Obliged Entities” (defined in Art. 2, such as credit institutions and financial institutions: insurance companies and investment firms) will have to conduct a formal assessment of the risks of money laundering and terrorist financing in order to identify, assess, understand, and mitigate the risks of money laundering and terrorist financing.
Risk assessments carried out by the obliged entities shall be documented and kept up-to-date.
Obliged entities need to have in place policies, controls, and procedures to mitigate and manage effectively the risks of money laundering and terrorist financing.
Requirement to carry out customer due diligence (CDD)
The threshold for cash transactions has been lowered from €15.000 to €10.000 (regardless if the transaction is carried out in a single operation or in several operations which appear to be linked). In Belgium, currently this threshold is equal to €3.000. Discussions are held to increase this threshold and to better align it with the requirement of the AML Directive.
When determining to what extent to apply customer due diligence measures, obliged entities must at least consider the purpose of an account or relationship, the level of assets to be deposited by a customer or the size of transactions undertaken, and the regularity or duration of the business relationship.
Before applying simplified customer due diligence measures, a preliminary risk assessment has to be performed in order to ascertain that the business relationship or the transaction presents a lower risk.
The 4th AML Directive contains non-exhaustive lists of risk factors and types of evidence that obliged entities need to take into account when performing their internal risk assessment (lower risk situations (simplified CDD) versus higher risk situations (enhanced CDD)). Hence, the automatic exemption from CDD in certain cases will be abolished.
Beneficial Ownership Information
Under the new provisions companies and other legal entities incorporated in an EU Member State will be required to hold and transfer to a central register, in that Member State, information about their beneficial owners and the interests they hold.
The information on beneficial ownership will be accessible by competent authorities, financial intelligence units and, in the framework of customer due diligence, to ‘obliged entities’. Persons or organizations that can demonstrate a ‘legitimate interest’ would also be able to access at least the following information on the beneficial owner: name, month, and year of birth, nationality, and country of residence, as well as the nature and extent of the beneficial interest held. The Commission has pointed out that the notion of ‘legitimate interest’ must have regard to the international rules on protection of personal data and the right to privacy. So, companies will need to find a balance between addressing AML risks and the protection of personal data and privacy rights.
Politically Exposed Persons (PEPs)
The 4th AML Directive clarifies that enhanced customer due diligence is always required when transactions involve PEPs.
So, the PEP regime is extended to domestic PEPs and persons entrusted with a prominent function by an international organization. The 3rd AML Directive only required ECDD in relation to foreign PEPs.
Sanctions have to be implemented by Member States for serious, repeated, or systematic breaches or a combination thereof of the requirements regarding CDD, suspicious transaction reporting, record-keeping, and internal controls.
"Tax crimes" related to direct and indirect taxes have been included in the definition of "criminal activity" (explicit reference to tax crimes as a predicate offence). Note however that national law definitions of tax crimes may diverge.