Download Commission rings changes for 4th Anti- money

Financial Services
April
2016
Commission rings changes for 4th Antimoney Laundering Directive
The European Commission is to publish a legislative proposal with
amendments to the 4th AMLD by the second quarter of 2016
Background to the proposals
The EU's Fourth Anti-Money
Laundering Directive was
adopted on 20 May 2015. Its
main goal is to prevent the
EU financial system from
being used for money
laundering and terrorist
financing purposes.
Notwithstanding the UK's negotiations with Europe, the Fourth Anti-Money
Laundering Directive (EU) (2015/849) (MLD4) will repeal and replace the
Third Money Laundering Directive (2005/60/EC) (MLD3) and the MLD3
implementing Directive (2006/70/EC).
Member States are required to bring into force the laws, regulations and
administrative provisions necessary to comply with MLD4 by 26 June
2017. Though, the Commission has called on Member States to bring
forward the date for effective transition and entry into application of MLD4
to the fourth quarter of 2016 at the latest.
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The central tenet of MLD4 is that Member States must ensure that money
laundering and terrorist financing are prohibited.
What does MLD4 cover?
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
customer due diligence (CDD), including provisions on simplified
due diligence and enhanced due diligence;

beneficial ownership information relating to corporate and other
legal entities, and trusts, including provisions on central registers;

reporting obligations, including provisions on financial intelligence
units (FIUs), suspicious transaction reports and prohibitions on
disclosure;
Under Article 1(2)
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Some key changes
 The Commission calls on
Member States to bring
forward the transposition of
MLD4 by at least 6 months,
bringing its entry into force
at the end of 2016 at the
latest.
data protection, record keeping and statistical data; and

policies, procedures and supervision, including provisions on
training, co-operation and administrative sanctions and measures.
Who does MLD4 apply to?
 The Commission proposes
to include detailed
provisions which define the
concrete enhanced due
diligence (EDD) measures
which should be applied to
dealings with 'high risk third
countries'.
 They also propose bringing
anonymous virtual currency
exchange platforms (such
as bitcoin exchanges)
under the control of
competent authorities by
extending the scope of
MLD4 and applying the
licensing and supervision
rules of the Payment
Services Directive to these
platforms.


Financial services institutions

Auditors, external accountants and tax advisers

Notaries and other independent legal professionals (when they
participate in any financial or real estate transaction, or assist in
the planning or carrying out of certain specified transactions)

Trust or company service providers

Estate agents

Other persons trading in goods (to the extent that payments are
made or received in cash in an amount of €10,000 or more)

Providers of gambling services
Why the need for last minute changes?
After the recent terrorist attacks in Paris, the EU institutions and national
Governments decided to take further urgent action. Their Action Plan
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COM(2016) 50/2 (Action Plan) has two main objectives:
1. prevent the movement of funds and identify and trace
terrorist funding; and
2. disrupt sources of revenue for terrorist organisations.
The Action Plan
High risk third countries
The Commission will amend MLD4 to include a list of all compulsory
checks (due diligence measures) that financial institutions should carry out
on financial flows from countries having strategic deficiencies in their
national anti-money laundering and terrorist financing regimes. The exact
nature of these measures are not currently explicitly defined in the legal
text and the Commission claims that applying the same measures in all
Member States will avoid having loopholes in Europe, where terrorists
could run operations through countries with lower levels of protection.
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http://ec.europa.eu/justice/newsroom/criminal/news/160202_en.htm
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Key dates
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By 2
Quarter 2016:
Details of proposed MLD 4
amendments (as discussed
in the Action Plan) to be
finalised
High risk third country
blacklist to be confirmed
Scope of new legislative
instrument which will allow
Member State authorities to
consult bank and payment
account registers will be
explored
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Centralised national bank and payment account registers or central
data retrieval systems in all Member States
Currently, not all Member States have centralised registers at national
level, which provide all national bank and payment accounts listed to one
person, and they are not bound under EU legislation to do so.
The Commission will therefore propose to establish centralised bank and
payment account registers or electronic data retrieval systems by
amending MLD4, which would provide Financial Intelligence Units (FIUs)
and other competent authorities with access to information on bank and
payment accounts.
FIUs are public authorities that exist in every Member State. They gather
and analyse information about any suspicious transactions spotted by
banks or any relevant information when it comes to money laundering or
terrorism financing. If their analysis of a file shows enough evidence for
criminal prosecution, they transmit the file to law enforcement authorities
for further action.
By 4 Quarter 2016:
Aiming to have MLD4
effectively transposed in
Member States
Legislative proposal
harmonising money
laundering criminal offences
and sanctions to be
published
An assessment for an EU
regime for the freezing of
assets of terrorists under
Article 75 TFEU to be
concluded
The Commission will also explore the possibility of a distinct self-standing
legal instrument to broaden the access to such centralised bank and
payment account registers. In particular, such an instrument would allow
the consultation of these registers for other investigations (e.g. law
enforcement investigations, including asset recovery and tax offences) and
by other authorities (e.g. tax authorities, asset recovery offices, other law
enforcement services and anti-corruption authorities).
Terrorist financing risks linked to virtual currencies
To prevent their abuse for money laundering and terrorist financing
purposes, the Commission proposes to bring virtual currency exchange
platforms into the scope of MLD4, so that these platforms have to apply
customer due diligence controls when exchanging virtual for real
currencies, ending the anonymity associated with such exchanges.
Risks linked to anonymous pre-paid instruments (e.g. pre-paid cards)
Legislative proposal against
illicit cash movements to be
published
nd
By 2
Quarter 2017
Legislative proposal
reinforcing customs' powers
and cooperation and
addressing terrorism
financing related to trade in
goods to be published
Legislative proposal against
illicit trade in cultural goods
to be published
Assessment to be
published on money
laundering and terrorism
financing risks and
recommendations to
Member States on
measures to address those
risks
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Pre-paid cards have been used by terrorists to finance the logistics of
terrorist attacks anonymously. The Commission proposes to lower
thresholds for identification and widen customer verification requirements.
Cards sold by supermarkets, tobacconists or newsagents, often need to be
activated online before they can be used. The Commission is currently
examining ways to ensure that customer due diligence is carried out by the
time the card is activated. Due account will be taken of proportionality, in
particular with regard to the use of these cards by financially vulnerable
citizens.
Enhance the powers and cooperation of EU FIU's
This entails the further alignment of rules for such FIUs to the latest
international standards and provides the FIUs with swift access to
information on the holders of bank and payment accounts through
centralised registers or electronic data retrieval systems at national level.
As a second step, obstacles to the access, exchange and use of
information must be identified and tackled. The Commission is conducting
a mapping exercise and the results should be available from the end of
2016.
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Tackling illicit cash movements
According to rules which came into force in 2007, under the Cash Controls
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Regulation , natural persons carrying cash of a value of €10,000 or more
have to declare this to customs upon entering or leaving the EU.
The Commission wants to improve the situation in four main areas
including:

allowing authorities to act on suspicious cash sent in post and
freight shipments which are currently only covered by the standard
customs declaration which does not provide the requisite level of
detail regarding the origin and intended use of the cash;

improving the exchange of information on cash declarations and
infractions (failure to declare or incorrect declarations) between
authorities;

considering to extend the definition of cash to include precious
metals; and

allowing authorities to temporarily detain amounts below the
threshold when there are clear suspicions about the origins of the
cash being carried.
A Commission proposal to amend the Cash Controls Regulation is
planned by the end of 2016.
Tracking and freezing terrorist assets
There are several UN regimes in place to freeze the assets of persons with
links to terrorism. Within the EU such freezing measures are currently
implemented under the Common Foreign and Security Policy and Article
215 Treaty on the Functioning of the European Union (TFEU). The TFEU
also provides in Article 75, under certain conditions, for the possibility to
take administrative measures to achieve the objectives of Article 67 TFEU
as regards the preventing and combating of terrorism. These measures
would put in place common standards on the assets to be frozen, identify
which actors are to be involved and which remedies and safeguards apply.
As part of the assessment of a possible EU regime for the freezing of
assets of terrorists under Article 75 TFEU, the Commission is also
currently exploring measures of mutual recognition of national freezing
decisions (e.g. by way of a European Asset Freezing Order).
The Commission will seek to ensure that criminals who fund terrorism are
deprived of their assets. In order to disrupt organised crime activities that
finance terrorism, it is essential to deprive those criminals of the proceeds
of crime. Beyond being a sanction, confiscation of criminal assets is also a
preventative tool. To this end, the Commission wishes to ensure that all
types of freezing and confiscation orders in the area of serious crime
available within Member States are enforced to the maximum extent
possible throughout the EU.
Targeting the sources of funding
Although the existing framework to combat terrorism financing – as set out
in UN Security Council Resolutions and reflected in the proposal for a
Directive on combatting terrorism - includes a prohibition to make any
economic or financial resource available to the listed individuals and
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Regulation (EC) No 1889/2005 on controls of cash entering or leaving the
Community
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entities, one shortcoming today is that existing EU instruments are not
adequate for customs authorities themselves to intervene effectively.
The Commission will consider an explicit legal basis to allow for provisional
detention of goods and for the necessary investigations to be undertaken,
notably by FIUs.
For example cultural goods illicitly removed from Iraq and Syria can be a
significant source of terrorist income. Where this income relies on
proceeds from European markets, identifying and cutting off the trade
could have a real impact on an important source of funding of terrorist
activities.
Currently, two Regulations impose trade restrictions on cultural goods
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illicitly removed from Iraq and Syria , and provide a legal basis for import
controls. However, their effectiveness is limited. The burden of proof
required for customs to establish the origin of such goods is high. The
Commission will consider a wider response to overcome some of these
problems. Options that will be considered involve the introduction of a
certification system for the import of cultural goods into the EU coupled
with guidance to stakeholders such as museums and the art market.
If you have any further questions on the Commission's Action Plan
and what it might mean for you, please do not hesitate to contact us.
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Council Regulation (EU) NO 36/2012 concerning restrictive measures in
view of the situation in Syria and Council Regulation (EU) No 1210/2003
concerning specific restrictions on economic and financial relations with
Iraq
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Key contacts
Andrew Barber
Roseyna Jahangir
Partner
Financial Services
Associate
Financial Services
T: +44(0) 20 7788 2334
E: Andrew.barber
@bonddickinson.com
T: +44(0) 20 7788 2377
E: Roseyna.jahangir
@bonddickinson.com
www.bonddickinson.com
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April
2016
This communication is provided for general information only
does
not constitute legal or other professional advice.
You should consult a suitably qualified lawyer on any specific legal problem or matter.
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