Fourth EU AML Directive 16/14

4th August 2016

                                                          Fourth EU Money Laundering Directive 05/2016

Introduction

The Fourth Money Laundering Directive (MLD4) came into force on 26th June 2015. The directive focuses on a more risk based approach to combating money laundering and terrorist financing compared to the previous directives. Member States must transpose MLD4 into national law by 26 June 2017.

The latest directive provides a more targeted and focussed risk-based approach. Importantly, the directive emphasises the need for transparency regarding beneficial ownership, it applies changes to the threshold requirements regarding e-money and widens the coverage regarding PEPs and gambling services providers.

Summary of changes:

• Beneficial owners to be included on a central register: Firms and trustees must hold “adequate, accurate and current information on their beneficial ownership” which can be accessed by competent authorities and EU Financial Intelligence Units (FIUs). This information will be stored on a central register, accessible to

o Competent authorities and FIUs without restriction
o “Obliged entities” within the Customer Due Diligence (CDD) framework
o Others that can demonstrate a legitimate interest.

• Electronic money thresholds have changed: Two key thresholds have changed regarding the ability to apply Simplified Due Diligence (SDD) measures to electronic money:

o the maximum amount stored electronically on the payment instrument has increased from €150 to €200
o For reloadable payment instruments, the maximum annual payment transactions limit has increased from €2,500 to €3,000 per year

• Tax crime now deemed a criminal activity: The definition of “criminal activity” in MLD4 now includes tax crimes relating to both direct and indirect taxes.

• Definition of Politically Exposed Persons (PEPS) broadened: Individuals who can be regarded as PEPs has been broadened to include members of the governing bodies of political parties, and directors, deputy directors and members of the board or equivalent function of an international organisation. Domestic PEPs are also now in scope for enhanced due diligence measures.
• High risk gambling service providers to apply CDD measures for single transactions: All providers which pose higher risks must apply CDD measures for single transactions amounting to €2,000. However, in “proven low-risk circumstances” exemptions may be granted to certain gambling services from some or all of the requirements of MLD4 (not casinos).

• SDD no longer a blanket category: The application of SDD measures must now be justified on the basis that the business relationship or transaction presents a lower degree of risk.

• Limited/occasional exemptions clarified: After MLD3 there was confusion over the ability of a Member State to exempt a firm which engaged in financial activity on an ‘occasional or very limited basis’ and where the money laundering or terrorist financing risk is low. This has now been clarified by necessitating the following criteria for the exemption to apply:

o The financial activity must be limited in absolute terms and on a transaction basis;
o The financial activity must not be that person’s main activity and must be ancillary and directly related to that person’s main activity;
o That person’s main activity cannot be one of those listed at Article 1(a)-(d) and (f) of MLD4 (i.e. trust or company service provider, estate agent, provider of gambling services, auditor, external accountant, tax advisor, notary or other independent legal professional);
o The financial activity must be provided only to the customers of that person’s main activity and not generally offered to the public

Next steps

Following from this, the European Supervisory Authorities will publish, through their Joint Committee, an opinion on the risks of money laundering and terrorist financing affecting the EU financial sector by 26 December 2016, and update that opinion every 2 years thereafter. Firms should now start considering how MLD4 might impact their business and their client on boarding arrangements in particular.

The above is a summary of the Fourth EU Anti-Money Laundering Directive as it relates to CPA Audit’s clients. The full document contains a more detailed explanation of the impact of the here.

As always, please contact a member of the CPA Compliance team if you have any queries.

© CPA Audit LLP. First edition, 05/2016

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