Strengthened obligations preventing the use of the financial system for money laundering and terrorist financing

A draft Directive (the "draft 4th Directive") of the Parliament and the Council (2013/0025 COD) that will directly impact most financial institutions and market players is about to be adopted and will replace the current 3rd Directive relating to the prevention of the use of the financial system for money laundering and terrorist financing. This draft Directive can be found here.

The draft 4th Directive aims at implementing the 40 recommendations issued by FATF revised in 2012 - seen as a global standard for combating money laundering and terrorist financing.

The main modifications to the 3rd Directive are as follows:

First, the rules and procedures regarding the identification of the beneficial owner are enhanced, plus:

  • Each Member State has to create a public central company registry for storing shareholder and ultimate beneficial owner (UBO) information, making it accessible to institutions doing AML checks.
  • The threshold of 25% also applies to indirect ownership.
  • In exceptional cases, where no natural person is identifiable as beneficial owner, the senior managers may be considered the beneficial owner(s).
  • Sanctions apply for not storing beneficial ownership information.

Financial institutions subject to AML obligations are given more flexibility in internally defining the low risk business conditions, the so-called simplified due diligence (type of client, countries, geographical area).

As regards a third country policy, the European Commission will adopt a black list of high-risk third country jurisdictions that have strategic deficiencies in their national AML/CFT regime.

Also, the draft 4th Directive provides new specific rules regarding AML procedures within groups and the requirements of data protection: e.g. storage of photos and gender data.

Lastly, an enhanced sanction regime will apply to management and other natural persons who under national law are responsible for breaching AML provisions: twice the amount of the benefit gained from the breach or at least 1 million euros; for credit institutions: 5 million euros or 10% of annual turnover. Also, tax crimes as predicate offence become the rule now will, as a rule, become predicate offences, i.e. all tax crimes resulting in more than six months' imprisonment shall constitute a predicate offence for AML purposes.