With the EU’s 6AMLD on the Horizon it is Time to Implement Tougher Anti-Money Laundering Compliance Processes
31 May 2021 12:30
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The deadline for the implementation of the European Union’s Sixth Anti-Money Laundering Directive (6AMLD) is approaching fast. The directive, which offers further clarification on money laundering practices across borders, imposes tougher penalties, and empowers better cooperation to fight the financing of terrorism and money laundering, has to be implemented by companies by 3 June 2021.
Its introduction in late 2020 demonstrated the EU’s determination to establish a more consistent regulatory framework for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) processes across its member states. Now, with the implementation date on the horizon, companies operating in Europe – and multinationals based in the U.S. – have to align their due diligence and risk monitoring processes to the new requirements in order to mitigate potential legal, financial, reputational, strategic, and regulatory risks.
6AMLD at a Glance
Following in the footsteps of the EU’s Fifth Anti-Money Laundering Directive (5AMLD), the new regulation sets out to refine the EU’s approach to tackling money laundering and other clandestine activities. With that in mind, what are the key features of 6AMLD?
- Harmonization: By harmonizing the definition of money laundering across the EU, 6AMLD removes existing loopholes in member states’ legislation. The new directive provides a harmonized list of 22 offences in relation to money laundering, including a number of tax crimes, environmental crimes and cyber-crimes. This is a direct response to the fast-paced change in criminal activities.
- Extending Regulatory Scope: 6AMLD expands the number of offenses which are defined under money laundering. Whereas previous EU directives merely aimed at punishing those who profited directly from an offense falling under the definition of money laundering, the new rule will also make those who “aid and abet” culpable. This includes actions which encourage, attempt, or assist in laundering money.
- Expansion of Criminal Liability: Another crucial change in 6AMLD is the expansion of criminal liability towards 'legal persons', which is a legal term that includes companies. While previous directives only held individuals accountable for acts of money laundering, 6AMLD sets out to expand AML and CFT responsibility to senior officers in companies, such as management employees, as well. In practical terms, the new rule aims at raising companies’ awareness about the importance of internal due diligence processes.
- Tougher Punishment: Under the new directive, courts have the power to exclude entities from public funding and to fine individuals. Furthermore, 6AMLD introduces a four year minimum prison sentence for money laundering offenses in comparison to a previous minimum sentence requirement of one year.
- Cross-border Cooperation: In practice, offenses related to money laundering often involve criminality stretching over more than one jurisdiction. By introducing a set of specific information sharing requirements between jurisdictions, 6AMLD supports the cooperation of EU member states to fight criminal activities. In detail, the new directive provides for a range of factors which authorities have to consider when deciding where and how to conduct investigations and potential prosecutions. These factors include country of origin, residence or nationality, and the jurisdiction of the criminal offense.
A Global Effort to Combat Money Laundering
The introduction of a revised AML Directive is only one aspect of a global trend towards fighting money laundering offenses. More and more countries and organisations are following suit and have recently introduced regulations to combat clandestine activities. Most notably, Congress enacted one of the most substantial reforms to US AML legislation in decades this January. The Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act (CTA) emphasize the need for beneficial ownership reporting and focus on a risk-based approach to prevent terrorism financing and money laundering through financial institutions. The path drawn up by these legislative acts is set to become the gold standard for AML legislation worldwide and complements the EU’s approach.
The overall trend towards enhanced AML regulations is also reflected in the Canadian government’s announcement of a beneficial ownership registry for corporations in Canada. Against the background of recent revelations of global money laundering networks, as well as an increased risk of financial crime due to the disruption COVID-19 has caused on the global economy, governments are likely to continue introducing similar regulations.
How to be best prepared for 6AMLD
With only days until the implementation deadline for 6AMLD, it is essential that companies adopt the directive and its regulatory changes as swiftly as possible. Companies need to make sure that their employees understand the specific requirements of 6AMLD in order to mitigate potential compliance risks. Effective compliance and due diligence processes have to go beyond simply ticking all the boxes. Instead, companies should follow these best practices:
- Use enhanced screening tools to identify potential compliance risks with third-party entities and individuals.
- Establish a thorough due diligence process which covers a wide range of information sources, such as news data, sanctions, PEPs, company sources, watchlists and financial information.
- Introduce automated third-party monitoring in order to flag new information, including changes to PEPs, sanctions, or watchlists.
- Analyze company ownership and corporate hierarchies by screening third-party actors.
- Cultivate an ongoing due diligence audit trail to meet best practices recommendations and satisfy regulatory expectations in the event of an investigation.
With 6AMLD around the corner and a global trend towards more regulatory pressure to combat money laundering and the financing of terror present, the question remains: Is your due diligence process resilient enough to weather a potential compliance storm?
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