Newest EU Directive Combats Money Laundering Terrorist Financing

03 December 2019 12:03

The EU’s Fourth and Fifth Anti-Money Laundering Directives have increased the pressure on global banks and other multinationals to put in place good risk assessment, due diligence and risk monitoring processes. Our updated white paper explores the requirements of the directives and what they mean for companies.

Increased regulation around AML

The deadline for EU member states to incorporate the EU’s Fourth Anti-Money Laundering Directive (4 AMLD) into law has already passed, and the deadline for incorporating the Fifth AML Directive (5 AMLD) is approaching. Both pieces of legislation reflect the global trend of more regulation against money laundering.

The growing importance of AML follows estimates that global money laundering transactions range from 2 to 5 percent of global GDP—as much as 1.9 trillion euros. This money is subsequently used to underwrite bribery and corruption, expand criminal enterprises and fund terrorist organisations.

New requirements for obliged entities

4AMLD requires companies to take a more proactive approach to AML compliance to address money laundering that supports terrorist and criminal organisations. It expects “obliged entities” to provide evidence that they have undertaken appropriate steps to identify, understand and mitigate AML risk; ‘right-size’ their customer due diligence based on the level of risk; carry out ongoing monitoring; maintain adequate information on beneficial ownership; and maintain auditable records of customer due diligence.

5 AMLD followed soon after 4 AMLD. When the European Commission proposed the latest directive in June 2016, it called it an “urgent response” to two global events. The first was a rise in terrorist activity. The second was the leak of the Panama Papers, which revealed the extent to which companies in the EU were disguising their beneficial ownership of other companies using complex corporate structures. Is it time to revisit your risk mitigation process?

European Central Bank (ECB) steps up AML awareness

The updated 5AMLD requirements aren’t the only reason organizations need to strengthen their risk mitigation practices. Just this week, The ECB chief supervisor Daniele Nouy announced the launch of a “dedicated network of watchdogs” for identifying high AML-risk banks and sharing the data with the appropriate supervisors, as well as regulatory authorities in individual countries. While the ECB does not have enforcement responsibilities, it has faced criticism in the wake of several European money laundering scandals—two of which were pursued instead by U.S. authorities.