Significant changes will be brought to the EU’s Anti-Money Laundering (AML) Directive, OCTs were told during a partnership working party on Financial Services co-chaired by the European Commission and the British Virgin Island under the auspices of OCTA, on 22 January 2014 at the request of OCTA. The working party (“Partnership Working Parties (PWP)” under the former OAD) is part of the policy dialogue mechanisms foreseen under article 13 of the new Overseas Association Decision (OAD) that came in force on 1st January 2014.
The meeting also examined the EC’s proposal for a new Savings Directive and the EU “Action Plan to Strengthen the Fight against Tax Fraud and Tax Evasion”. It brought together OCT financial services experts, EU-based Representatives of OCTs, staff of the OCTA Technical Assistance Team and Representatives of the Commission (DG Market, DG TAXUD and the Task Force OCT). A major innovation was the use of video links which enabled participation from overseas by financial services experts of Anguilla, BVI, and Greenland. The present article focuses on the proposal for a 4th AML Directive.
Fourth Anti-Money Laundering Directive
The context for this new Directive, expected to replace the 3rd AML Directive of 2005 by end of the year, is the fundamental review of international standards undertaken by the Financial Action Task Force (FATF). The review led to the adoption of a new set of Recommendations in February 2012. The Commission’s Proposal seeks to align the European rules to the revised FATF standards.
The most significant changes, some of which are still being negotiated with the European Parliament, concern the following points:
• Risk Assessment: The Directive proposes use of a risk-based approach as an effective way to identify and mitigate risks to the financial system and wider economic stability. The new proposal would require evidence-based measures, with risk assessment conducted at: i) firm level, ii) national level and iii) supra-national level. The risk based approach would focus on specific risk factors to be listed in an annex to the Directive.
• Due diligence: The revised Directive would tighten the rules on simplified due diligence and would not permit situations where exemptions apply. Instead, decisions on when and how to undertake simplified due diligence would have to be justified on the basis of risk, while minimum requirements of the factors to be taken into consideration would be given. It is also proposed to switch from blacklisting to whitelisting, to ensure adequate traceability.
• Beneficial ownership: The new definition of “beneficial ownership” provides enhanced clarity, while ensuring transparency and accessibility of beneficial ownership information. It requires legal persons to hold information on their own beneficial ownership. This information should be made available to both competent authorities and obliged entities. Data exchange will be reinforced, both within the EU and at international level. However, the proposed centralisation of information on a central register, which would be accessible to authorities, remains a sensitive issue among the European co-legislators.
• European Supervisory Authorities (ESA): The proposal foresees strengthening of cooperation between financial intelligence units of the Member States in respect of exchanging information, while European Supervisory Authorities are asked to carry out an assessment and provide an opinion on the money laundering and terrorist financing risks facing the EU. In addition, emphasis on the risk-based approach requires an enhanced degree of guidance for Member States and financial institutions on what factors should be taken into account when applying simplified customer due diligence and enhanced customer due diligence and when applying a risk-based approach to supervision. In addition, the ESAs have been tasked with providing regulatory technical standards for certain issues where financial institutions have to adapt their internal controls to deal with specific situations.
• Administrative sanctions: The proposal aims to ensure proportionality in the way rules are managed. A range of sanctions are proposed for Member States to apply in case of systematic breaches of key requirements of the Directive, notably with respect to customer due diligence, record keeping, suspicious transaction reporting and internal controls.
During discussions, the EC underlined that the proposal goes beyond the FATF requirements in bringing within its scope all persons dealing in goods or providing services for cash payment of €7,500 or more. The Directive will also cover gambling operators, and the proposal includes explicitly reference to tax crimes that may give rise to laundering. The EC indicated that it would be placing increasing focus on anti-money laundering regimes and their implementation. It is also likely that a move away from whitelisting may be envisaged.
Replying to a question as to whether the EU expected OCTs to comply with the Directive beyond the FATF recommendations, the EC recalled that the new OAD included specific provisions for cooperation in financial services, which stipulated that this would take place if the OCT so wished. It was also underlined that OCTs can influence the decision-making process on the Directive through their Member States who are members of Council.
The meeting ended on a request from BVI, the working party Co-Chair, to set up a consultation mechanism between the OCTs and the EC services at expert level with the objective of furthering cooperation and exchange in the field of financial services.