4th AML

4th and 5th AML Directives

The European Commission’s 4th AMLD (Anti Money Laundering Directive), has now been implemented to protect against money laundering and the financing of terrorist activity.

But new amendments have already been proposed in what has become known informally as the Fifth Anti Money Laundering Directive, designed to strengthen the compliance of 4AML in light of the recent terrorist attacks in Europe and increase in virtual financing.


1. Benefit Ownership Registers

The 4th AMLD requires businesses to hold beneficial ownership records. Therefore, anyone who enjoys the benefits of ownership, even though title to the property is in another name, must be declared.

Under 5AMLD, it has been proposed that EU citizens be granted access to these registers without having to demonstrate “legitimate interest”, to improve transparency about the ownership of companies and trusts.

2. Virtual Currencies

The definition of “obliged entities” required to practice due diligence in 4th AMLD included financial institutions, accountants, tax advisors, and other tangible groups. 5AMLD brings virtual currency platforms and wallet providers into the scope of the directive, responding to the huge growth in the use of virtual currencies and Fintech in general.

3. Prepaid cards

5AMLD proposes that the anonymous transaction limit on prepaid cards be reduced to €50, with higher value transactions requiring full identification of card holders.

4. Broader Information Sharing

Wading through red tape and administrative hurdles means that Financial Intelligence Units can find it hard to access crucial information quickly. Delays like this can prevent critical action being taken in the case of money laundering or terrorist activity. The latest proposals suggest that Member States must create an automated and centralised system or a central register, giving full unrestricted and efficient access to any information which could assist them.

5. Enhanced Due Diligence

Under 4AMLD, firms must carry out checks on their customers identities by completing basic company searches and/or checking ID to protect against corruption. 5AMLD proposes an improvement on checks for high risk third world countries, who many not have adequate AML strategies in place.

 

These changes are due to be discussed within EU parliament in October 2017 and timing of the proposed changes will be dependent on an agreement being reached.

The 4th Anti-Money Laundering (AML) Directive – The impact so far

Since its introduction on June 26th 2017 the 4th AML has caused quite a stir, mainly because of the lack of prior warning of the finer details. The overall objective of the directive is to ensure that the UK’s anti-money laundering and counter terrorist financing regime is kept up to date, effective and proportionate. This should help to safeguard the UK’s financial system and ensure that it is an increasingly tough environment for both money laundering and terrorist financing.

How has it affected the industry since its introduction?

One of the most affected industries is the estate agent market. Combined with new investigation powers given to HMRC within the Criminal Finance Act 2017, agents are now obliged to perform further due diligence on cash buyers and sellers of properties which has begun to delay the buying process by as much as 6 months.

HMRC are already visiting higher risk estate agents, especially in London, who deal with foreign cash buyers. Lenders and agents also need to check whether buyers and sellers are politically exposed either in the UK or abroad.

With the new regime in full swing agents are seeing increased workloads due to the larger volume of administration required. On top of that, existing staff are required to retrain and in some cases agents are having to employ more staff to help with the administrative burden.

Some agents have excess of 100 branches and have received very little time to implement the new regulations meaning that a surprise visit from HMRC could result in some serious penalties.

Implementing these regulations will require businesses to re-think their current approaches to KYC as additional manpower, new technology, resource and improved process are called for. In short, the impact has been far reaching, the cost of which is being picked up by the consumer through increased house prices and fees.

Industry heads are recommending that agents appoint a money laundering officer or outsource the service to a specialist so that they are compliant and not falling foul of the directive resulting in fines from the HM Treasury.

This is where we come in…

The Advisory Bureau at Security Watchdog draws from over 20 years experience in risk mitigation and is therefore ideally placed to carry out audits to ensure full compliance with the 4th Anti-Money Laundering Directive.