Combatting money-laundering and the financing of terrorism

On the one hand, Directive (EU) 2015/849 of the European Parliament and the Council of the 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (further referred to as “the Directive”), which repeals Directives 2005/60/EC and 2006/70/EC.

And on the other, Regulation (EU) 2015/847 of the European Parliament and the Council of 20 May 2015 on information accompanying transfers of funds (further referred to as the “Regulation”), which repeals Regulation 1781/2006/EC. 

1. The Directive

This Directive is the fourth anti-money laundering Directive. Amongst others, it was inspired by the recommendations of the international Financial Action Task Force, FATF. 

The Member States have until 26 June 2017 to transpose the Directive into their national laws. 

In Belgium, the preventative section of the anti-money laundering Regulations is contained in the anti-money laundering Act of 11 January 1993 “on the prevention of the use of the financial system for the purposes of money laundering or financing terrorism”, and the repressive section was incorporated into the Criminal Code. 

Certain modifications will therefore have to be made to these texts when transposing the Directive.

We have described seven of the numerous benefits of this Directive in detail below.

1.1. Modification of the Scope 

The traditional scope of anti-money laundering Directives, which targets credit institutions, financial establishments and a number of natural or legal persons (lawyers, estate agents, accounting experts, etc.), has obviously been included in the Directive, and has only been slightly modified.

The main modification is that from now on the Directive targets all performers of gambling sector services, whereas former Directives only related to casinos.

This Directive should also apply to activities of obliged entities which are performed on the internet.

Lastly, Member States shall, in accordance with the risk-based approach, ensure that the scope of this Directive is extended in whole or in part to professions and to categories of undertakings, other than the obliged entities expressly referred to in the scope of the Directive, which engage in activities which are particularly likely to be used for the purposes of money laundering or terrorist financing.

1.2. Requirement for a Risk-Based Approach 

The Directive introduces a risk-based approach, which involves the use of evidence-based decision-making in order to target the risks of money laundering and terrorist financing facing the Union and those operating within it more effectively.

In order to clarify this concept, the Directive stipulates that the European Surveillance Authorities (ESAs) must issue guidelines on the characteristics of a risk-based approach to supervision and the steps to be taken when conducting supervision on a risk-based basis, by 26 June 2017 at the latest.

1.3. Keeping a National Register of Beneficial Owners 

The Directive aims to identify the beneficial owners, in order to guarantee effective transparency. 

The beneficial owners are any natural person(s) who ultimately owns or controls the customer and/or the natural person(s) on whose behalf a transaction or activity is being conducted.

The Directive obliges the Member States to keep central registers listing adequate, accurate and up-to-date information relating to the beneficial owners.

Member States are obliged to keep central registers listing adequate, accurate and up-to-date information relating to the beneficial owners

The Member States must ensure that the information on the beneficial owners is accessible in all cases to the competent authorities and to the Financial Intelligence Units, without restriction, and also to the obliged entities, within the framework of customer due diligence. 

In addition, any person or organisation that can demonstrate a legitimate interest may access this information.

Exemptions may be provided for all or part of the information on the beneficial ownership on a case-by-case basis in exceptional circumstances, where such access would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation, or where the beneficial owner is a minor or otherwise incapable.

1.4. Rules Relating to Politically Exposed Persons 

The Directive clarifies the rules relating to politically exposed persons, namely persons presenting a greater risk of corruption due to the political positions they hold. 

These are, for example, heads of state, ministers, Supreme Court judges and even members of parliament. The family members of politically exposed persons are also targeted by the measures of the Directive.

It states that in the event of transactions or business relationships with such persons, supplementary measures in addition to those arising out of the obligations of vigilance must be implemented. In particular, the obliged entities must obtain senior management approval for establishing or continuing business relationships with such persons, take adequate measures to establish the source of wealth and source of funds that are involved in business relationships or transactions with such persons and finally conduct enhanced, ongoing monitoring of those business relationships. 

1.5. Application of Simplified or Enhanced Customer Due Diligence Measures

Where a Member State or an obliged entity identifies areas of lower risk, that Member State may allow obliged entities to apply simplified customer due diligence measures. Before applying simplified customer due diligence measures, obliged entities shall ascertain that the business relationship or the transaction presents a lower degree of risk. In any case, the obliged entities must continue to monitor the transactions and business relationships of these clients, in order to be able to re-evaluate the risk, if necessary.

Under the reverse hypothesis, where a raised level of risk is identified, the obliged entities must apply enhanced customer due diligence measures in order to adequately manage and attenuate these risks.

The Annex of the Directive contains two non-exhaustive lists of factors and types of evidence of potentially lower risk, and of potentially higher risk. These factors can be linked to clients, products and services or to geographic areas.

1.6. Inclusion of Tax Crimes  

From now on, in line with the revised FATF recommendations, tax crimes relating to direct taxes and indirect taxes, which are punishable by deprivation of liberty for a minimum period of six months, are included in the broad definition of ‘criminal activity’ contained in this Directive. 

Definitions of tax crimes may differ from one national law to another, which is why the Directive recommends that Member States authorise the exchange of information and provision of assistance between the Union’s intelligence units.

1.7. Persons Responsible and the Toughening of Sanctions 

The obliged entities must identify the member of the management board who is responsible for the implementation of the laws, regulations and administrative provisions necessary to comply with this Directive.

The obliged entities can be held responsible for breaches of the national provisions transposing this Directive. Likewise, where legal persons exist, sanctions and measures can be applied to the members of the management body and to other natural persons who under national law are responsible for the breach.

The sanctions for violation of anti-money laundering rules are specified in more detail in this Directive. The administrative sanctions and measures that can be applied include at least the following: a public statement; an order requiring the natural or legal person to cease the conduct; withdrawal or suspension of an authorisation; a temporary ban against any person discharging managerial responsibilities in an obliged entity: maximum administrative pecuniary sanctions of at least twice the amount of the benefit derived from the breach where that benefit can be determined, or at least 1,000,000 Euros;
 
In principle, sanctions are published.

2. The Regulation 

The aim of the Regulation is to improve the traceability of payments and the transfer of information on the payer and the payee, in order to identify them clearly. The aim, directly related to that of the Directive, is to prevent and detect money laundering and the financing of terrorism.

The information targeted by the Regulation is mainly that which makes it possible to precisely identify the payer and the payee. It is to be kept for a period of five years, which can be extended in certain circumstances.

The information targeted by the Regulation is mainly that which makes it possible to precisely identify the payer and the payee

The sanctions regime was completed and outlined in more detail. Member States shall lay down the rules on administrative sanctions and measures applicable to breaches of the provisions of this Regulation. These sanctions must be consistent with those laid down by the Directive.

The sanctions must at least target

• repeated or systematic failure by a payment service provider to include the required information on the payer or the payee; 
• repeated, systematic or serious failure by a payment service provider to retain records; 
• failure by a payment service provider to implement effective risk-based procedures; 
• serious failure by an intermediary payment service provider to comply.

The Regulation will be directly applicable from 26 June 2017.

3. Conclusion

These two new instruments have the same aim: to prevent and detect money laundering and the financing of terrorism. 

Thanks, inter alia, to the work of FATF, the Directive and the Regulation go further than their predecessor. 

However, it will be necessary to wait for 26 June 2017 for the Regulation to become applicable, and for all of the Member States to have fully integrated the provisions of the Directive into their national legislations.