In order to understand what necessitated the emergence of the Sixth EU Anti-Money Laundering Directive (AMLD6), it is imperative to know what money laundering actually stands for and entails.
What is meant by anti-money laundering?
Money laundering is simply known to be the unlawful act of converting or siphoning off financial assets with the malicious intent of concealing their origins. This is usually done when the assets themselves have been amassed through illegitimate means. Through the process of money laundering, offenders try to camouflage their sources of assets to present them as legal.
This process undertaken by fraudsters to disguise their financials as legitimate is also known by other technical names such as “washing” and “laundering”. This is because the act itself is aimed at cycling assets through various corporations and holdings until the source is too obscure to be traced.
This is where AML Solutions come into play. To counter the widespread corruption robbing businesses and countries of their wealth, a comprehensive mechanism consisting of rules, procedures, laws and regulations came into effect, directed towards the prevention of money laundering crimes.
With reference to the system of international law, the European Union enacted the Sixth Anti-Money Laundering Directive (AMLD6), which requires member states to institute tougher sanctions in order to combat the menace in discussion.
The key AMLD6 guidelines detailed
The AMLD6 is an update to the previous AMLD5 which puts businesses under increased surveillance prompting them to take on a greater role in the fight against money laundering and terrorist financing. In particular, the law expands the scope of definition, extends the list of predicate offenses and expands criminal liability due on various entities.
- Expanding the scope of “money laundering”: AMLD6 consolidates the scope of criminal activity by including the laundering of property as well as the acquisition, concealment, and distribution of all physical and virtual assets stemming from illegal activities, be it money, artworks, or real estate.
- Harmonizing the list of predicate offenses: Article 2 of the AMLD6 enlarges the list of crimes deemed criminal activity by bringing together 22 offenses predicate to money laundering (crimes that assist offenders in the laundering of funds). These include terrorism, human trafficking, corruption, cybercrime and environmental crime, the last two being new to EU law.
- Expanded liability on various entities: AMLD6 expands criminal liability to legal entities, including companies and partnerships. Where the negligence or “lack of supervision or control” by an organization or “directing mind” results in the perpetuation of an unlawful activity deemed in violation of the directive, the organization’s business leaders will be liable to pay a penalty, even if the main perpetrator(s) of the crime remains unknown.
What industries are impacted by AMLD6 guidelines?
Anti-money laundering regulations are usually misconstrued to be only associated with financial institutions, especially banks, which is not the case in today’s globalised world.
With the inception of industries like cryptocurrencies and internet banking, AML regulations have become more relevant than ever with far-reaching implications for a conglomerate economy, that includes but is not limited to:
- Financial institutions
- Credit institutions
- Debt-recovery institutions
- Trusts and holding companies
- Traders exchanging goods where cash payments involved amount to €10,000 or more
- Estate agents
- Bearers of virtual currencies
It goes without saying that cryptocurrencies and those in possession of crypto wallets will be under greater spotlight by the new AML legislation. What this essentially means is that the realm of digital currency will be entitled to satisfy the requirements of customer due diligence in the same way as any financial institution is required to
Not to say that agencies such as art dealers will be facing any lesser obligations. Not only will they be required to verify their customers’ identities for any transactions greater than €10,000 but they will also be liable to maintain an audit trail of such transactions as dictated by the terms and conditions of KYC and KYCC.
The importance of staying AML compliant in 2021
If there is anything that the COVID-19 pandemic or the revelation of Pandora Papers has taught the world, it would surely be that money laundering is insusceptible to the developments of an erratic world. More so, how this financial menace has become ever-pervasive with the innovations in the digital sphere. The United Nations Office on Drugs and Crime (UNODC) estimates that around 5% of the global GDP is laundered annually.
In order to prevent the global financial disparity arising from the siphoning of wealth from unregulated economies that end up in the funding of ilicit crimes, businesses should update their AML procedures to align with the latest regulations concerning money laundering as well as the new list of predicate offences.
The formulation of an AML compliance program is indispensable to businesses if they are to abide by local, state and federal regulations. Such a program should include:
- Enhanced monitoring procedures to regulate valuable financial transactions
- Improved Customer Due Diligence and adverse media screening
- Compliance training for business employees
Businesses might tailor various compliance systems to suit their requirements depending upon the dynamics and scale of operations but your company’s AML compliance program needs to include a requirement for member states to work together in their prosecution of money laundering offenses. The directive also adds “aiding and abetting” as well as “attempting and inciting” money laundering, which increases the reach of the directive to include those tangentially involved in criminal activity.