Friday, June 5, 2015

EU Issues Fourth Money Laundering Directive

The European Parliament has passed the Fourth Money Laundering Directive (“MLD4”) to combat money laundering and terrorist financing in the European Union ("EU"). The new anti-money laundering ("AML") framework will enable the different Member States to work together in identifying and following suspicious transactions as well as to facilitate the exchange of information. Money laundering and terrorist financing are frequently carried out internationally and hence, measures adopted at national or at union level will be insufficient if international coordination and cooperation is not taken into account. The Directive sets out the preventive measures to curb money laundering and terrorist financing.

The Directive will require Member States to set up central registers of the ultimate beneficial owners of corporate and other legal entities such as trusts. Information such as the beneficial owner’s name, date of birth, nationality, country of residence and details of ownership will be included in the central registers. Financial institutions, accountants, tax advisers, lawyers and trust service providers are required to obtain adequate, accurate and up-to-date information on the beneficial ownership of their clients, in addition to basic information such as company name and address as well as proof of incorporation and legal ownership. The central register will be open to authorities as well as banks performing due diligence checks. It will be accessible to persons with legitimate interests, such as non-governmental organisations and investigative journalists. The UK has already put in place similar provisions in which a ‘register of people of significant control’ is established, whereby UK companies are obliged to provide information on beneficial owners.

The definition of politically exposed persons (“PEPs”) has also been extended under the new Directive. The MLD4 extends the PEP definition to domestic PEPs and emphasizes that firms must have in place appropriate risk management systems to determine whether the customer or the beneficial owner of the customer is a PEP. Firms must take adequate measures in cases of business relationships with PEPs. For example, firms must establish the source of wealth and source of funds of such persons.

Alongside the new Directive, a new “Transfer of Funds” Regulation has been approved which sets out provisions to ensure full traceability of funds transfers within, to and from the EU. The “Transfer of Funds” Regulation will be applicable to all member states 20 days after the publication of the EU official journal in June-July 2015. The EU will also put in place a process to guide Member States in implementing the Directive into national law over the coming months. Member states will have two years to implement the directive into national laws.

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