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On June 26th, the European Union’s 4th Anti-Money Laundering Directive entered into force with the ultimate goal of curtailing money laundering and financial terrorism and encouraging greater transparency to prevent tax avoidance.
Member states had been given two years to pass this directive into law with the deadline finally arriving earlier this week.
As explained by a European Commission press release, the 4th AML directive looks to bolster existing regulations via the following changes:
- Strengthening “the risk assessment obligation for banks, lawyers, and accountants;”
- Establishing “clear transparency requirements about beneficial ownership for companies,” with information to “be stored in a central register, such as commercial registers, and will be available to national authorities and obliged entities;”
- Encouraging greater “cooperation and exchange of information between Financial Intelligence Units from different Member States to identify and follow suspicious transfers of money to prevent and detect crime or terrorist activities;”
- Setting up “a coherent policy towards non-EU countries that have deficient anti-money laundering and counter-terrorist financing rules,” and;
- Bolstering “the sanctioning powers of competent authorities.”
The European Commission’s Head for Justice, Consumers and Gender Equality, Věra Jourová, said: “Terrorists and criminals still find ways to finance their activities and to launder illicit gains back into the economy. The new rules as of today are crucial to closing further loopholes. I urge all Member States to put them in place without delay: lower standards in one country will weaken the fight against money laundering and terrorist financing across the EU. I also call for quick agreement on the further revisions proposed by the Commission following the “Panama Papers” to increase transparency of beneficial ownership.”
Varied Reactions to the EU’s 4th Anti-Money Laundering Directive
Reactions to this directive’s final implementation have been varied with many affected parties raising a series of concerns.
Real estate agents and surveyors, for example, believe this new AML directive will hinder their ability to do their job.
According to Gordon Dadds, a legal and professional services firm in the UK, this new AML regulation could potentially lead to “a doubling of administration for agents, increased costs and also slow down the buying process for everyone,” while “for larger estate agent groups it could lead to a combined additional costs of £6 million.”
Alex Ktorides, a Partner at Gordon Dadds, said the 4th AML directive “is going to create substantial challenges for the property sector especially given the final version of the directive has only been made public today which has left no time for banks, estate agents and the lending sectors among others to update their policies and processes alongside training staff on the new regime.”
“Some agents have in excess of 100 branches and have received no prior time to implement the new processes in order to comply. For many smaller estate agents and surveyors this will be the first time they will have carried out checks on both the buyers and sellers and they are going to have to get up to speed with the regime as quickly as possible or risk facing a unannounced visit from the HM Treasury,” he added.
Other analysts believe the 4th AML Directive will ultimately do little to stem the illicit flow of funds.
Luca Primerano, Head of Strategy at Fortytwo Data, said, “With terrorist attacks on the rise, any legislation that creates a more hostile environment for the funding behind them must be welcomed. The problem is, however much due diligence and additional risk assessment the new legislation introduces, it cannot be relied on to solve illicit money flows once and for all.”
“The level of sophistication that today’s terrorist and criminal organisations use to launder their money is frightening, and while the new legislation is a step in the right direction strategically, operationally the average company or financial institution is light years behind the techniques being employed by terrorist networks,” Primerano added.
"Effective anti-money laundering (AML) and combating the financing of terrorism (CFT) require not just tougher legislation but big data and machine learning-powered tools that can identify transactional patterns a human would never spot," he concluded.
Finally, Mike Harris of LexisNexis Risk Solutions expressed his concern over the effect the 4th AML Directive’s implementation might have on small and medium-sized enterprises.
Harris said, “Britain has always been at the forefront of fighting financial crime – but our research shows the compliance professionals in the financial services sector view the new regulations as further supporting the fight. That said, it’s important not to underestimate the sheer scale of the logistical challenge for organisations resulting from this regulatory change, especially for smaller to medium sized firms.”
How will the 4th AML Directive affect your business? Let us know in the comments box!