The Council of the EU reached general agreement on AML IV on 18 June 2014, paving the way for the commencement of trilogue negotiations with the Parliament when it resumes following the recent elections.

Background to the proposal

In February 2013, the European Commission published the AML IV proposal, with a view to further strengthening the EU’s defences against money laundering and terrorist financing while also ensuring the EU framework is aligned with FATF standards. The package comes in two parts; a proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and a proposal for a Regulation of the European Parliament and the Council on information accompanying transfers of funds.

As reported in our February 2013 Funds E-zine, AML IV proposed the following changes to the existing Third Money Laundering Directive:

• Risk Assessments – The Proposal provides a more focused risk-based approach whereby designated persons are to document risk assessments and maintain the documentation so as to keep it current.
• Customer Due Diligence – Improve the clarity and transparency of the rules on customer due diligence. Designated persons may apply simplified measures provided that this can be justified using the risk-based approach.
• PEPs – Expand on the definition of a politically exposed persons, (i.e. persons who may represent higher risk by virtue of the political positions they hold) to include “domestic” politically exposed persons and those in international organisations and head of states, members of government, members of parliaments and judges of supreme courts.
• Beneficial Ownership – Provide a clear mechanism for identification of beneficial owners by providing that all bodies corporate, legal entities and trustees are to hold adequate, accurate and up-to-date information on beneficial owners.
• Gambling Sector – Expand on the scope of the rules relating to the gambling sector to cover more than just casinos which was the case under the 3rd AML Directive.
• Cooperation – the final aim of the Proposal is to strengthen cooperation between the different national Financial Intelligence Units (“FIUs”). The latter receive, analyse and disseminate to competent authorities reports about suspicions of money laundering or terrorist financing.

Parliament vote

We reported in our April e-zine that the European Parliament voted in favour of the following amendments to the Commission’s original proposal:

• Enhancing the traceability of payments by requiring companies and other legal entities such as trusts to hold and transmit to a public central register, commercial register or companies register, accurate and up-to-date information on the natural person who ultimately owns or controls the company or other entity.
• In order to better understand and mitigate risks at European level, a supranational risk analysis should be carried out by Member States to identify the risks of money laundering and terrorist financing to which the internal market is exposed. Such risk assessments should be shared with each other Member State.
• The Commission is required to produce a risk assessment within one year from the date of entry into force of the proposed Directive, to be updated on a bi-annual basis. The assessment shall cover:
  • The overall extent of money laundering and the areas that are greatest at risk
  • The most widespread means used by criminals to launder illicit proceeds
  • Recommendations to competent authorities on effective deployment of resources
  • Proposals for minimum standards for risk assessments to be conducted by competent national authorities
• The preventive approach to money laundering should be targeted and proportionate (and in full compliance with existing legal principles, especially as regards EU data protection law and the protection of fundamental rights).

Next steps

Now that the Council of the EU has reached general agreement on the proposal, trilogue negotiations can begin amongst the Parliament, the Council and the Commission once the new Parliament is in place following the recent elections. The proposal will then have to be formally adopted by both the Parliament and the Council under the ordinary legislative procedure.

Contributed by Stuart Connolly