201512 CM December

As an example of an area in which many
banks and corporates have suffered
losses is trade-based money laundering
techniques. These have become very
sophisticated and include over/under
invoicing, over/under shipping of goods,
multiple invoicing, falsely describing goods
and even phantom shipping.
NEW EU REGULATIONS
Now that we have had anti-money
laundering regulation for almost 25 years,
it is not surprising that the regulations and
law have changed to take account of the
experience gained during this time and to
overcome the sophisticated techniques
employed by criminals.
The 4th EU AML Directive has
introduced both new requirements and
changes to existing procedures.
The key changes for the UK can be
summarised as:
• Introducing a risk-based approach
• Ongoing Monitoring
• Increased requirements with regard to
politically exposed persons
• Register of Beneficial Owners
• Increased scope re customer due
diligence
These changes are expected to provide
benefits to businesses, Governments
and law enforcement by ensuring that
resources can be targeted towards areas
of higher risk. The Directive’s more riskbased
approach and, hopefully, a greater
consistency in the implementation of 4th EU
AML Directive across the EU member states
is designed to simplify EU cross-border
trade and implementation of the various
FATF regulations.
In addition, the AML regulations will
have to be met by any business involved
in making or receiving cash payment
for goods worth at least EUR 10,000
equivalent, regardless of whether payment
is made in a single or series of individual
transactions.
Where a business operates in the
gambling sector, the new rules apply where
individual stakes or winnings are in excess
of EUR 2,000. EU Member States can
legitimately decide to opt those companies
affected out of the requirements of the
Directive but the Government making the
decision has to justify this to the European
Commission.
Let’s consider these changes in more
depth.
Risk Based Approach
The new regulations introduced will require
EU Member States to evidence that they
have taken necessary actions to identify,
assess and mitigate both AML and Counter
The old saying, to be
forewarned is to be
forearmed, continues
to be true. There will
undoubtedly be some
consultation and
awareness sessions
where businesses
can learn more
about the new AML
requirements. It is
an investment worth
making.
STEPHEN PIGNEY
TRAINER AND EXAM BOARD
MEMBER OF THE ASSOCIATION OF
CORPORATE TREASURERS (ACT)
Terrorist Financing (CTF) risk.
Whilst designated persons (now to
be called ‘Obliged Entities’) are already
required to comply with this requirements in
the existing rules, the 4th EU AML Directive,
is more explicit in the areas to be assessed.
In addition, under the 4th Directive, the
list of jurisdictions with AML/CTF legislation
which is considered to be equivalent to
that across the EU will be rescinded and
obliged entities will need to perform a
risk assessment on countries where they
do business outside the EU. This change
acknowledges that the levels of action
required by EU Member States, Supervisors
and businesses will vary according to the
nature and severity of the risk.
Worthy of particular mention is that
under the new Directive, transactions
involving public limited companies, public
bodies and some defined jurisdictions
will qualify for simplified due diligence.
Conversely, transactions involving asset
holding vehicles, cash-intensive businesses,
those where unusual or unnecessary
complex share ownership structures are
in place and jurisdictions associated with
higher risk will require enhanced due
diligence.
Politically Exposed Persons (PEP)
It has always been a requirement to
undertake enhanced due diligence where
a counterparty includes a PEP and the
4th AML Directive confirms that enhanced
due diligence is required in all transactions
where a PEP is involved.
For clarification, a PEP is considered
a person that has, or has influence, over
positions of power and includes Members
of Parliament, high ranking officials and
senior figures in Public Bodies. A close
family member or close associate of a
PEP also has to undergo enhanced due
diligence.
A PEP has been defined to include
domestic and overseas domicile, although
this currently is the case in the UK. Obliged
entities will therefore be required to review
their customers to ascertain if there is
a need for re-classification and, where
applicable, apply enhanced due diligence.
Obliged entities will be required to
monitor the risk posed when a person
ceases to be so classified for a period
of 18 months, rather than the 12 month
monitoring period.
Register of Beneficial Owners
As part of the 4th AML Directive, EU
Member States are obliged to maintain
central registers listing information on the
ultimate beneficial owners of a corporate
or other legal entity to provide greater
transparency in financial transactions.
This requirement also extends to Trustees.
Together, the measures are designed to
make it increasingly difficult to undertake
transactions to mask money laundering
activity.
This does of course raise questions
regarding potential inappropriate access or
use of the personal data held on the register.
The Directive requires the information on the
central register to be accessible to people
and organisations who can demonstrate a
‘legitimate interest’.
Increased Scope re Customer Due Diligence
The previous Directive allowed businesses
to apply simplified due diligence in certain
situations which reduced the regulatory
burden. The EU’s view was that blanket
exemptions are too permissive and lenient
and this will be changed. The new regime
will bring into force new customer due
diligence checking requirements. All
counterparties will need to be identified with
records being maintained showing what due
diligence has been undertaken.
The level of customer due diligence
undertaken will be dependent on the
perceived risk of that customer and where
the risk is considered low, simplified due
diligence is acceptable. The 4th Directive
has prescribed minimum factors to be taken
into account before simplified due diligence
is considered acceptable. If simplified due
diligence is undertaken, the obliged entity
will need to be able to evidence the factors
giving rise to reduced due diligence being
carried out.
14 December 2015 www.cicm.com
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