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2016.03.26 - The European Union: Fourth Anti Money Laundering Directive

 

In 2015, the European Parliament and the Council adopted the Directive EU/2015/849 – already the fourth directive aimed at the prevention of the use of the EU financial system for the purposes of money laundering and the financing of terrorists.

The Directive determines the types of entities obligated to comply with the due diligence requirements in respect of their clients. Among the obligated entities are financial institutions, companies providing corporate and trust services, as well as other persons engaged in professional activities within the financial market.

The 4th Directive focuses on risk assessment of clients, which is an important duty for every obligated entity. In this regard, by June 26, 2017 EC Commission will develop the risk criteria, i.e. - depending on the client’s activities, the country of his location and other criteria obliged entities will have to recognize the risk level when cooperating with a particular client.

The minimum period during which the obliged entities must keep the records about their clients, according to the Directive is 5 years from the date of the closing of cooperation with a particular client. Nevertheless, through its national laws, each EU state has the right to determine a longer period for the mandatory keeping of documents.

The Directive also stipulates obliged entities should not only receive due diligence information about the client (as stated by Article 13 of the Directive) when establishing a relationship with the client – but also, after that, regularly update this information (as stated by Article 14 of the Directive).

The term “Beneficial Owner” is defined in the Directive as “any natural person, who ultimately owns or controls the customer”. Article 36(а)(1) of the Directive sets the standard threshold for the mandatory identification of a beneficial owner with percentage ownership beginning from 25%. Nevertheless, each EU state may determine through its national laws a lower ownership percentage at which the beneficial owner may be identified.

Similar to previous directives, specific attention is paid to politically exposed persons (PEP). However the position of the Directive is that measures in respect of politically exposed persons are preventive, not prohibitory. Working with PEP requires a higher level of due diligence and more detailed risk assessment - but as such there is no prohibition of cooperation (as it would contradict the Directive idea and recommendations of FATF). An obligation to research whether the client is a politically exposed person or a family member of a politically exposed person is imposed on an obliged entity that is providing the service to particular client.

The Directive (specifically, its Article 30) obliges all EU states to ensure by their national legislation the keeping of records on beneficial owners of all legal entities and other legal formations (foundations, trusts, etc.) established in the territory of this state in the centralized register (in practice, in most cases – in the register of enterprises of particular country).

The public access to this information is not obligatory but it must be accessible to law-enforcement institutions as well as other individuals providing the individual is able to prove a lawful interest on a specific company in the aspect of the prevention of money laundering or other crimes – such as corruption, tax-related crimes, fraud, etc. Simultaneously each state has the right to set out in its national laws wider limits for access to the above said information.

In accordance with Article 67 of the Directive, all EU member-states are obliged by June 26, 2017 to adopt their national laws to ensure that they correspond to the above requirements.

Comments by INTERNATIONAL OVERSEAS SERVICES:

Directive EU/2015/849 is an important step to the further stabilization of the EU financial system and its protection against possible misuse. Following the due diligence and AML principles is an integral part of the work of any participant in the financial market in the EU for more than 15 years. Furthermore the process of development of the internal AML procedures and Due Diligence measures of market participants is ongoing.

A new requirement, in relation to the previous AML directives, is the recording of data on persons in control of companies and other legal formations established in EU member states in the central register of each state. Even prior to the adoption of the EU 4th Directive, a similar principle was already introduced by Great Britain by adopting the Small Business Enterprise and Employment Act 2015.

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