On 25 June 2015, the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“4th AML Directive“) entered into force, repealing Directive 2005/60/EC of the European Parliament and of the Council (“3rd AML Directive“) and Commission Directive 2006/70/EC.
According to the 4th AML Directive, Member States are required to undertake legislative actions by 26 June 2017, in order to bring into force domestic laws, regulations and administrative provisions, which are necessary to effectively comply with the new anti-money laundering and terrorist financing regime.
Given the permanent evolving nature of money laundering (“ML“) and terrorist financing (“TF“) typologies, the European Central Bank welcomed the initiative of adapting the underlying regulatory landscape for countering such threats, stating that the proposed Union instruments, including herein the 4th AML Directive and the Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006, correctly and effectively address the weaknesses identified in the current EU anti-ML/TF regime.1
Amongst the key-drivers that activated the EU response to the latest and increasingly sophisticated ML/TF strategies, determining, thus, the adoption of the 4th AML Directive, were:
- The alarming amount of illicit money being out there: estimates on the amount of laundered money vary, but are always considerable: between GBP 350bn and 900bn per annum – equivalent to the annual GDP of a large European Country;2
- The alignment with the 2012 Recommendations issued by the Financial Action Task Force (“FATF“) – world anti-ML/TF body, respectively the appropriation of the International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation.
- The 2013 Impact Assessment undertook by the European Commission which identified the existing ML/TF bedrock-problems within the EU3: the lack of consistency between the application of existing anti-ML/TF regulations across EU Member States (with respect to customer due diligence measures) and the loopholes in relation to the existing anti-ML/TF domestic regulations (with respect to the measures related to politically exposed persons).
The 4th AML Directive introduced several key-changes amongst which we would like to highlight the following:
The risk-based approach
The efficient resource allocation for combating ML/TF threats represents one of the pillars of the 4th AML Directive; hence, Member State legislations are to ensure the fulfilment of the 4th AML Directive’s scope in accordance with a risk-based approach to be implemented locally, at the level of each relevant sector.
Thus, Obliged Entities (as defined under the 4th AML Directive4) shall be required to take appropriate steps to identify and assess the risks of ML/TF, by taking into account various risk factors, including those relating to their customers, countries or geographic areas, products, services, transactions or delivery channels. Nevertheless, such steps need to be proportionate to the nature and size of the respective Obliged Entities.
Based on the resulting risk assessment, the 4th AML Directive, shall require Obliged Entities, where appropriate (with regard to their nature and size and subject to senior management approval), to have in place internal policies aiming at mitigating and effectively managing ML/TF risks identified at an EU/Member State/Obliged Entity level, while lower risk transactions, as ascertained under such risk assessment, are to be correlated with simplified customer due diligence measures (“CDDs”).
While the 3rd AML Directive allowed covered institutions and persons to automatically apply simplified CDDs for certain customers (eg. resident/non-resident credit or financial institution complying with the existing anti-ML/TF regime) or for certain products (eg. life/pension insurances, electronic money), under the 4th AML Directive, Obliged Entities have no longer the above-mentioned option, being instead subject to the general obligation of risk assessment.
Obliged Entities may apply simplified CDDs to the extent that the assessed business relationships or transactions presented a lower degree of risk.
Furthermore, if an Obliged Entity has branches and/or majority-owned subsidiaries in third country jurisdictions that do not permit the implementation of group-wide procedures and policies for sharing information for anti-ML/TF purposes, and, in spite of taking additional measures to effectively handle ML/TF resulting risks, such measures prove not to be sufficient, the competent authorities of the home Member State shall, under the 4th AML Directive, exercise additional actions, including, where necessary, the closing down of the group’s operations in that third country.
Expanding the anti-ML/TF scope
The requirement to perform CDDs has become wider, as, under the 4th AML Directive, the concept of Obliged Entities is currently encompassing certain institutions/persons that were left outside the scope of the 3rd AML Directive, such as:
- traders in goods to the extent that payments are made or received in cash in an amount of EUR 10,000 or more (as opposed to the former threshold of EUR 15,000);
- service providers (as opposed to casinos only);
- estate agents (as opposed to real estate agents only).
Widening the scope of requirements with respect to politically exposed persons (“PEPs”)
While the 3rd AML Directive required enhanced CDDs to be performed only in relation to PEPs residing in another Member State, or in a third country, the 4th AML Directive requires Obliged Entities to apply such measures with respect to both resident and non-resident PEPs, respectively with respect to any person entrusted with a prominent public function by a Member State, third country, or by an international organisation.
Increasing Transparency with Respect to Beneficial Ownership:
Upon full transposition of the 4th AML Directive, Member States shall require corporate and other legal entities incorporated within their territories to obtain and hold adequate, accurate and current information on their beneficial ownership, including the details of the final beneficial owners. Such information shall be held in a central registry and shall be accessible in all cases to: (i) competent authorities and financial intelligence units, without any restriction; (ii) Obliged Entities, within the framework of CDDs, in accordance with the related-provisions of the 4th AML Directive; (iii) any person or organisation that can demonstrate a legitimate interest.
Tax Crimes
As a première, the 4th AML Directive includes tax crimes, relating to both direct and indirect taxes, in the broad definition of ‘criminal activity’, in line with the revised 2012 FATF Recommendations. Hence, tax crimes represent predicate offences for ML/TF activities.
The Corresponding Changes within the Romanian anti-ML/TF Regime
Currently, the Romanian anti-ML/TF legal framework is reflecting the 3rd AML Directive, as transposed by the Government Emergency Ordinance No. 53/2008 amending Law no. 656/2002 on preventing and sanctioning ML, as well as for setting up certain measures for preventing and combating TF, and by the Government Decision No. 594/2008 for approving the Regulation on the application of the above-mentioned law. The recent entering into force of the 4th AML Directive triggers the obligation of the Romanian authorities to transpose the new ML/TF principles into local legislation within the deadline imposed therein.
As a result, significant reforms shall be required at a local scale; amongst such reforms, the creation of a central registry holding up-to-date information on all final beneficial owners of the corporate and legal entities incorporated in Romania, is likely to have a significant impact on the local market, given the increasing amount of corporate sensitive information to be made publicly available.
1 Opinion of the European Central Bank of 17 May 2013 on a proposal for a directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and on a proposal for a regulation on information accompanying transfers of funds, (2013), OJ C 166/2;
2 Beware of dirty laundry, Dr Tony Harvey, (2015), http://www.newlawjournal.co.uk/nlj/content/beware-dirty-laundry, accessed on 27 July 2015.
3 Commission Staff Working Document – Impact Assessment – Accompanying the document 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, including terrorist financing and Proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds, (2013), http://ec.europa.eu/internal_market/company/docs/financial-crime/130205_impact-assessment_en.pdf accessed on 27 July 2015;
4 Article 2 of the 4th AML Directive defines the concept of ‘obliged entities’, as it follows: (1) credit institutions; (2) financial institutions; (3) the following natural or legal persons acting in the exercise of their professional activities: (a) auditors, external accountants and tax advisors; (b) notaries and other independent legal professionals, where they participate, whether by acting on behalf of and for their client in any financial or real estate transaction, or by assisting in the planning or carrying out of transactions for their client concerning the: (i) buying and selling of real property or business entities; (ii) managing of client money, securities or other assets; (iii) opening or management of bank, savings or securities accounts; (iv) organisation of contributions necessary for the creation, operation or management of companies; (v) creation, operation or management of trusts, companies, foundations, or similar structures; (c) trust or company service providers not already covered under point (a) or (b); (d) estate agents; (e) other persons trading in goods to the extent that payments are made or received in cash in an amount of EUR 10 000 or more, whether the transaction is carried out in a single operation or in several operations which appear to be linked; (f) providers of gambling services.
