The 4th EU AML Directive has been adopted

On the 20th May 2015, the EU Parliament has adopted the final proposal of the 4th EU AML Directive as a result of the compromise reached in negotiations between the Council and the European Parliament, with the support of the Commission back in April 2015.

The ultimate owners of companies will have to be listed in central registers in EU countries, open both to the authorities and to people with a “legitimate interest”, such as investigative journalists, under new rules already agreed with the Council and endorsed by Parliament on Wednesday. The new anti-money laundering directive aims to step up the fight against tax crimes and terrorist financing. New rules to make it easier to trace transfers of funds were also approved.

The fourth anti-money laundering directive (AMLD) will for the first time oblige EU member states to keep central registers of information on the ultimate “beneficial” owners of corporate and other legal entities, as well as trusts. These central registers were not envisaged in the European Commission’s initial proposal, but were included by MEPs in negotiations.

The text also sets out specific reporting obligations for banks, auditors, lawyers, real estate agents and casinos, among others, on suspicious transactions made by their clients.

“Legitimate interest” access to ownership registers

The central registers will be accessible to the authorities and their financial intelligence units (without any restriction), to “obliged entities” (such as banks doing their “customer due diligence” duties), and also to the public (although public access may be subject to online registration of the person requesting it and to a fee to cover administrative costs).

To access a register, a person or organisation (e.g. investigative journalists or NGOs) will in any event have to demonstrate a “legitimate interest” in suspected money laundering, terrorist financing and in “predicate” offences that may help to finance them, such as corruption, tax crimes and fraud.

These persons could access information such as the beneficial owner’s name, month and year of birth, nationality, country of residence and details of ownership. Any exemption to the access provided by member states will be possible only “on a case-by-case basis, in exceptional circumstances”.

Central register information on trusts will be accessible only to the authorities and “obliged entities”.

Special measures for “politically-exposed” persons

The text clarifies the rules on “politically-exposed” persons”, i.e. people at a higher than usual risk of corruption due to the political positions they hold, such as heads of state, members of government, supreme court judges, and members of parliament, as well as their family members.

Where there are high-risk business relationships with such persons, additional measures should be put in place, e.g. to establish the source of wealth and source of funds involved, says the directive.

Tracing transfers of funds

MEPs also approved a “transfers of funds” regulation, which aims to improve the traceability of payers and payees and their assets.

Next steps

Member states will have two years to transpose the anti-money laundering directive into their national laws. The transfers of funds regulation will be directly applicable in all member states 20 days after its publication in the EU Official Journal.

Source: EU Parliament

The EU Council ready to adopt the 4th EU AML Directive

According to the Draft Statement of the Council’s next meeting, on 20th April 2015, the Council of European Union is to adopt  the text of the 4th EU AML Directive  and Regulation on Transfer of Funds at first reading. This means that we will be able to see both documents to be finally adopted by the European Parliament within the next three months as per the EU ordinary legislative procedure.

As per the Draft’s words, the Council’s Position at first reading not only reflects the compromise reached in negotiations between the Council and the European Parliament, with the support of the Commission, but it also represents a balanced package to the fight against money laundering and terrorist financing in the Union.

Aiming to strengthen the EU’s defences against money laundering and terrorism financing, the EU Council has expanded AML/CTF rules in the draft of the 4th Directive. A summary of main amendments follows:

  • For gambling services posing higher risks, the Directive requires service providers to conduct due diligence for transactions of € 2000 or more. With the exception of casinos, Member States will be allowed to exempt gambling services from some or all requirements, in strictly limited and justified circumstances. Such exemptions will be subject to an appropriate risk assessment.

 

  • Furthermore, in certain proven low-risk circumstances and under strict mitigating conditions, Member States are allowed to exempt electronic money products from certain customer due diligence measures.

 

  • The Directive applies a risk-based approach to better target risks. The importance of a supranational approach to risk assessment has been recognised at international level. As the Commission is well placed to review specific cross-border threats, it has been entrusted with the responsibility of coordinating the assessment of money laundering and terrorist financing risks affecting the internal market and relating to cross-border activities.

 

  • With regard to the treatment of politically exposed persons, the Directive does not distinguish between persons who hold or have held prominent functions domestically and those who hold or have held such functions abroad.

 

  • As a result of the Directive, beneficial ownership information on corporate and other legal entities will have to be held in a central register in each Member State. Member States that so wish may use a public register. Beneficial ownership information will be accessible to competent authorities and financial intelligence units and, in the framework of the conduct of customer due diligence, to obliged entities. The Directive also enables persons or organisations that can demonstrate a legitimate interest to access at least the following information on the beneficial owner: its name, month and year of birth, nationality and country of residence, as well as the nature and extent of the beneficial interest held. As for trusts, central registration of beneficial ownership information will be used when the trust generates tax consequences.

 

  • As concerns sanctions, the text provides for maximum administrative pecuniary sanctions of at least twice the amount of the benefit derived from the breach, where that benefit can be determined, or at least €1 million. For breaches involving credit or financial institutions, it provides for: a maximum pecuniary sanction of at least €5 million or 10% of the total annual turnover in the case of a legal person; a maximum pecuniary sanction of at least €5 million in the case of a natural person. The provisions relating to sanctions of the Regulation have been aligned to those of the Directive.

 

  • In order to protect the proper functioning of the EU financial system and of the internal market from money laundering and terrorist financing, the Commission will identify, by means of delegated acts, third country jurisdictions which have strategic deficiencies in their national regimes in the field of anti-money laundering and countering the financing of terrorism.

 

The EU Sanctions Best Practice updated – main changes

On 24th March 2015, the Foreign Relations Counsellors Working Party , EU body dedicated to the development of best practices among Member States in implementation of restrictive measures, published an updated version of the document EU Best Practices for the effective implementation of restrictive measures, which amends the previous version published in 2008.

The update document contains non exhaustive and non binding recommendations which cover a number of issues relating to listing & de-listing on EU targeted sanctions measures, & national implementation of asset freezing measures.

As summarised by Maya Lester, the most significant amendments are:

  1. The addition of a section on de-listing from United Nations sanctions lists.
  2. Clarification of the tests for “ownership” or “control” of an entity and “making funds available indirectly”, mirroring the Guidelines on Implementation of Restrictive Measures published by the EU in 2013.
  3. An explanation of the non-liability & no claims clauses in a number of EU sanctions Regulations, which provide that no liability is incurred for damages caused by sanctioning a person in accordance with EU measures, or for breaching sanctions where it was not known or there was not reasonable cause to suspect that the action would infringe restrictive measures.
  4. A statement that, unless otherwise specified, sanctions measures annulled by the European court remain in force for the 2 month and 10 day time limit in which an appeal may be brought and for as long as an appeal is pending.
  5. Clarification of some of the grounds for exemptions to asset freezes (licences), and of the process for transfer of funds between EU and non-EU financial institutions where sanctions are involved.

 

What has Iran done recently to circumvent international financial sanctions?

Intelligence officials and diplomatic sources say that Iran has smuggled at least $1 billion in cash into the country to blunt the effects of Western sanctions.

Multiple sources told Reuters on Tuesday that Iran’s efforts to obtain smuggled bank notes for international transactions is much bigger than previously thought.

How has it been done so far? Western and Iranian sources said Iran’s central bank had in recent months worked with other entities, including other sanctioned Iranian companies, to find ways to obtain U.S. dollars, including using front companies and their networks. They said the central bank had given the orders to the front companies abroad to buy dollars. The sources said the cash was hand-carried by couriers on flights from Dubai or Turkey, or brought across the Iraq-Iran border. Before it reached Iran, the cash was passed through money changers and front companies in Dubai, in the United Arab Emirates, and Iraq, they added.

News of the smuggling efforts comes as the U.S. and its allies scramble to reach a nuclear deal with Iran by a March 31 deadline. The next round of discussions are scheduled for March 2.

The U.S. Treasury reported on Iran’s efforts to skirt sanctions in December, but at the time the figure was thought to be in the hundreds of millions of dollars.

Reuters interviewed three Western diplomatic sources and three Iranian government officials, all who said that Iran has been working on better ways to evade sanctions over its nuclear program since last March.

Officials said that Iran is using front companies in Dubai, Iran and in the United Arab Emirates to obtain dollars, Reuters reported. The news service’s sources asked not to be identified due to the sensitive nature of details disclosed.

Sources: Reuters and Washington Times

Council of Europe advises on Lithuania corruption

On 11th Febraury 2015, the Council of Europe Anti-Corruption Group (GRECO) published a report in which the outcomes of the 4th Evaluation Round of Lithuania corruption are noted. In particular GRECO referred to the following:

  • Acknowledgement of the comprehensive legal and institutional framework developed by Lithuania to prevent and fight corruption among members of parliament, judges and prosecutors.
  • The need for the authorities to now shift their focus to ensuring that the legal norms are well understood and properly enforced.
  • Despite the efforts of the many institutions responsible in this field, the perceived levels of corruption in Lithuania remains above EU members’ average. Levels of public trust in the parliament and the judiciary are particularly low, even though some studies show a certain improvement in recent years.
  • The Seimas (the unicameral Lithuanian parliament) in particular needs to demonstrate its commitment to addressing matters of ethics and integrity in a more proactive manner. Compliance with rules on conflicts of interest and other rules of conduct needs to be properly monitored and enforcement action be taken when necessary. In-house channels must be developed to promote and safeguard integrity and access to information needs to be improved in selected areas, notably as regards the work of committee meetings.
  • The judiciary needs to pursue and intensify its efforts to address the gap in public confidence, with particular attention to be paid to education to improve the drafting of judicial decisions and to institutional discussions on ethical issues. The procedure for the appointment of judges is another area of concern, which must be addressed in order to increase judicial independence and public confidence.
  • The prosecution service faces similar challenges as the judiciary, being also perceived as a close institution, in which there is mistrust in the process of recruitment and promotion. It must address this confidence gap by stepping up its communication with the public and increasing the transparency and objectivity of appointments.
  • Finally, it is crucial that the different institutions holding responsibilities in the field of ethics and integrity establish closer co-operation in raising awareness and enforcing anti-corruption rules.

The implementation of recommendations addressed to Lithuania will be assessed by GRECO in the second half of 2016 through its compliance procedure.

Source: Council of Europe – GRECO