The fourth Anti-Money Laundering (AML) Directive will take effect from 26 June. EU countries will have two years from then to implement the rules contained in the Directive into national laws.
The Directive applies to a range of businesses, from banks and other financial institutions to auditors and accountants. The rules will also have to be complied with by any other kinds of businesses involved in making or receiving cash payments for goods worth at least €10,000, regardless of whether payment is made in a single, or via a series of linked, transactions.
Gambling operators could also be subject to the new rules where customers wish to place a stake worth, or collect winnings of, at least €2,000, unless EU governments decides to, and can legitimately, opt those companies out of those requirements under the Directive, and provide justification for doing so to the European Commission.
"With the exception of casinos, and following an appropriate risk assessment, member states may decide to exempt, in full or in part, providers of certain gambling services from national provisions transposing this Directive on the basis of the proven low risk posed by the nature and, where appropriate, the scale of operations of such services," according to the new AML Directive.
The new regime will bring into force new customer due diligence checking requirements, together with new obligations to report suspicious transactions and maintain records of payments. Businesses subject to the rules will also have to install internal controls to combat money laundering and terrorist financing activities under the framework.
In addition, EU countries must set up registers to record the ultimate 'beneficial' owners of businesses. The registers will be accessible by 'authorities' within each country, to 'obliged entities' such as banks doing due diligence into customers, and to others, such as investigative journalists, who can demonstrate a "legitimate interest" in gaining access to the information.
Financial services litigation and compliance expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said: "The obligation placed upon EU member states to maintain central registers listing information on the ultimate beneficial owners of corporate and other legal entities will enable greater transparency in financial transactions. This will no doubt achieve one of the EU’s objectives in making it more difficult for transactions to mask money laundering activity."
"Central registers will also make it easier for regulators and prosecutors to identify potential wrongdoing and to identify those businesses who are either intentionally or unknowingly caught up in illicit activity. Certain financial services firms will have access to a wider range of information in order to conduct customer due diligence and there is no doubt that they will have to ensure they take full advantage of this to avoid the wrath of regulators for failing to take appropriate steps to prevent financial crime," he said.
Ruck said financial services firms involved in illicit transactions can expect to come under "significant scrutiny to identify the beneficial owners of those involved" and should expect to be on the end of "swift and significant action from prosecutors and regulators" should they fail to meet the requirements.
He said that the central registers raise a number of data protection issues too.
"The wider availability of information including an individual’s name, month and year of birth, nationality, residency and details on ownership raise significant risks regarding inappropriate access or use of such personal data, in particular, due to the provision that this information will be accessible to people or organisations who can demonstrate a 'legitimate interest', such as investigative journalists and other concerned citizens," Ruck said. "A balance must be found between addressing the risks of money laundering with the protection of each individual’s personal data and right to privacy."
Ruck said that EU countries have generally copied the provisions of previous EU legislation on anti-money laundering straight into national law. He said this time EU countries might look to "reduce the burden such a central register will impose on firms to identify and provide the information required". However, he questioned whether the UK government would have an appetite to do so.
"We are in a political and regulatory atmosphere in the UK where the prevention of financial crime, including money laundering, is paramount and likely to outweigh the burden placed on firms by this directive," Ruck said.
The most severe financial penalties that could be levied for non-compliance with the new AML Directive are fines of up to at least €5 million or 10% of a business' annual turnover.