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Anti-money laundering reforms not implemented in majority of EU countries, says commissioner

The majority of EU countries have failed to meet the deadline for implementing new laws designed to combat money laundering and the financing of terrorism, an EU commissioner has said.24 Jul 2017

Justice commissioner Vera Jourová has written to 17 EU countries over their failure to fully implement the EU's 4th Anti-Money Laundering Directive (MLD4), the Financial Times has reported. EU countries were required to transpose MLD4, which came into force in June 2015, into national law by 26 June this year.

The UK, France, Germany, Italy, Spain, Slovenia, Sweden, Austria, Belgium, the Czech Republic and Croatia have implemented the Directive on time, the Financial Times said.

According to the newspaper's report, 14 of the 17 countries Jourová has written to have not yet introduced any new legislation to implement the reforms, while three countries have only partly transposed the Directive into national law.

Jourová said she expects the 17 non-conforming countries to take "swift action" to implement the Directive, the report said. EU countries that fail to implement EU law can face financial penalties.

Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com said: "It is somewhat surprising that while a number of countries, including the UK, have been able to implement the directive within the specified timetable that such a large number of countries have not been able to do so."

"This may be a sign of intentional delay or it may be that these countries have been dealing with issues they consider to be higher up their agendas. The provisions within the Directive have not proved too complicated for a number of countries to implement which suggests this is unlikely to be a reason for the delay," Ruck said.

Banks and other financial firms, as well as gambling service providers and accountancy firms are among the businesses within the scope of MLD4. The Directive refers to such in-scope businesses as "obliged entities".

The Directive sets outs a number of customer due diligence (CDD) measures that the obliged entities must undertake. These include checking the identity and beneficial ownership of customers to understanding who owns and controls the customer, and assessing the purpose and nature of the business relationship, and monitoring it.

CDD must be carried out when obliged entities are establishing a business relationship or carrying out occasional transactions of specified amounts; when there is suspicion of money laundering or terrorist financing, and where there are doubts about previously obtained customer information, amongst other situations.

Obliged entities must carry out each of the measures but can determine their extent taking a risk-based approach endorsed in the Directive. MLD4 also requires obliged entities to apply CDD measures to existing customers at 'appropriate times'. In the UK, the Treasury backed a risk-based approach to CDD to address such circumstances.

Simplified CDD measures can be undertaken if the transaction or business relationship is lower risk, based on types of customers, geographic areas and the products and services involved. Enhanced CDD checks must be carried out in higher risk cases, including where firms have business relationships or carry out transactions with politically exposed persons and when dealing with natural persons or legal entities in third countries identified by the Commission as high-risk.

Under MLD4, each EU country must set up a "central register" to record information on the beneficial owners of companies and other legal entities incorporated in their territories. This information must be "current".