Fourth time’s a charm—Fourth Money Laundering Directive takes effect

Fourth time’s a charm—Fourth Money Laundering Directive takes effect

With the Fourth Money Laundering Directive now in effect, David Rundle and Alison Geary of international law firm, WilmerHale, outline the implications of the Directive as member states begin to consider the path towards implementation.

What is the background to the Fourth Money Laundering Directive?

The Fourth Money Laundering Directive comes into effect on 26 June 2015. EU member states are required to implement the Directive into their domestic law within two years. The Directive adopts proposals made by the Financial Action Task Force, published in 2012.

It has been a decade since the passing of the Third Money Laundering Directive 2005/60/EC. Within that time the regulated financial sector has faced substantial challenges. The speed of technological development and the increase in scrutiny from regulators have placed significant pressure on institutions.

If a firm is currently subject to the Money Laundering Regulations 2007, SI 2007/2157 it is unlikely that the transposition of the Directive will demand that the firm make substantial changes to its anti-money laundering (AML) model. There are two reasons for this. First, most of the changes are relatively modest. Second, while the Directive does introduce several important developments, many of the provisions are already enshrined in UK law. For example, the Directive expressly includes ‘tax crimes’ within the definition of ‘criminal activity’. Tax evasion has been a predicate offence to money laundering since the coming into force of the Proceeds of Crime Act 2002.

What should lawyers take note of?

Two aspects of the Directive warrant closer attention:

  • changes to the provisions regarding simplified customer due diligence, and
  • the obligation on member states to have legal entities (including trusts) obtain and provide adequate and accurate information on their beneficial owners

Simplified customer due diligence

The Third Directive set out circumstances in which firms were exempted from applying customer due diligence requirements. Those exemptions were relatively prescriptive—they applied to specified categories of customer and financial product (eg life insurance policies of relatively low value). The Third Directive also reserved the right for the Commission to set out technical criteria considered indicative of lower

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