Full Speed Ahead on the Fourth Anti-Money Laundering Directive- Lexis®PSL Legal Ease

Written by Irina Nechifor

The Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849) (AMLD4) came into force on 25 June 2015, and the original date for its implementation by member states was set for 26 June 2017. The main goal of AMLD4 is to prevent the use of the EU’s financial system for the purposes of money laundering and terrorist financing. On 2 February 2016, the EU Commission (Commission) published its Action Plan to further step up the fight against money laundering and terrorist financing by:

• bringing the AMLD4 implementation date forward to 2016; making a number of amendments to AMLD 4;
• speeding up actions that can be taken under the existing AMLD4 framework;
• and taking forward initiatives outside the ALMD4 framework.

This urgency contrasts with the recent trend of delayed developments and potential push-backs in the implementation of significant financial services legal initiatives – terrorist financing in its many possible forms is now firmly at the top of the Commission’s agenda.

How does the Commission intend to modify the existing AMLD4 framework?

The main amendments to AMLD4 proposed by the Commission relate to Virtual Currency (VC) transactions, prepaid instruments (such as prepaid cards) and centralised bank and payment account registers. There is increasing evidence that VC transfers are used by terrorist organisations to move and store illicit funds out of reach of law enforcement and other authorities. VC are currently not regulated at EU level, and whilst these transactions are recorded, they remain anonymous, and there is no reporting mechanism equivalent to that found in the mainstream banking system to flag and identify suspicious activity.

The Commission proposes to bring anonymous currency exchanges under the control of competent authorities by extending the scope of the AMLD4 to include VC exchange platforms and have them fall under the supervision of antimoney laundering/counter terrorist financing legislation at national level. In addition, the Commission will examine the option of applying the licensing and supervision rules of the Payment Services Directive (Directive (EU) 2015/2366) (PSD2) to VC exchange platforms. The Commission will also examine whether to include VC “wallet providers” – the entities which a software application or other means of holding, storing and transferring VC – as well as VC exchange platforms. Prepaid cards have also been used by terrorists to finance the logistics of terrorist attacks anonymously, although prepaid cards also provide a way for economically vulnerable or financially excluded people to make payments both on- and off-line and the Commission recognizes that a balanced approach is required.

The Commission is considering amendments to AMLD4 which would reduce the thresholds below which identification when using prepaid cards is not required and require identification and verification when prepaid cards are activated on-line. Centralised registers at national level showing all bank accounts held by one person may help to combat terrorist financing by making it easier to investigate the finances of a suspected terrorist. The Commission proposes to amend AMLD4 to establish these registers or data retrieval systems which would make similar information available to law enforcement authorities.

What immediate actions will be taken under the existing AMLD4 framework?

The current regulatory framework under AMLD4 will be used to speed up the response to terrorist financing in the following ways:

• accelerate the Commission’s work to identify countries with deficient frameworks relating to anti-money laundering or countering terrorist financing. As already provided under the AMLD4, member states should apply enhanced due diligence measures on finances coming from and going to these listed countries. The Commission will compile this list by June 2016;
•  improve the exchange of financial intelligence between EU Financial Intelligence Units.

Initiatives outside the AMLD4 framework

The Commission has proposed the following initiatives:

• legislative proposal for harmonising money laundering criminal offences and sanctions; immediate action on the concrete application of UN freezing orders by all EU member states, including providing technical assistance to 3rd countries in order to align them to the UN sanction and asset freezing measures;
• legislative proposal to counter illicit cash movement;
• completing the EU regime to track and freeze terrorist assets;
• steps to strengthen the mutual recognition of criminal assets freezing and confiscation orders;
• the following steps to target sources of terrorist funding: legislative proposal reinforcing customs’ powers and co-operation and addressing terrorist financing from trade in goods and legislative proposal against illicit trade in cultural goods.