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Anti-money laundering—Commissioner Barnier welcomes progress in Council
The use of the financial system for the purpose of money laundering and terrorist finance is prevented by a Directive in a proposed anti-money laundering (AML) package agreed by the European Council. The second legal instrument included in the package regulates information accompanying transfers of funds to secure due traceability of the transfers. Both proposals take into account 2012 recommendations from world AML body the Financial Action Task Force (FATF) to promote the highest standards for AML and counter terrorism financing.
What are the key features of the Directive?
The Directive implements five key changes:
It increases the emphasis on a risk-based approach (which has already formed part of the UK AML regime for many years). The Directive acknowledges that measures should be adjusted according to the level of risk presented in specific jurisdiction and sectors and clarifies situations when simplified customer due diligence (CDD) will be appropriate. It has been argued, for example, that too many financial institutions have adopted simplified CDD in circumstances where more detailed CDD was appropriate.
Politically exposed persons (PEPs)
It incorporates recommendations relating to PEPs. As well as clarifying that enhanced due diligence is always appropriate when transactions involve PEPs, the Directive also widens the definition of PEP to include domestic individuals holding prominent positions in their home country. As with foreign PEPs, the provisions will apply to family members and known close associates.
It increases transparency around beneficial ownership of companies and trusts. The threshold for beneficial ownership remains unchanged—being those controlling more than 25% of a business—but companies (and maybe trusts) will be required to maintain records evidencing beneficial ownership. This is the most controversial requirement in the Directive. It is not clear whether member states will interpret the obligation widely (as an obligation to hold the information publicly) or more narrowly (as an obligation to provide the information on a transactional basis only). The UK government is in favour of public registers for companies but not trusts.
It includes tax crimes as a predicate offence for money laundering for the first time in the EU. Tax crimes have long been predicate offences in the UK, though this is not the case in many other jurisdictions.
It has increased in scope. The requirement for certain entities to carry out CDD has incre
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