How EU financial service providers help to combat money laundering and financing of terrorism
Stepping up the fight against terrorism is a priority of the EU based on its European Security Agenda from 2015. This also includes more intense measures against terrorist financing. Terrorists will be tracked based on cash movements and their ability to gain access to money will be curtailed.
Successfully implementing these measures will depend on the support of service providers and companies that are in involved in financial transactions. The current 4th EU Anti-Money Laundering Directive had to be implemented by the Member States no later than the end of June 2017.
The 4th EU Anti-Money Laundering Directive
This Directive lists a group of companies and persons that are obliged to conduct particular due diligence. This includes all persons and companies that deal with financial assets and thus could potentially help to detect crimes or illegally acquired financing. These are credit and financial institutions, insurers, auditors and accountants, but also lawyers, notaries and estate agents.
They should implement special due diligence for all major transactions, for example, those involving cash payments of €10,000 or more.
From now on, these obliged entities should analyze every major individual transaction with regard to the risk of money laundering and terrorist financing and respond with appropriate strategies and processes. With the help of “Know Your Customer Procedures”, they should also verify their new and existing customers, provide transparent information, and report any irregularities.
Know Your Customer Procedures
In practice, this means that the obliged entities must exactly identify their contractual partners or people acting on their behalf as well as any “beneficial owners”. According to the current directive, a beneficial owner is any natural person who holds 25% or more of net assets or voting rights in the contracting party. Special regulations apply to foundations and trusts. To identify these persons, information such as the name, place of birth, address and nationality must be collected and verified.
In addition, information collected on the beneficial owners of organizations and companies should provide transparency with regard to the personal connections and interests within the industry. In Germany, for example, beneficial owners must be entered into a “transparency register” from October 1, 2017, provided they are not already listed in other registries such as a commercial or company register. Authorities and obliged entities will have access to this register, and others, such as journalists, may consult it in individual cases and when there is a “legitimate interest”.
The priority the EU is giving to the fight against terrorism is illustrated by the fact that prior to the final implementation of the 4th Anti-Money Laundering Directive by all Member States, the EU had already adopted an extensive adaptation – generally called the 5th Anti-Money Laundering Directive. The European Parliament approved a corresponding draft at the end of February 2017. The new directive includes intensified measures, such as lower thresholds for determining beneficial owners, and focuses on online payments and e-money.
Further adjustments in relatively short intervals can be expected to follow, while the EU strives to keep pace with the rapidly evolving technical possibilities in the financial sector. Individuals and companies who belong to the group of obliged entities would do well to stay up to date as to ensure compliance with legal regulations.