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European Union: Parliament Approves Fourth Money Laundering Directive

(June 18, 2015) On May 22, 2015, the European Parliament adopted its fourth anti-money laundering Directive, designed to contribute more effectively to the fight against money laundering and the financing of terrorism across the European Union. (Press Release, European Commission, European Parliament Backs Stronger Rules to Combat Money Laundering and Terrorism Financing (May 20, 2015).)

Background

In 2013 the Commission introduced two proposals to promote the fight against money laundering at the EU level:

(1) a fourth Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing; and

(2) a regulation on information accompanying transfers of funds to secure “due traceability” of these transfers. (Press Release, European Commission, Anti-Money Laundering: Stronger Rules to Respond to New Threats (Feb. 5, 2013).) The Regulation, which was officially published on June 5, 2015, establishes rules on information on payers and payees which accompanies the transfer of funds in any currency, with the objective to prevent, detect, or investigate money laundering and financing of terrorism, when one of the service providers involved in the transfer is located in the EU. (Regulation (EU) 2015/847 on Information Accompanying Transfers of Funds and Repealing Regulation (EC) No 1781/2006, art. 1, O.J. (L141) 1.)

Prior to introducing the 2013 proposals, the Commission took into account the most recent Recommendations of the Financial Action Task Force (FATF), which is the world’s foremost anti-money laundering body. In several areas, the proposals introduced higher standards on preventing terrorism financing than those recommended by FATF. (Anti-Money Laundering: Strong Rules to Respond to New Threats, supra; FATF Recommendations (adopted Feb. 16, 2012), FATF website.)

Key Features of the New Directive

Highlights of the Directive include the following:

• establishing a clear mechanism for the identification of beneficial owners. Beneficial owners are defined as “any natural person(s) who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted.” In the case of corporations, beneficial owner at least include natural persons who own 25 plus one share in the corporations. In the case of legal entities such as foundations or trusts, beneficial owners are inter alia, the natural person(s) who exercises control over 25 % or more of the property of a legal arrangement or entity;

• requiring companies to keep a register with the names of beneficial owners;

• improving the rules on customer due diligence in order to ensure that financial institutions have a clearer and better understanding of their customers and the customer’s business; and

• expanding the scope of provisions dealing with “politically exposed persons” (namely, “people who may represent higher risk by virtue of the political positions they hold”), but including, in addition to foreign persons involved in politics, persons residing in the Member States. (Proposal for a Directive of the European Parliament and of the Council on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing, COM/2013/045; Anti-Money Laundering: Stronger Rules to Respond to New Threats, supra.)

Entities that must apply customer due diligence rules must do so in the following instances:

a) when a new business is established;
b) when carrying out occasional transactions that amount to €15,000 (about US$16,674) or more, regardless of whether the transaction is carried out in a single operation or in several operations that appear to be linked;
c) for natural or legal persons that trade goods and carry out occasional transactions in cash amounting to €7,500 (about US$8,3370) or more;
d) for providers of gambling services, when carrying out occasional transactions of €2,000 or more;
e) when there are grounds to suspect money laundering or terrorist financing, irrespective of the amount in the transaction; and
f) when there are reasons to assume that the personal identification supplied was inaccurate. (Proposal for a Directive, supra, art. 10.)

The Directive also provides that customer due diligence measures include the following:

• identification of the customer and verification of the customer’s identity on the basis of documents, data, or information obtained from a reliable and independent source; and

• identification of the beneficial owner by taking “reasonable” steps to verify his identity so that the institution or person covered by the Directive is satisfied that it knows who that owner is. For legal persons, trusts, and similar legal entities, it includes “taking reasonable measures” to understand the customer’s ownership and control structure;

• evaluation of “the purpose and intended nature of the business relationship” and

• continuous supervision and monitoring of the business relationship, including evaluation of the nature of transactions undertaken. (Id. art. 11.)

Further Actions Related to the Directive

The Council formally endorsed the Directive in February 2015. The adopted text will be published in the Official Journal of the EU in June or July 2015. EU Members will have an implementation period of two years to adjust existing law or introduce new legislation in compliance with the Directive. (European Parliament Backs Stronger Rules to Combat Money Laundering and Terrorism Financing, supra.)