In January 2020, the European Union released its Fifth Anti-Money Laundering Directive to increase transparency while tackling fraud, money laundering and cybercrimes.
The 5AMLD extended the scope of customer due diligence checks, introduced domestic and politically exposed persons, extended the creation of central registrars of beneficial ownership, and extended Anti-Money Laundering checks to majority-owned subsidiaries outside the European Union.
In December 2020, an updated Anti-Money Laundering Directive, known as the 6AMLD, will come into effect around the world, and any organizations operating within the EU will need to comply with the new rules. You can find an in-depth guide here, which details everything you need to know about the new directive.
Why is it changing?
The upcoming EU AMLD — the sixth since 1990 — is scheduled to be transposed into national laws by Dec. 3, 2020. Those outside the EU have until June 3, 2021, to put their processes in place.
Arriving after a number of major European banking scandals that have raised questions about the effectiveness of the EU’s approach to Anti-Money Laundering, the updated AMLD is designed to better counter cybercrime and the financing of terrorism. Regulators and governments are regularly looking for ways to protect customers, and more and more regulations are being put into place across the financial sector in order to help prevent fraud, money laundering and cybercrimes.
The 6AMLD is likely to be part of an increasingly tough EU approach on AML, and further changes are likely to come in the next few years. This might include an EU AML agency that can directly police regulatory compliance at an institutional level. Businesses need to be ready for further change, with agile and effective processes in place that can respond to the changing environment; having flexible AML systems in place is the best way to be prepared.
What is changing?
In many ways, the 6AMLD is a natural development from previous AMLDs, ensuring that unforeseen loopholes are addressed, but it has also been shaped by a number of more contemporary concerns. The recent banking scandals in the EU have reinforced the need for more convincing incentives for the dedicated adoption of AML requirements in the private sector.
In addition, a wide range of criminal endeavors beyond the staples of drugs, and human and weapons trafficking have started to generate considerable income streams for serious organized crime groups, including environmental, wildlife and cybercrime. All these areas needed to be tackled and have set the context for the detailed content of the 6AMLD. But what will the new directive actually do?
Here are some key highlights:
- It will provide clearer definitions of crime and their penalties.
- It will extend criminal liability to legal persons and companies, with tougher punishments.
- Businesses will be required to cooperate with one another in the prosecution of money laundering-related crimes.
- They will be required to protect customers from cybercrime and tackle terrorism finance.
- Fighting cybercrime to root out money laundering.
- Virtual currencies present new risks and challenges for combating money laundering.
One of the objectives of the 6AMLD is the listing of 22 predicate offenses relating to money laundering, providing clear definitions of each specific crime. For existing regulated businesses, the changes focus on three areas: cybercrime, cooperation and criminal liability.
- Cybercrime has never been mentioned in any previous AMLD, so this is huge for businesses to take on board. It’s a key focus to reduce the number of online crimes that are occurring. The fact that cybercrime is at the forefront of regulators’ minds enables businesses to pinpoint and tackle any potential money laundering activity efficiently and effectively.
- Businesses will also be required to cooperate with one another in the prosecution of money laundering-related crimes under this new update. This means that if a crime takes place between two businesses, they will now be required to work together to identify the offender and prosecute them in one single way.
- For the first time ever, companies, or “legal persons,” can be held accountable for the crimes. This means that if an individual within your business of significance — classed as a “legal person” — has failed to prevent criminal activity from happening, then that person and your business can be punished for the act.
What will the 6AMLD mean?
The changes brought about by the 6AMLD will effectively mean that businesses will have fewer legitimate excuses if they are found to have even inadvertently enabled money laundering.
Luckily, there is still plenty of time for businesses to prepare, as revisions to national laws are not required until the end of the year. However, the “grace period” before full compliance should not allow businesses to become complacent.
With the new regulations approaching, businesses should be looking to implement robust and automated methods of Know Your Customer and AML verification that they can trust to carry out a higher volume of identity verification checks than previously required. When it comes to being confident about your AML platforms, it is not just a matter of using what you already have well but considering what alternatives exist that might help you achieve compliance and effective risk management at the best costs. As the penalties for failure become more significant, having the best platforms should be seen more as an investment than a cost.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Joe Kiely is the content marketing manager at Hello Soda — a global provider of identity verification, fraud prevention and personalization software solutions to businesses in a variety of industries.