AMLD4 has been drafted to ensure that companies are more accountable for any connection to money laundering or terrorist financing.
This will make life harder for compliance professionals as non-compliance can lead to sanctions and reputational damage.
Although the Directive was prepared with banks and financial institutions in mind, corporations also need to be aware of the Directive and have appropriate controls in place.
More entity types are subject to AMLD4 than its predecessor AMLD3. The following are now covered: gambling institutions, real estate letting companies, individuals or companies making single transactions over €10,000, virtual exchange currency platforms as well as foreign and domestic Politically Exposed Persons (PEPs).
More Emphasis on Risk
Companies need to be aware of more risk factors when assessing their business dealings. Here are ten key risks:
PEPs as owners or People of Significant Control (PSC). Companies are obliged to carry out such assessments when engaging in business dealings
Industries with excessive cash, which are at the heart of the legislation. Such industries are known to be key targets of money launderers.
Connection or dealing with high risk sectors. This covers sectors like construction, pharmaceuticals, arms, extractive industries and public procurement.
Media reports. You should be especially aware of credible media sources which allege “criminality of terrorism”.
History of frozen assets. Even reasonable grounds to suspect an asset freeze should be investigated.
Complex or non-transparent ownership structures. Ownership and control structures should make sense and if they don’t should be investigated.
Ownership in the form of a non-legal person. Proposed business partners should be a “legal person”.
Beneficial owner identity. If there is any doubt about the identity of a prospective partner this needs to be assessed.
Unknown sources of wealth. Income for prospective partners should be clearly traceable.
Associations with countries subject to sanctions. Dealings with companies who have ties with sanctioned countries directly or indirectly should be investigated.
Increased Checks on Dealing with Third Countries
The Financial Action Task Force (FATF) releases a list three times a year which details the qualifying countries, ie those operating in high risk countries. Any companies operating in the countries on this list should be subject to a thorough list of checks before business commences.
Countries are being encouraged to name and shame organisations who flout regulations. This sits alongside more stringent financial sanctions.
Transparency with Beneficial Ownership has an Enhanced Focus
AMLD4 requires the identification and monitoring of people with beneficial ownership in companies. A beneficial owner can be defined by their share in the business but can also qualify as a beneficial owner if they are a person of significant control (PSC) regardless of their ownership stake. AMLD4 requires:
A national register to be updated;
- Interconnection of national registers;
Greater access, so anyone with a legitimate interest can see this information; and
Expanded definition of beneficial ownership to 10% for high risk companies.
This means that compliance professionals will need to be able to determine the risk of a company they are working with before assessing their beneficial owners. National registers not being up to date is no excuse for non-compliance.
In conclusion, companies are now more accountable for the entities they work with. Any connections to money laundering or terrorist financing – intentional or incidental – can lead to sanctions.