2020 & The 6th Anti-Money Laundering Directive (AMLD6)

During the year 2020, two new Anti-Money Laundering (AML) Directives came into force;
1. the fifth AML EU Directive (AMLD5) on the 10th of January 2020, and
2. the sixth AML EU Directive (AMLD6), 3rd of December 2020.
While this new directive, the 6th one, is being introduced, the pandemic is still on, on a global scale and to this day many EU member states have yet to transpose the 5th AML Directive into their national legislation.

The AML Directives aside, 2021 will also introduce major changes in the Capital Adequacy Calculations and the Capital Requirements Regulation through CRR II and CRD V.

All these changes have many investment firms and the investment services industry as a whole, in a state of continuous catch-up with their compliance. This is a familiar theme with new regimes being introduced, each a short time apart from another: such was the case with MiFID II, then MIFIR, the additional transaction reporting requirements in EMIR, the fourth Anti-Money Laundering Directive (AMLD4), and the impactful ESMA product intervention measures.

In this commentary, SALVUS summarizes the fifth Anti-Money Laundering Directive (AMLD5), and then discusses the sixth Anti-Money Laundering Directive (AMLD6) and its impact on the investment and financial services industry.

It is worth noting that these two latest AML directives (AMLD5 and AMLD6) are expansions on the scope of the 4th AML Directive-AMLD4.

The 5th Anti-Money Laundering Directive (AMLD5)

The AMLD5 aimed at strengthen the then current Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) provisions, and specifically

  1. increase transparency for the ultimate beneficial ownership (UBO) registry.
  2. extent the AML regime into Cryptocurrencies to manage and prevent risks arising from virtual currencies.
  3. harmonization of the application of enhanced due diligence measures from transactions involving the high-risk third countries.
  4. limiting the anonymous use of prepaid cards.
  5. grant new powers for financial intelligence units (FIUs).
  6. ensure the existence of a centralised national account registry.

The 6th Anti-Money Laundering Directive (AMLD6)

The AMLD6 now aims to empower financial institutions and authorities to do even more in their fight against money laundering (ML) and terrorism financing (TF) by

  1. expanding the scope of existing legislation,
  2. clarifying certain regulatory details, and
  3. toughening criminal penalties across the Union.

The amendments added in the AMLD6 aim for further transparency across the Union and we explain what is coming along with the AMLD6 below;

#1 Harmonization

The AMLD6 harmonizes the definition of money laundering across the EU with the primary aim being to remove any loopholes in the national legislations across the union. Thus, AMLD6 provides a harmonized list of the 22 predicate offenses that constitute money laundering, including certain tax crimes, environmental crime, and cyber-crime. Cyber-crime is now considered as a predicate offense for the first time.

List of predicated offences

  • Participating in an organised crime group or racketeering
  • Human trafficking and migrant smuggling
  • Sexual exploitation
  • Illicit trafficking in narcotics and psychotropic substances
  • Illegal arms trafficking
  • Trafficking in stolen goods
  • Corruption
  • Murder and grievous bodily harm (GBH)
  • Fraud
  • Counterfeiting currency
  • Counterfeiting and piracy of products
  • Environmental crime
  • Kidnapping and hostage taking
  • Robbery and theft
  • Smuggling
  • Tax crime relating to both direct and indirect taxes
  • Extortion
  • Forgery
  • Piracy
  • Insider trading and market manipulation
  • Cyber crime
  • Terrorism

#2 Expanded Regulatory Scope

AMLD6 expands the number of offenses that fall under the definition of money laundering, with “aiding and abetting” to constitute money laundering and thus subject to the same penalties and offenses.

* “Aiding” means assisting, supporting, or helping another person to commit a crime.
“Abetting” means encouraging, inciting, or inducing another person to commit a crime.
“Aiding and abetting” is a term often used to describe a single act.

Practically, “aiding and abetting” includes anyone who helps a person launder money. Therefore, the expanded scope includes anyone eliciting money laundering or attempting to launder money.

#3 Extension of Criminal Liability

AMLD6 extends the criminal liability and includes punishment for legal persons, including partnerships. This means that a legal person will be considered responsible for the crime of money laundering if the legal person failed to prevent a “directing mind” of the company from carrying out the illegal activity. Essentially, under the AMLD6 the responsibility is carried over to the senior management and to the employees of the Company.

The extension of criminal liability in this context is intended for introducing accountability of big corporations in the global effort to combat money laundering. Additionally, this extension of criminal liability allows the authorities to manage organizations that do not implement AML/CFT effectively. The punishments and offenses for legal persons vary from temporary restrictions on operations or judicial supervision to permanent closure.

#4 Tougher Punishment

AMLD6 amend the minimum imprisonment infringement from one year to four years for money laundering offenses.

The increased number of years of imprisonment for money laundering and potential financial repercussions are part of the EU’s effort for harmonization across the union. They also reflect the EU parliament’s commitment to stricter enforcement of money laundering rules. It is worth noting that many EU member states have already put in place punishments for money laundering, above the minimum years of imprisonment required by the AMLD6.

#5 Member-state Cooperation

The crime of money laundering may involve dual criminality, which is the principle that a crime may be committed in one jurisdiction before its financial proceeds are laundered in another. AMLD6 addresses the issue of dual criminality by introducing specific requirements for sharing information between jurisdictions so that a criminal prosecution for the connected offenses can take place in more than one EU member state.

The provisions under AMLD6 for dual criminality require the member states to criminalize certain predicate offenses whether they are illegal in that jurisdiction or not, including terrorism, drug trafficking, human trafficking, sexual exploitation, racketeering, and corruption. The member states involved in prosecution shall work together to centralize legal proceedings within a single jurisdiction. The AMLD6 sets out a range of factors for the authorities to consider when deciding how and where to conduct prosecutions, including the victims’ country of origin, the nationality (or residence) of the offender, and the jurisdiction in which the offense took place.

Conclusion

When the AMLD6 becomes national legislation, the investment firms will need to ensure that their AML/CFT programs correspond adequately to the new risk environment. Among others, firms shall establish training for existing and new employees and adjust their AML programs to ensure that employees can detect suspicious activities that may arise from the new predicate offenses.

SALVUS advices investment firms and investment professionals, train personnel, and obtains licenses for its clients, associates, and partners. AML Directives and Regulations are a particular area of our expertise.

We remain at your disposal should you have any questions on the new regulatory frameworks, our Anti-Money Laundering (AML) Service, or on how to get successfully prepared for the CySEC AML Certification. Contact us at info@salvusfunds.com

#StayAhead.

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 The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

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