European Union: Fourth Money Laundering Directive Published In Official Journal

Last Updated: 11 June 2015
Article by Orla O'Connor and Robert Cain
Most Read Contributor in Ireland, October 2018

On 5 June 2015, the Fourth Money Laundering Directive (MLD4) was published in the Official Journal as Directive (EU) 2015/849. This Briefing summarises the key provisions of MLD4 and assesses its potential impact as the focus moves to a more risk-based approach to combating money laundering and terrorist financing. Member States must transpose MLD4 into national law by 26 June 2017.

BACKGROUND

The Third Money Laundering Directive (Directive 2005/60/EC) (MLD3) and the associated European Commission Directive 2006/70/EC on politically exposed persons (PEPs) were introduced to ensure the consistent application, by Member States, of the recommendations of the Financial Action Task Force (FATF). Following the implementation of MLD3, FATF published a further set of International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation in February 2012, which were designed to facilitate Member States taking more effective action to combat money laundering and terrorist financing, to address the laundering of the proceeds of corruption and tax crimes, and to promote a more risk-based approach. The European Commission also began a review of MLD3 in 2010, and published its report in April 2012. This report, together with the new FATF standards, led to the publication, in February 2013, of the first draft of MLD4 with the European Commission stating its aims to be:

  • to provide for a more targeted and focussed risk-based approach;
  • to clarify and reinforce the rules on customer due diligence (CDD);
  • to introduce new provisions to deal with PEPs;
  • to bring into scope all persons dealing in goods for cash payment of €7,500 or more (this threshold was increased in MLD4 to €10,000);
  • to increase coverage of the gambling sector;
  • to explicitly refer to tax crimes; and
  • to reinforce the enforcement powers of national competent authorities.

Political agreement was reached on MLD4 in December 2014. It was adopted by the EU Council in April 2015 and by the European Parliament in May 2015, following which it was published in the Official Journal.

On 5 June 2015, the revised Wire Transfer Regulation (Regulation (EU) 2015/847)was also published in the Official Journal. It sets out the minimum requirements that are essential to ensure the traceability of transfers of funds, and aims to ensure consistency of approach between Member States regarding a more targeted and risk-based approach to funds transfers.

KEY PROVISIONS OF MLD4

In addition to moving towards a risk-based approach to combating money laundering and terrorist financing, the following key provisions of MLD4 should be noted:

Beneficial Ownership

Member States must ensure that entities incorporated in their jurisdictions obtain and hold "adequate, accurate and current information on their beneficial ownership" which can be accessed by competent authorities and EU Financial Intelligence Units (FIUs). Member States will also be required to store that information on beneficial ownership in a central register, accessible to:

  • competent authorities and FIUs without restriction;
  • "obliged entities" (i.e. those listed in Article 2(1) of MLD4 as being entities to which MLD4 applies) within the CDD framework; and
  • others that can demonstrate a legitimate interest.

The storing of beneficial ownership information on a central register will not relieve obliged entities of their CDD obligations which they will be required to continue to fulfil using a risk-based approach.

Trustees

Trustees will also be required to obtain and hold information on beneficial ownership. They will be obliged to disclose their status and provide information as to beneficial ownership to obliged entities in a timely manner. That information must also be accessible to competent authorities and FIUs in a timely manner. When the trust gives rise to tax consequences, Member States must also ensure that the beneficial ownership information held by trustees is held on a central register. The storing of beneficial ownership information on a central register will not relieve obliged entities of their CDD obligations which they will be required to continue to fulfil using a risk-based approach.

Simplified Due Diligence (SDD)

The application of SDD measures must now be justified on the basis that the business relationship or transaction presents a lower degree of risk. The European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) (ESAs) must issue guidelines to national competent authorities by 26 June 2017 (the transposition date) on risk factors to be considered, and measures to be taken, in situations where SDD measures are appropriate.

PEPs

The categories of individuals who can be regarded as PEPs has been broadened to include members of the governing bodies of political parties, and directors, deputy directors and members of the board or equivalent function of an international organisation. Domestic PEPs are also now in scope for enhanced due diligence measures.

Goods For Cash Payment

Goods traders making or receiving cash payments of €10,000 or more are now in scope.

Tax Crimes

The definition of "criminal activity" in MLD4 now includes tax crimes relating to both direct and indirect taxes.

Gambling Services

Providers of gambling services which pose higher risks must apply CDD measures for single transactions amounting to €2,000 or more (although in "proven low-risk circumstances" Member States may exempt certain gambling services from some or all of the requirements of MLD4 – casinos cannot benefit from such an exemption).

Limited/Occasional Financial Activity Exclusion

The MLD3 ability for Member States to exempt persons (legal and natural) who engage in financial activity on an occasional or very limited basis where the money laundering or terrorist financing risk is low has been clarified by providing that all of the following criteria must be met for such an exemption to apply:

  • the financial activity must be limited in absolute terms and on a transaction basis;
  • the financial activity must not be that person's main activity and must be ancillary and directly related to that person's main activity;
  • that person's main activity cannot be one of those listed at Article 1(a)-(d) and (f) of MLD4 (i.e. trust or company service provider, estate agent, provider of gambling services, auditor, external accountant, tax advisor, notary or other independent legal professional); and
  • the financial activity must be provided only to the customers of that person's main activity and not generally offered to the public.

Member States must set thresholds (including turnover thresholds) and Member States' decisions on these exclusions must be reasoned, and notified to the European Commission.

Jurisdictions With Strategic Deficiencies

Third-country jurisdictions whose regimes for combating money laundering and terrorist financing are regarded as being strategically deficient will be identified and the European Commission may adopt delegated acts to identify such jurisdictions.

Bearer Shares

Member States must also take steps to prevent the misuse of bearer shares and bearer share warrants.

Electronic Money

Two key thresholds have changed slightly as regards the ability to apply SDD measures to electronic money:

  • under MLD3, the maximum amount stored electronically on the payment instrument could not exceed €150 – this has been increased to €250; and
  • under MLD3, if the payment instrument was reloadable it must have had a maximum annual payment transactions limit of €2,500 – this has been changed in MLD4 to €250 per month (€3,000 per year) which can be used only in the relevant Member State.

FIUs

Member States are required to establish FIUs to prevent, detect and combat money laundering and terrorist financing. FIUs will receive and analyse suspicious transaction reports, disseminate information to competent authorities and seek information from obliged entities. Auditors, external accountants, tax advisors, notaries and other independent legal professionals and estate agents will be allowed to instead designate a self-regulatory body for their respective professions to receive suspicious transaction reports in place of the FIU (subject to the same carve out regarding judicial proceedings as was contained in MLD3). That body must then forward that information to the FIU. It will be interesting to see who takes the role of the FIU in Ireland.

Supervision, Enforcement And Cooperation

Member States must now apply a risk-based approach to supervision, and competent authorities in home and host Member States must cooperate regarding effective supervision of obliged entities.

Detailed provisions have also been included regarding sanctions, setting out the minimum articles of MLD4 in respect of which serious, repeated or systematic breaches should be sanctioned and detailing what, at a minimum, should be included in each Member States' suite of administrative sanctions and measures (i.e. a public statement identifying the person and the nature of the breach, an order requiring the person to cease and desist from the conduct in question, a withdrawal or suspension of the authorisation of an authorised person, a temporary ban on a person discharging managerial responsibilities, and maximum administrative pecuniary sanctions of at least 200% of the amount derived from the breach (if capable of being determined) or at least €1,000,000).

Further, more punitive, administrative pecuniary sanctions are permissible in the case of credit institutions and financial institutions (at least €5,000,000 or 10% of total annual turnover in the case of a legal person, and at least €5,000,000 in the case of a natural person).

WHAT'S NEXT?

The ESAs must publish, through their Joint Committee, an opinion on the risks of money laundering and terrorist financing affecting the EU financial sector by 26 December 2016, and update that opinion every 2 years thereafter.

To coincide with the transposition deadline of 26 June 2017, the European Commission must publish a report setting out the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities, and must update that report every 2 years. The European Commission must make recommendations to Member States on how best to address the risks identified in that report.

Firms should now start considering how MLD4 might impact their business and their client onboarding arrangements in particular. Given the issues created by the late implementation of MLD3 in Ireland, it is hoped that MLD4 will be implemented in Ireland on time in June 2017 and that the AML industry guidance is updated in readiness for that date.

This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Dillon Eustace
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Dillon Eustace
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions