European Union: Proposed Amendments To The EU MLD - Fourth Time Lucky?

Last Updated: 24 September 2012
Article by Zia Ullah and Victoria Callaghan

Zia Ullah, Partner and Victoria Callaghan, Solicitor, of Pannone LLP talk through the expected major revisions to the Third EU Money Laundering Directive.

Readers will recall that on 15 December 2007, the UK brought into effect the requirements of the third EU Money Laundering Directive ('the Third AMLD') through the Money Laundering Regulations 2007. But as with most risks in life, AML and terrorist financing typologies evolve and as such the underlying regulatory landscape also then needs to be adapted. As a result of recommendations made by the Financial Action Task Force ('FATF'), which considered these evolving risks, the EC engaged Deloittes to assess the implementation and application of the Third AMLD across the EU and on 11 April 2012 the European Commission adopted a report1 making recommendations for further development of the legislation.

The report and recommendations

As a general observation both the Deloitte report2 and the Commission's report, highlight that the Third AMLD works well - there are no specific shortcomings which require immediate legislative action. However, there are AML areas which require further clarification, definition and/or guidance in order to ensure that the European framework remains robust and targeted.

In general terms the Commission's report determines that further guidance/clarification is required in a number of areas, including

  • the application of a risk based approach to AML
  • scope
  • the application of simplified customer due diligence ('SCDD')
  • the definition of and approach to Politically Exposed Persons ('PEPs') and beneficial ownership
  • the application of the AMLD to legal professionals

A summary of the Commission's report on these points is set out below:

Risk Based approach ('RBA')

The Commission's report highlights the importance of a RBA to AML. A RBA enables Member States, supervisory authorities and institutions affected by AML legislation to target their assessments of risk and the resources available to tackle such risks. Countries are permitted to develop their own individual RBA and measures which institutions operating within that country implement. This allows for flexibility; systems can be targeted to the threats which individual States and institutions are concerned with. It would appear that the general view is that the adoption of the RBA has been successful and its continuation is encouraged.

However, the Deloitte and Commission reports note the following areas of concern:

  • lack of guidance;
  • the multiformity of measures implemented at national level creating complications in cross border compliance
  • the reluctance of some institutions to make use of SCDD due to a lack of acceptance of measures adopted by supervisory authorities.

The proposed Fourth AMLD is likely to require Member States to comply with FATF recommendations when carrying out risk assessments in the hope that a more uniform and consistent approach will be achieved. It is also expected that some form of obligation will be imposed on supervisory bodies to provide sector specific guidance – a particular area of concern for those operating in the non-financial sectors. However, it is unclear from the Commission's report how far such guidance would go. It would appear that practical guidance on the application of the RBA to AML and CDD is needed/welcomed, however, one could argue that too much guidance could limit the flexibility which Member States are currently afforded. The provision for this in the Fourth AMLD will have to be carefully considered.


It is likely that the scope of the proposed Fourth AMLD will extend in terms of the entities which are obliged to comply with it. In particular the Commission is likely to broaden the scope in the application to the gambling sector, financial agents, Central Banks, letting agents and dealers in precious stones and metals. It is not expected that the proposed Fourth AMLD will be applicable to completely new sets of institutions.

Customer Due Diligence ('CDD')

One of the key points which the Commission will look to clarify within the proposed Fourth AMLD is that SCDD does not mean no CDD. It is not an exemption, as some Member States appear to have interpreted it to be.

The Commission will also consider providing further guidance to Member States as to when SCDD is appropriate – whether this is to be in the form of examples or whether a list of risk factors will be provided is yet unknown. It is also not yet known whether the proposed Fourth AMLD will provide a set of minimum measures which must be complied with when SCDD is deemed appropriate.

In terms of regular CDD consideration will be given to harmonising the approach across jurisdictions. It has been suggested that a list of customer identification documents, recognised EU-wide, could be published to assist institutions in complying with CDD obligations. The Fourth AMLD may also see a reduction to the thresholds in respect of occasional transactions and electronic fund transfers.


The Deloitte report concluded that the current definition of a PEP within the Third AMLD is too broad and has led to differing applications across Member States. It was also noted that no Member State has extended enhanced CDD to domestic PEPs. By contrast the new FATF recommendations define "Foreign PEPS" and "Domestic PEPS"3 and suggest that a RBA should be adopted by institutions in applying enhanced CDD. It is likely that any revision to the Third AMLD4 will adopt the FATF approach to foreign and domestic PEPs - an approach that many financial institutions have already adopted through their internal AML policies and procedures.

The Commission report fails to make clear how concerns in respect of the availability, cost and reliability of public information regarding PEPs will be addressed. The Commission report simply states that the feasibility and appropriateness of supporting measures will have to be carefully assessed – we are, therefore, left to wait and see exactly how these concerns will be addressed; concerns which are significant, particularly to smaller institutions whose resources are limited.

Beneficial Ownership

The current 25% threshold test for ultimate beneficial ownership ('UBO') under the Third AMLD5 will most likely remain unchanged and the Commission's report acknowledges that there is general opposition to any reduction in the threshold, on the basis that this would unnecessarily increase financial and administrative burdens on stakeholders, which would outweigh any potential benefits

The Deloitte report found that the application of the UBO definition and the calculation of the 25% threshold varies across Member States. It is expected that any revision to UBO requirements will provide for further guidance in an attempt to create uniformity across jurisdictions. This will be of benefit particularly to those institutions who operate across the EU and who implement group wide AML policies and procedures.

Lawyers/legal professionals

In relation to our esteemed brethren in the legal profession, the Commission has concluded that national legislation does not provide precise enough description as to when reporting obligations outweigh client confidentiality. This has lead to a low level of suspicious activity reporting by legal professionals, a matter which will be considered when the AMLD is revised. The Commissions report makes it clear that legal professionals will be obliged to continue to comply with the requirements of the AMLD in appropriate situations. Further consultation will be carried out in this area; however, the Commission report concludes that the proposed Fourth Directive does not need to fundamentally revise the application to legal profession.


The message from the Commission's report is that the AML framework currently in place is working, something that perhaps from a political perspective would be worth shouting about, given the current debate about the effectiveness of EU legislation.

The implementation of the Third AMLD across Member States took a considerable amount of time, but any concerns which may have been raised when the Commission undertook to carry out it's review appear to have been somewhat allayed. Yes, there are difficulties with the AML framework as it currently stands; there is a lack of uniformity and application of certain provisions. There is perhaps, even today, a lack of clarity over the interpretation of the Directive adopted by particular jurisdictions. However, generally the Third AMLD has been successful in formulating an EU wide strategy against the continuing risks posed by AML/CTF. The time and effort expended in implementing it and the cost incurred in doing so, has not been in vain. What the Commission's report suggests is not a complete overhaul of the European AML framework but instead to provide greater assistance, definition and guidance, through the development of the Fourth AMLD, which is likely to be widely welcomed.

This article was originally published by Complinet on 1st May 2012.




3 Page 118 FATF recommendations

4 And the Implementing Directive 2006/70/EC

5 Article 3(6)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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

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

In association with
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.