United States: GDPR And AML – A Perfect Pair?

Last Updated: August 31 2018
Article by Louise Delahunty, Ann Bevitt and Joanne Elieli

The General Data Protection Regulation (GDPR) has been one of the most highly anticipated and talked about changes to the legal sphere in years, affecting the vast majority of businesses and individuals alike. The primary focus to date has been on the implementation deadline of 25 May 2018 and the vast fines (up to €20 million or 4% of a company's total worldwide turnover) that could follow any failure to comply. However, an area that has flown largely under the radar amidst the flurry to achieve compliance has been the interplay between the GDPR and the EU's Fourth Money Laundering Directive (4MLD). How will the two new laws be implemented without a conflict arising?

Potential conflicts

The overarching effect of the GDPR is to regulate (and, arguably, limit) the circumstances in which data can be processed. In light of this, there is an inherent risk of conflict between the GDPR and 4MLD if they are not implemented in alignment. There are certain key issues that need careful consideration by firms implementing the GDPR.

Retention of records

Article 40(1) of 4MLD requires obliged entities to retain records for the purpose of preventing, detecting and investigating possible money laundering or terrorist financing for five years after the end of the business relationship with a customer and/or after the date of an occasional transaction. By contrast, Article 5(1)(e) of the GDPR requires that personal data be kept in a form which permits identification for "no longer than is necessary for the purposes for which the personal data are processed". The Information Commissioner's Office (ICO) guidance states that what is necessary "will depend on your specified purpose for collecting and using the personal data" and that this "may also differ from one individual to another". It is accepted that, where there is a specific retention period required by law, the GDPR allows personal data to be kept for such period.

Particulars of processing

Articles 13(1) and 14(1) of the GDPR state that individuals are to be informed of certain particulars regarding the processing of their personal data, including the purposes for which it will be processed and the legal basis for such processing, the entities with whom their personal data will be shared, and the period for which their personal data will be stored or, if that is not possible, the criteria used to determine that period. Accordingly, obliged entities will need to provide their customers/ clients with this required information. It is possible that the activation of the right provided for by Articles 13 and 14 of the GDPR could have the effect of impairing attempts, for example by a financial institution, to combat money laundering and terrorist financing. Informing individuals of the particulars of the data that is being held and/ or collected could have the unintended consequence of tipping off an individual as to the nature of an institution's investigation. However, Article 23(1) of the GDPR allows for restrictions of the right to be informed in certain circumstances, including where a restriction is a necessary and proportionate measure to safeguard the prevention, investigation, detection or prosecution of criminal offences. Further, Paragraph 2(1) of Schedule 2 of the Data Protection Act 2018, which supplements the GDPR in the UK, disapplies the requirement to inform individuals where personal data are processed for the prevention or detection of crime and informing individuals would be likely to prejudice such activity.

Data sharing with third countries

Articles 39, 42 and 45 of 4MLD require: (i) data sharing with foreign regulators in accordance with the 4MLD's newly extended reporting obligations; and (ii) firms to put in place policies for data sharing across group-companies located in third countries for AML/CIT purposes. Article 39(3) and 39(5) of 4MLD set out the circumstances in which obliged entities may share (for example, SARs) with other obliged entities in a third country provided that: (i) the other entity is in a third country with equivalent AML laws; (ii) the entities are in the same professional category; and (iii) the entities are subject to data protection obligations in their jurisdiction. However, Article 44 of the GDPR prohibits transfers of personal data to third countries, save for in limited prescribed circumstances (for example where the transfer is within the European Economic Area, where adequacy decisions have been made by the European Commission in relation to third countries, or where approved binding corporate rules, standard contractual clauses or approved industry codes with binding and enforceable commitments are used as data transfer mechanisms).

There is a potential discrepancy between the way in which the regimes operate, with the effect that it may not be possible to transfer data in the manner envisaged by 4MLD. However, Article 49(1)(d) of the GDPR sets out a mechanism for transfers which are necessary for "important reasons of public interest". What is not clear is whether this clause operates to capture actions undertaken to deter money laundering and terrorist financing. Article 49(4) states that such public interest needs to be 'recognised' by the law of the relevant Member State. Further, Article 49(1) also allows non-repetitive transfers of personal data of limited numbers of individuals if those transfers are necessary for the purposes of compelling legitimate interests pursued by the obliged entities, and those interests are not overridden by the interests or rights and freedoms of individuals. To determine whether this is the case, obliged entities will need to undertake "legitimate interests" assessments, weighing up and balancing the interests of both parties.

Practical considerations for firms

Looking at future challenges, there are clearly a number of steps that firms can take in order to safeguard compliance with both regimes in a harmonised manner. In particular, obliged entities should consider the tips below in the context of their AML regime:

  • Obliged entities that outsource AML-related activities involving personal data (such as KYC) should require their service provider to evidence compliance with the requirements of the GDPR. Obliged entities should also enter into a written data processing agreement containing the terms set out in Article 28 of the GDPR.
  • Obliged entities should provide the required information to those subject to AML checks pursuant to Articles 13 and 14 of the GDPR, including, but not limited to, information as to the identity and contact details of the controller, the purposes of the processing for which the personal data is intended, the recipients or category of recipients of the personal data, and whether the controller intends to transfer any personal data to a third party.
  • Obliged entities should ensure that their policies and procedures, e.g. in respect of data collection, are commensurate to the data retained and vary depending on whether simplified, normal or enhanced AML due diligence is being applied.
  • Obliged entities are advised to undertake a privacy risk assessment, train compliance staff and MLROs in data protection and to consider conducting impact assessments of the processing of personal data to ensure that the data being processed is limited to that which is required by law and which adds tangible value to the compliance process.

GDPR (and the linked new Data Protection Act 2018) are not the only changes to be made to the current data protection laws. On 19 April 2018, the European Parliament voted to adopt the proposed Fifth Money Laundering Directive (2016/ 0208(CoD)), which envisages the introduction of a number of new provisions designed to address the continually evolving economic crime landscape. In short, the growing relationship between AML and the associated data that AML compliance generates looks set to be an issue that will be at the forefront of practitioners' minds.

This article first appeared in Money Laundering Bulletin (www.moneylaunderingbulletin.com)

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.

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