Regulators are stepping up the fight against dirty money. Only recently Swedbank was fined Skr4 billion ($400 million), a record for the jurisdiction, for serious anti-money laundering (AML) failings. ING was ordered to pay €30 million by an Italian court in February to settle money laundering allegations.
Firms must not only contend with regulatory fines and the impact of these on their operations, reputation and bottom line, there is also the constantly changing nature of the regulation itself.
The Fifth EU Anti-Money Laundering Directive (5AMLD) was transcribed into local law across Europe in December 2019 and its provisions are now effective. Hard on its heels is 6AMLD which is to be transcribed into national law by 3 December 2020 and must be implemented by firms by 3 June 2021.
We examine the key requirements of 6AMLD in more detail.
Money Laundering Offenses
Money laundering offenses globally generally have two main characteristics. Firstly, the act of laundering itself, for example providing financial, notary, tax or real-estate services that involve the proceeds of crime. Secondly, knowing, suspecting or having reasonable grounds to know or suspect that the property involved in the transaction is the proceeds of crime.
‘Property’ within the scope of 6AMLD is defined as “assets of any kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or an interest in, such assets.” So, in layperson’s terms, the meaning of ‘property’ goes beyond mere physical property i.e. real estate.
6AMLD aims to standardize money laundering offenses across Europe. It defines them as:
- The conversion or transfer of property, knowing that such property is derived from criminal activity
- The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to or ownership of property, knowing that such property is derived from criminal activity
- The acquisition, possession or use of property, knowing at the time of receipt, that such property was derived from criminal activity
- Aiding and abetting, inciting and attempting an offense referred to above is punishable as a criminal offense
The fourth bullet point above is noteworthy because it seeks to pinpoint the individuals within an organization who are responsible for money laundering offenses. They will no longer be able to hide behind a corporate structure.
6AMLD also extends liability from those directly responsible for converting the proceeds of crime to accomplices in the laundering process. This includes legal persons, for example corporate entities or companies.
Money laundering offenses will be punishable by a maximum term of at least four years imprisonment, an increase from one year. Other penalties for individuals and businesses are also possible, including fines, exclusion from access to public funds, bans on conducting business and running for public office.
Banks, acquirers and payment service providers (PSPs) should consider re-assessing their existing AML and counter-terrorist financing procedures and reinforcing them where necessary to mitigate the risk of criminal proceedings.
Money laundering requires an underlying, profit-making crime, often known as a ‘predicate offense’ along with the intent to conceal the proceeds of the crime to further the criminal enterprise. However, different jurisdictions define predicate offenses in different ways.
6AMLD aims to harmonize definitions across the EU by specifying 22 criminal activities that constitute predicate offenses for money laundering, which are:
- Participation in an organized criminal group and racketeering
- Illicit trafficking in stolen goods and other goods
- Murder, grievous bodily injury
- Kidnapping, illegal restraint and hostage-taking
- Trafficking in human beings and migrant smuggling
- Robbery or theft
- Insider trading and market manipulation
- Sexual exploitation
- Counterfeiting of currency
- Illicit trafficking in narcotic drugs and psychotropic substances
- Counterfeiting and piracy of products
- Tax crimes relating to direct and indirect taxes
- Illicit arms trafficking
- Environmental crime
It goes without saying that acquirers and PSPs must obey the law in all countries where they do business. Those with a presence in multiple jurisdictions wishing to apply a consistent approach companywide are advised to conform to the most stringent requirements of all the jurisdictions in which they operate.
Those acquiring merchant transactions, especially in the e-commerce channel, are reminded that card transactions must be legal in both the buyer’s and seller’s countries to be processed, in accordance with card scheme rules.
6AMLD recognizes that virtual currencies present new risks and challenges for combatting money laundering. It requires EU member states to take concrete steps towards mitigating the risks of virtual assets. This is in line with tougher Financial Action Taskforce (FATF) standards on virtual assets and service providers. Virtual asset service providers must now be licensed, registered and are subject to monitoring by national competence authorities in the same way as financial institutions.
Since October 2018, Mastercard has also added cryptocurrency merchants to its BRAM program. As part of the registration process, acquirers must provide a legal opinion from a reputable law firm in each country where cryptocurrency activity will occur or be offered to cardholders.
Web Shield’s Regulatory Monitoring - Legal Library subscription service can help in this regard. It gives you access to a database of legal opinion on cryptocurrencies. Regularly updated and covering all relevant jurisdictions, the database also contains assessments of common cryptocurrency business models from our partner law firms to help acquirers remain cryptocurrency compliant.
Fight against dirty money intensifies
The future promises more AML regulation, more regulatory scrutiny and more sanctions, not fewer. Hence the policies, procedures and controls firms have in place to manage their AML risks are becoming increasingly top-of-mind.
Here at Web Shield, we have a number of services to help fight money laundering. AddressReveal validates addresses to quickly identify potential shell or mail-forwarding company hubs. If addresses are already known for being used by fraudsters or dubious businesses, AddressReveal flags this. This not only helps acquirers and PSPs during customer due diligence, but also gives confidence that claims at the address can be enforced.
Our new PayTracer service helps correspondent banks more accurately assess the risk of particular transactions and counterparties. It enriches limited SWIFT data with external, non-financial data and scores the transaction. It also includes a mapping facility so risk managers can easily visualise connections between accounts, names, addresses and entities and further interrogate the results. This helps identify suspicious patterns, networks, hubs and round-tripping chains more quickly than list-based or mathematical results alone.