European Union Adopts Fourth Anti-Money Laundering and Terrorist Financing Directive.
On May 20, 2015, after two years of negotiations, the European Union laid another stone in paving the way in its anti-money laundering and anti-terrorist financing efforts. By adopting the Fourth European Directive on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing and regulation on the transfer of funds, the EU aims at complying with the Financial Action Task Force Recommendation (FATF) published in 2012. The purpose of this legislation is to reinforce the European legal framework and increase the effectiveness of anti-money laundering and anti-terrorist financing rules so as to respond to new trends and threats to the international finance system.
New elements
The primary contribution of the Fourth Directive is the centralized register: each member state will henceforth centralize information on beneficial business owners (business owners’ names, dates and months of birth, nationalities, countries of residence and the real interests these beneficiaries hold in the incorporation). This centralized register will not only be accessible to national authorities and Financial Intelligence Units, but also to anyone able to demonstrate “legitimate interest” in suspected money laundering or terrorist financing (NGOs or investigative journalists, for instance). Only authorities and other relevant entities will have access to information on trusts, however.
The other resounding breakthrough in the protection of the European Union’s financial interests is the express inclusion of tax crimes as predicated offences of money laundering, as per FATF recommendations. It is worth noting that, in Belgium, so-called “severe tax evasion” (which was recently ruled as constitutional) is already included in the anti-money laundering and anti-terrorist financing package.
Tightening existing regulations
In addition to the above-mentioned characteristics, this new legislation tightens many current rules to further harmonize national anti-money laundering legislation.
The scope of the Directive has therefore been extended to gambling (casinos were already included in the Third Directive), though member states may exonerate establishments demonstrating a proven lower risk. Furthermore, the €15,000 threshold for cash transactions has been reduced to €10,000; thereafter, the Directive will be applied in order to include a larger number of service providers.
Obligations of customer due diligence (CDD) are also tightened by the new Directive. The Fourth Directive provides differential treatment, varying according to the level of risk of money laundering or terrorism financing. It also removes exemptions on usual obligations of due diligence for certain types of customers or products.
The new legislation clarifies existing rules for politically-exposed persons (“PEP”, for example, high-ranking public officials and their families) and imposes additional precautionary measures for business relations with people whose political position presents a higher risk of corruption. The scope of the directive has been extended to domestic PEP, who are not expressly mentioned in Belgian legislation.
Entry into effect
Once the Fourth Directive is published in the Official journal of the European Union (in June or July 2015), the member states will have two years to transpose this legislation into national law. It would be in the best interest of the Belgian legislator to be more reactive, however, given its recent audit by the European Institute of Financial Regulation, a report of which was published online on April 23. The fund transfer regulation will automatically be applied in all member states 20 days after its publication in the official journal.
Sergei Bogdanov
Rulkin and Partners
Michaël Fernandez-Bernier
Assistant UCL and New-York Bar member
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