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The 4th EU Money Laundering Directive

MONEY LAUNDERING UPDATE

THE 4TH EU MONEY LAUNDERING DIRECTIVE

On 11 March 2014 a vote took place in the European Parliament when agreement was reached on the draft 4th EU Money Laundering Directive. The final text will now be established and adopted later this year.

WHAT IS THE NEXT STEP AND WHAT ARE THE IMPLICATIONS FOR THE LEGAL PROFESSION?

The UK has two years from the date of adoption to implement the Directive into national legislation. This will involve revising the Money Laundering Regulations 2007 to ensure legislation is aligned with the new Directive.

The Directive aims to achieve a more risk-based approach, with greater consistency of rules across the EU. The UK already complies with many areas by virtue of our current legislation, for example the criminalisation of tax evasion, however there several areas of change required which will impact on the legal profession. Increased levels of transparency for beneficial ownership and extension of the definition for Politically Exposed Persons are two areas which are worthy of particular consideration.

INCREASED LEVEL OF TRANSPARENCY FOR BENEFICIAL OWNERSHIP

Private limited companies, trusts and other corporate vehicles will have to disclose the names of beneficial owners and details will be held on a central public register. Access will be available on-line and granted to competent authorities, as well as to the public, subject to identification requirements and the possible payment of a fee. The registers of all EU countries will be interconnected, due to the cross-border nature of business transactions.

Only minimum information will be required, for example, the register would show who is behind a particular trust, but would not reveal details of the purpose of or property held within the trust.
IMPACT: In an EU-wide context, this will particularly affect individuals and businesses operating from the UK, where trusts are used as a standard asset management vehicle. It is likely to impose administrative burdens on those involved in establishing and maintaining corporate vehicles.

POLITICALLY EXPOSED PERSONS

Enhanced Due Diligence will be extended to cover domestic Politically Exposed Persons (PEPs), for example MPs, Assembly Members and high ranking military officials, including immediate family members and close associates. At present the PEP definition is limited to a state other than the United Kingdom.

IMPACT: Law firms will need to amend their systems and controls to ensure that they can adequately identify domestic PEPs. Policies and procedures will need to be revised so that employees know the Due Diligence requirements for such clients.

TIMESCALE

11th March 2014 - Draft of 4th EU Directive on the ‘prevention of the use of the financial system for the purpose of money laundering and terrorist financing' accepted in the European Parliament. Final text to be adopted following Parliamentary elections in May 2014

Jun - Dec 2014 - Consultation period for the revised UK Money Laundering Regulations

2015/2016 - The UK has two years from the date of adoption to implement the 4th EU Directive into national legislation