4MLD was first introduced in 2015 in the wake of terrorist attacks across the EU and the leaking of the 'Panama Papers'. Under this new Directive, firms will be faced with additional responsibilities, starting with the need to reinforce any existing risk-based approaches across all aspects of their Anti Money Laundering (AML) and Counter-Terrorist Financing (CTF) compliance programmes.
In the past, dealings between banks and other financial institutions (FI's) were able to bypass some of their money laundering checks. However, the definition of correspondent banking has now changed under 4MLD, bringing it closer in line with the recommendations of the Financial Action Task Force (FATF). This means that enhanced due diligence will be mandatory when undertaking cross-border correspondent relationships with non-EEA respondent institutions.
Penalties under 4MLD have also become much tougher, with firms now facing fines of up to 10% of their total annual turnover, or fines of up to €5 million for individuals. In addition, publicly issued reprimands may also be given, which will undoubtedly damage the reputation of the firm.
So, is it really worth taking the risk of getting it wrong?
How your firm can ensure 4MLD compliance
1. Provide adequate information and training
Are all of your employees aware of the Directive and its impact on them? Are senior managers aware? Consider making it compulsory for all employees to complete an e-learning course on Money Laundering Prevention and 4MLD.
2. Review any current AML/CTF regime
2. Is it fit for purpose? When did you last update your AML/CTF risk assessments, policies and procedures? Has your risk profile and exposure changed?
3. Assess the impact that the new correspondent banking definition has on your relationship with other FIs
What enhanced due diligence is required? How do you assess the respondent's AML/CTF controls? Do you need to obtain senior management approval before establishing correspondent relationships?
4. Be sure to make your approach more risk-based
Do you need to update your due diligence measures? Are there any policy and procedural changes you should make to ensure full compliance?
5. Maintain adequate resources
Do you need to invest more time, money and people into seeing the changes through?
6. Monitor & review
Plan to carry out reviews to ensure that any policy or process changes have been implemented fully and are working as they should. It may also be a good idea to reach out to industry experts to identify best practices and set a benchmark for your progress.
5MLD followed soon after 4MLD
The EU adopted the Fifth Money Laundering Directive (5MLD) back in April 2018 to further strengthen the response against money laundering and terrorism financing and it must be incorporated into legislation by member states by January 2020. And regardless of what happens on Brexit, the UK has committed to fully adopt the provisions of 5MLD. Then in December 2020 6AMLD lands too!
Then 6AMLD brought more changes
The ink was barely dry on 5MLD as the EU announced a sixth directive was around the corner. 6AMLD introduced five key changes.
- Dual criminality for specified offences & greater co-operation
- Harmonisation & clarification of predicate offences
- Extension of criminal liability to legal persons
- A tougher punishment regime overall
- Additional offences such as aiding & abetting
Recent EU AML changes
It seems that 6AMLD will be the last of the numbered directives. The EU’s latest anti-money laundering (AML) package was unveiled in July 2021, consisting of four legislative proposals - a directive and three regulations.
These bold recommendations, which implement the European Commission’s (EC) May 2020 Action Plan, represent the most significant revamp of the EU’s anti-money laundering and counter-terrorist financing legislation to date.
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