Compliance and Regulation Forth Money Laundering Directive

 

As practitioners, we are guided by our clients’ interests but also principally by the regulation and best practice standards by which we are ethically and legally bound. At times there can be disjuncture between the two, but that disjuncture is rightly diminishing. The causes of this are manifold.

 

The regulatory frameworks that not only bind but guide us are constantly shifting, and in one direction only – towards higher standards of compliance and increasing levels of diligence in all aspects.

 

The Fourth Money Laundering Directive 2015/849 (4MLD) was formally adopted by the Council of the EU (the Council) in May 2015 after lengthy negotiations. Every Member State must transpose the Directive into national legislation by 26 June 2017. The Directive addresses new and emerging threats, clarifies and strengthens many existing obligations, and reinforces /enhances the risk based approach. The Directive is heavily influenced by the recommendations of the Financial Action Task Force (FATF), the global anti-money laundering (AML) and counter terrorist financing (CTF) regulation setting body, and is intended to update and improve the EU’s AML and CTF laws.

 

The Directive covers financial institutions; credit institutions; lawyers, accountants, notaries, and tax advisors; real estate agents; legal persons dealing with transactions of EUR 10,000 or more; and also casinos. The primary areas of change relate to beneficial ownership, customer due diligence, the risk-based approach and politically exposed persons (PEPs).

 

On PEPs specifically, the categories of those who can be regarded as PEPs have been broadened to include members of the governing bodies of political parties, and directors, deputy directors and members of the board or equivalent function of an international organisation. Individuals in charge of international organisations such as FIFA, the WTO and the UN are also covered by the PEP designation. Additionally, the Directive now requires financial institutions to monitor and mitigate risks posed by PEPs for at least 12 months after they leave public office. Domestic PEPs are also now in scope for enhanced due diligence (EDD) measures. By extending the categories of individuals who are included within the scope of the PEP definition, obliged entities will need to review their client registers to determine whether they need to reclassify and apply EDD to any existing customers as PEPs under the new definition, as well as applying these measures to new clients at take-on stage.

 

The Directive increases emphasis on a risk-based approach (which has formed part of the UK’s AML regime for many years) and acknowledges that measures should be adjusted according to the level of risk presented in specific jurisdictions and sectors.

 

As restrictions tighten, our clients are moving in synchronisation. They increasingly and rightly value service that extends beyond what is merely required, to a desired norm of highest best practice standards. The end of 2016 saw a noticeable change in the demographic of those looking to investor (and entrepreneur) migration solutions globally, with a significant increase in appetite from European and American HNWI.

 

The causes of this include Brexit and political changes in the US and elsewhere. The trend looks set to continue well into 2017 and potentially beyond. This is a highly risk averse diaspora, which values compliance, integrity, reputation and transparency above all else.

 

Finally, it is not only external factors influencing the industry. The industry itself is demanding the highest standards of its own. We are listening to global immigration discourse, we are learning the lessons of controversy in investor migration programs, and under the governance of the Investment Migration Council we will continue to  implement best practices that create industry standards and span all aspects of the investment migration?

 

 

Author: Nadine Goldfoot IMCM, Partner, Fragomen Worldwide