6th Anti-Money Laundering Directive
Despite the ongoing pandemic and Brexit negotiations, the European Union’s (EU) 6th Money Laundering Directive (6AMLD) comes into effect on the 3rd December 2020. The new directive is designed to invigorate the anti-money laundering efforts of financial institutions by incentivising good practice throughout sectors open to abuse by money launderers. It offers broader liability and more clarity on the regulation, whilst increasing the severity of punishments for money laundering offences. With these tougher rules business leaders will have to take it seriously. Read our latest piece to ensure you are up-to-speed on the Directive’s requirements.
What is the 6th Money Laundering Directive?
The 6AMLD comes into effect for all EU member states on 3 December 2020 and must be implemented by regulated businesses by 3 June 2021. It follows on from the 4th and 5th MLDs and seeks to close certain loopholes in the EU Member States’ domestic legislation by harmonising the definition of money laundering across the bloc. It broadens the scope of existing legislation, by giving clarity to regulatory details and providing a list of 22 predicate offences that constitute money laundering and better reflects the modern threat landscape.
It also extends criminal liability to ‘enablers’ (not just those profiting directly from money laundering activities), i.e. those ‘aiding and abetting’ money launderers, or anyone ‘inciting’ others to commit money laundering offences. As part of these changes, 6AMLD also introduces harsher punishments for money laundering offences, including a new minimum prison sentence of 4 years (rather than the current 1 year).
With the implementation date looming, the clock is ticking for your regulated business to understand the new Directive, how it will affect your compliance controls and what you need to do now to prepare.
Why is the 6AMLD important?
6AMLD is the EU’s biggest step yet in the fight against money laundering and aims to crack down on financial crime and terrorist financing by giving Governments and regulatory authorities more prosecuting power. It also means that businesses are being given more responsibility to ensure compliance.
In a nutshell, 6AMLD focuses on the heart of what AML is about – the nature of the offence of money laundering itself, the scope of liability for committing offences, and the severity of punishments. 6AMLD makes the potential consequences for not only committing the crime, but also helping or even allowing it to happen, potentially disastrous for individuals and businesses alike.
To avoid non-compliance businesses will need to act swiftly, with only six months between the deadline for national governments changing laws to conform with 6MLD (in December 2020) and the need for businesses to be compliant (in June 2021).
1. Clarifying Money Laundering Definition
6AMLD will give more clarity to the definition of money laundering and ensure there is more synergy across the EU. It has expanded the list of predicate offences (offences which are part of a larger or more serious crime) to include 22 different crimes, which now directly constitute money laundering. This list is intended to smooth out any existing loopholes in AML regulations that might allow criminals to avoid penalties and prosecution. This list includes crimes like self-laundering, cybercrime, aiding and abetting money laundering and many others. Below is the list of 22 offences (the new offences added
Until 6AMLD, only individuals could be prosecuted for money laundering offences, but the new directive will extend criminal liability to cover any ‘legal persons’ involved – like partnerships, companies and more. ‘Legal persons’ also cover individuals and businesses acting on the company’s behalf, for example, consultants, lawyers and accountants. Under the new rules, individuals and firms can both be prosecuted for money laundering crimes simultaneously, or as separate actions on different dates.
Individuals and companies are not only liable if they have committed, or aided and abetted, money laundering activity, but the new directive also takes into account ‘acts of omission’ too. This could be when a senior executive has failed to ensure the correct compliance controls are in place, to identify and prevent the prosecution of illicit crime.
There are also strict sanctions for those caught including being disqualified from the practice of commercial activities (temporarily or permanently); going under judicial supervision; and, for their company, the closure of the establishment which has been used for committing the offence.
3. Harsher Punishments
6AMLD ensures that all member States must set the minimum prison sentence for anyone found guilty of money laundering of four years – where it had previously been just one year. Most EU member States already have a much higher maximum sentence than this directive imposes (including the UK). Apart from the increased imprisonment term, competent authorities will now be required to freeze or confiscate both the proceeds and freeze or confiscate the proceeds of the instrumentalities used in the commission of money laundering offences in order to remove the financial incentives which drive perpetrators.
6AMLD includes severe punishments for corporate offenders too, with much harsher sanctions in line with those for individual offenders. Sanctions include: being disqualified from the practice of commercial activities (temporarily or permanently); going under judicial supervision; or, the closure of the establishment which has been used for committing the offence.
Harsher sanctions will have an enormous impact on the business’ operational capabilities and reputation.
4. Cooperation and Jurisdiction
6AMLD also promotes collaboration between member states, in relation to the handling of money laundering offences. For instance, if a money-laundering operation is taking place across two different countries borders, both of which are member States, then these two countries should work together going forward to identify the illegal operations, then prosecute and convict the criminals in question.
The UK has decided to opt-out of complying with further AML regulation as the Government assesses that the domestic legislation is already largely compliant with the Directive’s measures and, in many cases, “the UK already goes much further”. This is to a large extent true, as for example, the maximum penalty for money laundering is fourteen years, far exceeding the new four-year minimum required by the 6AMLD, and the UK already criminalises aiding and abetting offences of assisting, encouraging and attempting to launder money.
However, it is important to note that any regulated UK businesses in the financial sector that operate within the EU jurisdiction, will need to comply with changes set out in 6AMLD.
The aims of the 6AMLD are good, and it is useful that it highlights the international nature of money laundering activities. Financial institutions of any scale will need to understand and comply with both UK legislation and EU legislation. For the sanity of MLROs we will have to hope that they do not diverge too far. Hopefully, despite Brexit, cross border cooperation between the UK and EU Member States will persist, as this will be essential to target organised money laundering in the future.
Download 6th AMLD Infographic
The 6AMLD comes into effect for all EU member states on 3 December 2020 and must be implemented by regulated businesses by 3 June 2021. Download latest infographic to learn key changes.Download 6AMLD Infographic
Overall the Sixth Directive goes a long way towards putting professional money launderers out of business. As it focuses on accountability and enforcement compliance officers, MLROs and wider teams will be motivated to review their AML programme from the point of onboarding through to periodic reviews.
As we have said previously, compliance should not be about box ticking. When viewed as part of the lifecycle of a customer and the clever use of digital technology solutions a business can reduce its exposure to the growing threat of AML money laundering and fraud.
If your business lags behind with the 4th, 5th and 6th Anti-Money Laundering Directives and want to discuss the digital transformation of your complex compliance requirements then get in touch with the expert team at NorthRow.