SUMMER 2018 AML BULLETIN

Transcription

1 SUMMER 2018 AML BULLETIN Regulatory News Update from DLA Piper

2 CONTENTS INTRODUCTION 03 UK NEWS & ENFORCEMENT ACTION HMRC publish thematic review of AML compliance in the money service business sector 04 SRA publish money laundering thematic review and risk assessment 05 AML and CTF supervision report published by HM Treasury 05 Legal Sector Affinity Group guidance on AML approved by HM Treasury 06 Revised JMLSG anti-money laundering and counter terrorist financing guidance approved 06 Economic crime inquiry launched by Treasury Committee 07 SFO announces roll out of artificial intelligence in document analysis 07 FCA speech on the use of FinTech to detect and disrupt criminal activity 08 Sanctions and Anti-Money Laundering Act 2018 receives Royal Assent 08 AML failings by bank result in FCA fine and restriction on new business 09 Dear CEO letter on cryptoassets and financial crime 10 INTERNATIONAL NEWS Outcomes of the FATF Plenary meeting 11 FATF published report to the G20 finance ministers and central bank governors 11 MLD5 published in the Official Journal of the EU 12 Trialogue agreement on Directive on countering money laundering by criminal law endorsed by COREPER 13 KEY CONTACTS 02 AML Bulletin Summer 2018

3 INTRODUCTION DLA Piper s Financial Services Regulatory team welcomes you to the Summer 2018 edition of our Anti-Money Laundering (AML) Bulletin. In this issue, we provide updates on AML developments in the UK and internationally. We look at the AML/CTF supervision report published by HM Treasury, the FCA Dear CEO letter on cryptoassets, the launch of the economic crime inquiry by the Treasury Committee, and the enactment of the Sanctions and Anti-Money Laundering Act We also offer updates on the outcomes of the Financial Action Task Force (FATF) Plenary meeting, a report by the FATF to the G20 finance ministers and central bank governors, and the proposed EU Directive on countering money laundering by criminal law. We hope that you find this update helpful. Your feedback is important to us, therefore if you have any comments or would like further information, please contact one of our specialists listed at the end of the Bulletin. The DLA Piper Financial Services Regulatory Team July

4 UK NEWS & ENFORCEMENT ACTION HMRC PUBLISHED THEMATIC REVIEW OF AML COMPLIANCE IN THE MONEY SERVICE BUSINESS SECTOR On 22 February 2018, HM Revenue and Customs (HMRC) published an Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) Thematic Review on AML Compliance in the Money Service Business (MSB) Sector (the Review). The Review reflects the findings of a programme of supervisory activity carried out by HMRC in 2014 and 2015 and examines the impact of the changes introduced by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) on the MSB sector. Background to the Review Broadly, MSBs are businesses that transmit or convert money, encompassing both banks and non-bank financial institutions. While MSBs are reliant on global banks to allow them to transfer funds worldwide, a renewed focus by banks on their AML obligations in recent years, and resulting concerns that MSBs could be susceptible to abuse by criminals and terrorist financers, has caused some global banks to withdraw services from MSBs. World Bank data has indicated that the UK is a major receiver and sender of remittances, and there has been an acknowledgement of the importance of remittances in less developed economies. The UK is therefore committed to the agenda of improving remittance providers access to online banking. HMRC s Agent Network Compliance Activity in 2014/15 The programme of supervisory activity carried out by HMRC in 2014/15, otherwise referred to as its Agent Network Compliance Activity, was the largest Money Laundering Regulation exercise ever carried out by HMRC and was prompted by work which highlighted the potential risks with agent networks. The Review is therefore focussed predominantly on the use of the agency model in the MSB sector, meaning the arrangement where an agent is authorised to act on behalf of a principal. This contrasts with the principal model where a business uses a single corporate structure (for example a company or network of companies) to operate the outlets through which it provides its services. Where an MSB customer deals with an agent, the agent will bind the MSB to perform the service that the customer has paid for. The initial supervisory programme carried out by HMRC examined around two dozen agent networks which between them comprised over 90% of the money transfer agents operating in the UK. The Review highlights some areas of good practice. These include principals carrying out physical inspections of agent locations prior to on-boarding, principals keeping their records in electronic format, and principals refusing to have agents who are involved in multiple other networks or treating such agents as higher risk. However, HMRC describes the overall results as disappointing. Key concerns raised by HMRC related to on-boarding processes (how agents were recruited, including the nature and quality of the checks carried out by principals), monitoring by principals, and training of agents. The review also highlighted issues with the conduct of agents, including poor record keeping, poor IT security and poor understanding of suspicious activity reporting. MLRs 2017 Both the Directive of the European Parliament and of the Council of 20th May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Fourth Money Laundering Directive) and the Wire Transfer Regulation (Wire Transfer Regulation) came into effect in the UK in June The Fourth Money Laundering Directive was implemented through the MLRs 2017, which also took effect on 26 June The Wire Transfer Regulation is directly applicable and is enforced through the MLRs The key change introduced by the MLRs 2017 in the context of agent networks in the MSB sector was the extension of the fit and proper test to cover MSB agents. Under the MLRs 2017, HMRC must refuse to register an MSB that has agents (or officers, managers or beneficial owners of the agent) who are not fit and proper. To be deemed not fit and proper, the agent must have unspent 04 AML Bulletin Summer 2018

5 convictions of a kind listed in Schedule 3 to the MLRs 2017; have consistently failed to comply with the MLRs of 2001, 2003, 2007 or 2017; or be otherwise not fit and proper having regard to the risk of the business being used for money laundering or terrorist financing. An MSB with agents is now required to have written policies, controls and procedures to ensure that agents used by the business would satisfy the fit and proper test. In the Review, HMRC highlighted that both agents and principals should have an adequate working knowledge of the MLRs 2017, being alert to the changes which came into effect on 26 June Both agents and principals should also comply with other guidance published by HMRC. The review further emphasised that principals carry the risk for compliance with the MLRs 2017 by their agents. SRA PUBLISHED MONEY LAUNDERING THEMATIC REVIEW AND RISK ASSESSMENT In March 2018, the Solicitors Regulation Authority (SRA) published a risk assessment on money laundering and terrorist financing, together with a thematic review entitled Preventing Money Laundering and Financing of Terrorism. Carrying out a risk assessment to identify and assess the international and domestic risks of money laundering and terrorist financing is a requirement for all supervisory authorities under Regulation 17 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017). In its risk assessment, the SRA identified the following risk factors as significant for regulated firms: product and services risk; client risk; transaction risk; delivery channel risk; and geographical risk. The thematic review is focused on governance, the risk based approach, customer due diligence, the source of funds and wealth, training, and suspicious activity reports. The SRA highlighted the following key conclusions: Most firms are taking appropriate steps to understand and reduce the risk of money laundering and to comply with the MLRs Some firms are going beyond the minimum requirements, for example by testing training and compliance. Examples of good practice included firms having a variety of ways to establish the source of a client s funds and wealth. Areas of concern included not all firms keeping records of their decisions and not having a firm-wide risk assessment in place. The SRA recognised that firms had been given limited opportunity to implement the new regulations, but urged the non-compliant firms to move towards compliance as a matter of urgency. Firms are generally carrying out appropriate customer due diligence. A small number of firms still have a significant amount of work to do to improve both processes and practice. Six of the most serious cases were referred into the SRA s disciplinary process. Under Regulation 18(1) of the MLRs 2017, firms are required to have regard to the SRA s risk assessment when creating and maintaining their own written risk assessment. AML AND CTF SUPERVISION REPORT PUBLISHED BY HM TREASURY On 5 March 2018, HM Treasury published its sixth report on anti-money laundering (AML) and counter-terrorist financing (CTF) supervision, covering the period from 2015 to The report aims to provide transparency about supervisory activity and details activity undertaken by supervisors in 2015/16 and 2016/17. The report sets out the next steps for AML supervision, including the intended impact of both the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which came into force on 26 June 2017, and the Office for Professional Body Anti-Money Laundering Supervision (OPBAS), 05

6 which came into being on 18 January 2018 (for more information on OPBAS, please refer to the spring issue of AML Bulletin). The report focuses on key areas that demonstrate the UK supervisory regime is effective, including: supervisors understanding of money laundering and terrorist financing risk within their sector; how supervisors understanding impacts on their supervisory approach, ensuring resources are deployed according to risk; engagement with law enforcement to share information and facilitate investigations; the impact of initiatives intended to promote awareness on compliance; and whether remedial actions, including effective, proportionate and dissuasive sanctions, are applied to penalise breaches and promote compliance. HM Treasury noted that there have been improvements in several areas. However, it urged all supervisors to capture data and case studies that demonstrate the effectiveness of their supervisory activity on an ongoing basis. This will show how their understanding of risk influences their supervision, and how their supervisory activity affects compliance. The previous report covered the one-year period from January 2014 to April HM Treasury noted that, going forward, it will return to this format and publish its AML/ CTF supervision reports annually. LEGAL SECTOR AFFINITY GROUP GUIDANCE ON AML APPROVED BY HM TREASURY On 6 March 2018, HM Treasury approved the guidance on anti-money laundering (Guidance) issued by the Legal Sector Affinity Group, the anti-money laundering (AML) supervisors for the legal sector. The Guidance takes into account the changes introduced by the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs 2017) and replaces the Law Society s AML Practice note. The Guidance was originally issued in draft form and the Law Society has published a summary of the changes made to the draft version. The topics covered by the Guidance include: the riskbased approach; systems, policies procedures and controls; customer due diligence; beneficial ownership information; money laundering offences; legal professional privilege; terrorist property offences; disclosure; enforcement; civil liability; money laundering warnings signs; and practical examples of offences and reporting. The effect of the Guidance being approved is that, when considering the possible imposition of civil or criminal penalties for an alleged breach of the MLRs 2017, the court or relevant supervisory authority must take into account whether the Guidance was complied with. Compliance with approved guidance offers a safe harbour for those who might otherwise be guilty of civil or criminal contraventions. REVISED JMLSG ANTI-MONEY LAUNDERING AND COUNTER TERRORIST FINANCING GUIDANCE APPROVED On 6 March 2018, the Joint Money Laundering Steering Group (JMLSG) confirmed on its webpage that Parts I, II and III of its latest AML and CTF guidance have now received ministerial approval. The revised guidance was first published in December While the JMLSG guidance is not legally binding, its approval by HM Treasury means that compliance can provide a safe harbour in the event of prosecution under the UK AML and CTF Regime. For more information on the content of the JMLSG guidance, please refer to the spring issue of AML Bulletin. 06 AML Bulletin Summer 2018

7 ECONOMIC CRIME INQUIRY LAUNCHED BY TREASURY SELECT COMMITTEE On 29 March 2018, the Treasury Select Committee (TSC) launched an inquiry into economic crime. The inquiry will have two strands: Anti-money laundering and the sanctions regime: It will examine the scale of money laundering, terrorist financing and sanctions in the UK, the current regulatory and legislative landscape, and how individuals, firms and the wider economy have been impacted by these regimes. Consumers and economic crime: The Committee will scrutinise the scale and nature of economic crime faced by consumers, the effectiveness of financial institutions in combatting economic crime, and the security of consumers data. Commenting on the launch, Rt Hon. Nicky Morgan MP, Chair of the TSC, stated: Given the threats that face the UK, the effectiveness of the regimes that we use to protect our financial system from misuse have never been more important. She further noted that the inquiry will examine the UK s role in international efforts to tackle money laundering and terrorist financing and implement sanctions. The Committee has now collected all written evidence and is working to schedule oral hearings. With regard to anti-money laundering, counter-terrorist financing and sanctions regimes, the Committee sought evidence on: the scale of money laundering, terrorist financing and sanctions violations in the UK, and the means by which this activity is enabled; the current legislative and regulatory landscape, including any weaknesses in the rules and their enforcement; the effectiveness of the Treasury and its associated bodies in supporting and supervising the regimes; the impact of the implementation of the current regimes on individuals, firms and the wider economy, including unintended consequences such as the removal/ refusal of financial services from/to individuals or firms; the role of financial institutions and/or professional bodies in these regimes; and the UK s role in international efforts to tackle money laundering and terrorist financing and implement sanctions. In relation to economic crime as it affects consumers, the Committee invited evidence on: the current legislative and regulatory landscape, including any weaknesses; the scale and nature of economic crime faced by consumers, including emerging trends; the response of the Treasury and its associated bodies to economic crime consumers face; consumer education, responsibility and vulnerability in relation to economic crime; the role and effectiveness of financial institutions in combatting economic crime that consumers face; the potential for technology and innovation to assist those committing and combatting economic crime; and the security of consumers data. The deadline for submission of written evidence to the Committee was 8 May SFO ANNOUNCED ROLL OUT OF ARTIFICIAL INTELLIGENCE IN DOCUMENT ANALYSIS The Serious Fraud Office (SFO) has announced that artificial intelligence (AI) is available for all of its new casework from April 2018 onwards. In a press release dated 10 April 2018, the SFO explained that the automation of document analysis through the use of AI technology will enable the SFO to investigate more quickly, reduce costs, and achieve a lower error rate than through the work of lawyers. A pilot robot was used by the SFO to scan for legal professional privilege in a recent criminal case, operating at speeds 2,000 times faster than would be achievable by a human lawyer and with the ability to process more than half a million documents a day. The robot replaces the independent barristers previously employed to perform this role. Alongside the robot, the SFO will be rolling 07

8 out a new AI powered document review system from OpenText, Axcelerate, which the SFO anticipates will allow case teams to better target their work and time in other aspects of investigative and prosecutorial work. The new AI document review system will be able to recognise patterns, group information by subject, organise timelines, and remove duplicates. Future functionality will include sifting for relevancy and removing documents unrelated to an investigation. Ben Denison, Chief Technology Officer for the SFO, highlighted that AI technology will help us to work faster, smarter and more effectively investigate and prosecute economic crime. FCA SPEECH ON THE USE OF FINTECH TO DETECT AND DISRUPT CRIMINAL ACTIVITY We need to turn technology against criminals was the key theme of a speech delivered by Megan Butler, FCA Executive Director of Supervision Investment, Wholesale and Specialists, on 22 May The speech, delivered at the Anti-Money Laundering TechSprint in London, encouraged firms to collaborate with their regulators and share details of methods, innovations and technologies that they are using to help to fight financial crime. The speech highlighted that technology is increasingly essential to combatting financial crime, with cybercrime now accounting for nearly 50% of all recorded crime in the UK. In a financial crime data return launched by the FCA at the end of 2016, phishing and identity theft were cited by firms as the most widespread fraud risks they now face, and malware attacks and phishing, or variants of it, are the most rapidly increasing threats. Ms Butler acknowledged that the data suggests that most financial institutions are not complacent about the risk, and cited the primary question as being around efficiency, asking how firms can get better at detecting criminals and disrupting malignant activities like people trafficking, narcotics and fraud. The speech highlighted that, according to the FCA s own analysis, transaction monitoring is the area with the most potential, but also named onboarding, maintenance, client screening and reporting as areas where the development of technology could prove successful in combatting financial crime. The speech proposed that the next step will be to apply intelligent technologies, enabling firms to spot suspicious transactions in real time. This might involve the use of artificial intelligence, natural language processing and machine learning. However, there was an acknowledgment of the practical obstacles around implementing intelligent technologies, including the need for some firms to integrate legacy systems, as well as issues around bias and transparency. While delivering the message that the FCA is supportive of firms using technology to improve compliance, Ms Butler confirmed that firms will not be let off the hook where new technology has been introduced, also stating that cheap technologies that aren t tested and don t work properly are not acceptable alternatives to old, expensive tech systems that do. Nonetheless, the conclusion was a re-emphasising of the message that firms should not be afraid of working with their regulators on systems that they feel might offer genuine benefit. SANCTIONS AND ANTI-MONEY LAUNDERING ACT 2018 RECEIVED ROYAL ASSENT On 23 May 2018, the Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018) received Royal Assent. Although not yet in force, SAMLA 2018 will enable the UK to enact sanctions and money laundering regulations post-brexit. Under the EU (Withdrawal) Bill as currently drafted, European Union (EU) law in effect at the date of withdrawal from the EU will be transposed into domestic law in the UK. However, SAMLA 2018 is required in order to ensure that the UK may both remove outdated sanctions and impose new sanctions in line with its international obligations, including the requirement to implement sanctions passed by resolutions of the UN Security Council. Currently, UN measures are implemented through EU Regulations and therefore have direct effect in the UK. The power for the UK government to enact sanctions 08 AML Bulletin Summer 2018

9 regulations in order to comply with a UN obligation or other international obligation is contained in Part 1 of SAMLA Part 1 also strengthens the powers of the UK government to operate its domestic sanctions regime post-brexit, giving an appropriate Minister the power to make sanctions regulations where it is considered that so doing would: further the prevention of terrorism, in the UK or elsewhere; be in the interests of national security; be in the interests of international peace and security; further a foreign policy objective of the government of the UK; promote the resolution of armed conflicts or the protection of civilians in conflict zones; provide accountability for or be a deterrent to gross violations of human rights, or otherwise promote compliance with international human rights law, respect for human rights, or international humanitarian law; contribute to multilateral efforts to prevent the spread and use of weapons and materials of mass destruction; or promote respect for democracy, the rule of law and good governance. Part 2 of SAMLA 2018 enables the UK Government to make regulations for the purpose of enabling or facilitating the detection, investigation or prevention of money laundering and terrorist financing, and to implement standards published by the Financial Action Task Force. It also introduces a requirement for the Secretary of State to report to Parliament on an annual basis regarding the progress that has been made towards putting in place a register of beneficial ownership of overseas entities. Commenting on the enactment, Foreign Secretary Boris Johnson said: Thanks to this new law, once we have left the EU, we will have full control of our own sanctions policy again. That will give us the power to impose sanctions, including for human rights abuses. Sanctions are a key foreign policy and national security tool for the UK, and the new legislation will allow the UK to act in line with our own priorities, as well as with our international partners. The date on which SAMLA 2018 comes into force will be determined by regulation made by the Secretary of State, but the expectation is that this will be close to the time of the UK s withdrawal from the EU. AML FAILINGS BY BANK RESULT IN FCA FINE AND RESTRICTION ON NEW BUSINESS On 6 June 2018, FCA has published its final notice issued to Canara Bank, levying a fine of 896,000 and imposing a restriction on accepting deposits for new customers for 147 days, for failings relating to AML systems and controls between 2012 and Canara is the UK branch of the Indian state owned bank of the same name. The FCA visited Canara in 2012, and notified it of a number of serious weaknesses in its systems and controls. Following a re-visit in 2015, the remedial actions were considered insufficient, and Canara had failed to test the implementation and effectiveness of the steps taken. A skilled persons report was subsequently commissioned, and found that: the organisational and corporate governance structure and arrangements at the bank were not adequately designed or effective; its compliance and AML systems and controls were not appropriately designed, and the AML risk management and governance framework was not fit for purpose; and there was a lack of understanding of AML risk profile, a lack of monitoring of AML risks and controls, an inability to identify or flag unusual transactions and an inability to recognise politically exposed persons. These failings were found to be endemic throughout Canara s UK operations, and had an effect on almost every part of its business. A key finding from the FCA was a lack of adequate management experience, stemming from senior management transfers from its Indian head office and the resultant lack of understanding of UK legal and regulatory AML requirements. 09

10 The FCA stated that in imposing the restriction, in addition to the financial penalty, it hoped that this would be a more effective and persuasive deterrent, and that it would demonstrate to firms that fail to address deficiencies in their AML systems and controls that the Authority will take disciplinary action to suspend and/or restrict the firm s regulated activities. DEAR CEO LETTER ON CRYPTOASSETS AND FINANCIAL CRIME On 11 June 2018, the FCA published a Dear CEO letter on cryptoassets and financial crime. While acknowledging that cryptoassets may be used for legitimate purposes, with no criminal motive, the letter highlighted the FCA s concern that certain characteristics make them particularly prone to being used for economic crime. The FCA suggested that firms offering banking services to clients who derive significant business activities or revenues from crypto-related activities may need to enhance their scrutiny of these clients. In particular, the appropriate steps or actions may include: developing staff knowledge and expertise on cryptoassets to help them identify the clients or activities which pose a high risk of financial crime; ensuring that existing financial crime frameworks adequately reflect the crypto-related activities which the firm is involved in, and that they are capable of keeping pace with fast-moving developments; engaging with clients to understand the nature of their businesses and the risks they pose; carrying out due diligence on key individuals in the client business including consideration of any adverse intelligence; in relation to clients offering forms of crypto-exchange services, assessing the adequacy of those clients own due diligence arrangements; and for clients which are involved in ICOs, considering the issuance s investor-base, organisers, the functionality of tokens (including intended use) and the jurisdiction. The letter also explains that the existing requirements for checking the source of wealth and funds deposited by customers are risk-sensitive and apply in the same way to cryptoassets as they do to other types of assets. Although the evidence trail behind transactions may be weaker where cryptoassets are used, this does not justify applying a different evidential test or using different criteria. The use by the client of a state-sponsored cryptoasset which is designed to evade international financial sanctions was highlighted as an example of a high-risk indicator. The FCA has also recently issued a consumer warning about investing in ICOs, a statement on cryptocurrency derivatives and a consumer warning on the risks of investing in cryptocurrency contracts for differences. 10 AML Bulletin Summer 2018

11 INTERNATIONAL NEWS OUTCOMES OF THE FATF PLENARY MEETING The Financial Action Task Force (FATF) held a Plenary meeting in Paris from 21 to 23 February Established by the G7 in 1989, the FATF is an independent inter-governmental body with a mandate to develop and promote policies to protect the global financial system against money laundering and terrorist financing. The FATF meets three times per year to make decisions on further measures to adopt. Its recommendations (Recommendations), last published in 2012, are recognised as the international Anti- Money Laundering (AML) and Counter Terrorist Financing (CTF) standards. The Plenary meeting was held under the Presidency of Mr. Santiago Otamendi. The key issues dealt with at the meeting were: Combatting terrorist financing, including the adoption of a new counter-terrorist financing operational plan and a statement on the actions taken under the 2016 counterterrorist financing strategy; Adopting a report to the G20 Finance Ministers and Central Bank Governors; Updated FATF Guidance on Counter Proliferation Financing; Discussion of the mutual evaluation report of Iceland; The publication of two public documents identifying jurisdictions that may pose a risk to the international financial system: Jurisdictions with strategic anti-money laundering and countering the financing of terrorism (AML/CFT) deficiencies for which a call for action applies; and Jurisdictions with strategic AML/CFT deficiencies for which they have developed an action plan with the FATF; Monitoring Iran s actions to address deficiencies in its AML/ CFT system; Update on recent developments on de-risking; Improving the understanding of virtual currencies risks; Update on FinTech and RegTech Initiatives; Outcomes of the meeting of the FATF Forum of Heads of Financial Intelligence Units, which was held in the margins of the Plenary; and Strengthening FATF s institutional basis. FATF also published a bulletin aimed at the private sector. It included details on outcomes relevant to the entire private sector, including proliferation financing and counter-terrorist financing; outcomes on high-risk and other monitored jurisdictions including Bosnia and Herzegovina and Serbia; and other more general outcomes such as developments on derisking and an update on FinTech and RegTech initiatives. FATF PUBLISHED REPORT TO THE G20 FINANCE MINISTERS AND CENTRAL BANK GOVERNORS FATF has now published its March 2018 report to the G20 finance ministers and central bank governors (Report). In the Report, FATF confirms that CTF remains its top priority. The Operational Plan agreed by FATF in the wake of the November 2015 terrorist attacks in Paris has now been completed, and at its February 2018 Plenary FATF adopted a new Operational Plan to take forward the next phase of its work in this area. The new Operational Plan will focus on improving the regional and international understanding of risk, working closely with regional bodies. FATF will also continue to address inadequacies in domestic co-ordination, international cooperation, and information sharing with the private sector in the CTF space. This follows on from FATF, in February 2018, having reinforced its Recommendations, clarifying the minimum standards for effective domestic information sharing. FATF will regularly review and report on its new Operational Plan to ensure that its work remains effective. Alongside its work on CTF, FATF announced a series of action points in relation to its other key focus areas: 1. Continuing to consider financial inclusion and de-risking as important strategic priorities FATF acknowledged that customers without access to the formal financial system often due to a lack of 11

12 reliable identity documentation and data verification are likely to resort to cash and unregulated channels, thereby limiting transparency and increasing the risk of money laundering. Similarly, FATF is seeking to discourage inappropriate de-risking activity arising from the way in which financial institutions are implementing the FATF Recommendations. FATF has consequently published guidance on regulatory expectations for customer due diligence and is seeking the support of national regulators in ensuring that the FATF guidance is reflected in their domestic supervisory approach. 2. Continuing its work to better understand the risk of abuse of corporate vehicles, legal arrangements and professional intermediaries This builds on FATF s recent work on transparency and beneficial ownership which identified areas for improvement by countries, particularly in relation to supervision of gateway professions. FATF recognises that lack of access to information on beneficial owners creates significant levels of vulnerability to money laundering and terrorist financing. Further action will be considered in June 2018 following a joint project with the Egmont Group which is aimed at ensuring that global standards and policies continue to reflect the evolving risks. 3. Publishing a report by the Argentine FATF Presidency in June 2018 on the challenges and good practices to improve the effectiveness of the criminal justice system in fighting money laundering and terrorist financing The report aims to identify factors that can result in a more effective system for prosecution of money laundering and terrorist financing and confiscation of proceeds of crime. 4. Continuing its work on FinTech and virtual currencies While FATF is actively exploring how technology could improve the implementation of AML and CTF measures, it simultaneously acknowledges the potential for technology to create money laundering and terrorist financing risks. A key priority for FATF in this space is to develop a consistent international approach to managing these risks, without stifling financial innovation. FATF will continue to monitor new trends and cooperate on an international level to mitigate risks. 5. Updating its knowledge on the financial flows associated with human trafficking, including identified links with money laundering and terrorist financing FATF expects to conclude this work by June 2018 FATF will report on its progress against these action points at the next G20 Leader s Summit, due to take place from 30 November to 1 December MLD5 PUBLISHED IN THE OFFICIAL JOURNAL OF THE EU On 19 June 2018, Fifth Money Laundering Directive (MLD5) was published in the Official Journal of the EU. This followed a press release published on 14 May 2018 in which the Council of the EU confirmed that it had adopted the proposed Directive. MLD5 forms part of the European Commission s Action Plan to strengthen the fight against terrorist financing. MLD5 is focussed on improving both transparency and co-operation, containing provisions to broaden access to information on beneficial ownership, improve checks on transactions involving high-risk third countries and increase co-operation between financial intelligence units. The Directive also seeks to address risks linked to prepaid cards and virtual currencies. In its press release, the Council of the EU set out that MLD5 aims to close down criminal finance without hindering the normal functioning of payment systems. The key amendments that MLD5 introduces include: enhanced due diligence measures and countermeasures relating to high-risk third countries are clarified; virtual currency exchange platforms and custodian wallet providers are brought within the scope of regulation; measures to address concerns surrounding the anonymity of prepaid instruments; 12 AML Bulletin Summer 2018

13 a new obligation is imposed on member states to establish central mechanisms to identify holders and controllers of bank and payment accounts. new powers for Financial Intelligence Units to request money laundering and terrorist financing information from firms; improved access to beneficial ownership information; and a clarification of a number of existing provisions. The 14 May press release confirmed that MLD5 was adopted by the Council of the EU, constituted as the General Affairs Council, without discussion. The European Parliament approved the agreed wording on 19 April MLD5 will come into force on 9 July 2018, the twentieth day after its publication in the Official Journal of the EU. Member States must bring into force the laws and regulations necessary to comply with MLD5 by 10 January TRIALOGUE AGREEMENT ON DIRECTIVE ON COUNTERING MONEY LAUNDERING BY CRIMINAL LAW ENDORSED BY COREPER On 7 June 2018, COREPER, the Committee of Permanent Representatives at the Council of the EU, endorsed the informal trialogue agreement reached on 30 May 2018 by European Parliament, Council and European Commission negotiators on the proposal for a Directive on countering money laundering by criminal law. The main objectives of the proposed Directive are to: establish minimum rules concerning the definition of criminal offences and sanctions relating to money laundering; remove obstacles to cross-border judicial and police cooperation by setting common provisions to improve the investigation of money laundering related offences; and bring EU rules in line with international obligations, in particular those arising from the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism and the relevant Financial Action Task Force recommendations. According to a press release published by the Council of the EU, the agreement established that: money laundering activities will be punishable by a maximum term of imprisonment of four years; additional sanctions and measures may be imposed by judges together with imprisonment, including temporary or permanent exclusion from access to public funding or fines; aggravating circumstances will apply to cases linked to criminal organisation or for offences conducted in the exercise of certain professional activities; and legal entities will also be held liable for certain money laundering activities and can face a range of sanctions. The compromise also includes clearer rules to define which member state has jurisdiction and the cooperation between member states concerned for cross-border cases, as well as the need to involve Eurojust, an EU agency dealing with judicial co-operation in criminal matters. Welcoming the agreement, Commissioner for Migration, Home Affairs and Citizenship, Dimitris Avramopoulos, said: Over the past three years we have done our utmost to close down the space in which terrorists operate. With stronger and uniform rules on money-laundering across the European Union, we have tightened those screws even harder, making it more difficult for terrorists and criminals to get away with the profits of crime. The next step is for the Directive to be formally adopted by the European Parliament and the Council of the EU under the ordinary legislative procedure. The European Parliament could adopt the Directive as early as 10 September 2018, an indicative date for the first reading of the proposal. Following approval, the Directive will be published in the Official Journal and enter into force 20 days later. For further information contact: michael.mckee@dlapiper.com 13

14 KEY CONTACTS FOR FURTHER INFORMATION OR ADVICE, PLEASE CONTACT: Michael McKee Head of Financial Services Regulatory Partner T +44 (0) michael.mckee@dlapiper.com Tony Katz Head of Financial Services and Investigations, Partner T +44 (0) tony.katz@dlapiper.com Sam Millar Partner T +44 (0) sam.millar@dlapiper.com DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at This publication is intended as a general overview and discussion of the subjects dealt with, and does not create a lawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. This may qualify as Lawyer Advertising requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Copyright 2018 DLA Piper. All rights reserved. JUN