AML RightSource
Six months and counting. The European Union’s Sixth Anti-Money Laundering Directive comes into effect across its member states on 3 December 2020; regulated financial institutions will then need to be compliant by 3 June 2021.
Getting to grips with 6AMLD will require some effort. The regulation doesn’t simply tweak its predecessor directives; rather, it marks a concerted effort by the EU to crack down on financial crime, with much more granular and wide-ranging detail on what constitutes money laundering offences – and much tougher penalties for transgressions.
Broader definitions of crime and tougher penalties
Importantly, 6AMLD sets out clear definitions of money laundering that will harmonise the list of potential offences across the EU. In all, there are 22 of these “predicate offences”, including tax crimes, environmental crimes and, for the first time, certain cyber crimes.
The directive effectively represents an expansion of the regulatory scope on money laundering. One significant example is the introduction of an “aiding and abetting” offence, under which guilty parties will be considered to have committed money laundering and face the same financial penalties. Currently, regulation does not cover these enablers, focusing solely on those who profit directly from money laundering activities.
In addition, 6AMLD will extend the criminal liability regime. Currently, only individuals can be punished for money laundering offences, but the new regulation will also allow for sanctions against “legal persons” such as companies and partnerships. The aim is to force financial services businesses to take more responsibility for combating money laundering; an organisation will be held criminally responsible unless it can show it made appropriate efforts to prevent its employees carrying out any illegal activities.
The penalties for breaches of 6AMLD are significant. Organisations found culpable could face a temporary ban on operating or even the prospect of permanent closure in more serious cases. For individuals, the directive raises the minimum prison sentence for money laundering offences from one to four years. The courts will also have powers to impose fines and to prevent organisations accessing public funding.
The EU is also anxious to combat “dual criminality”, where a crime is committed in one jurisdiction, but its proceeds are laundered in another. Accordingly, 6AMLD requires EU member states to share specific information so that criminal prosecutions of connected offences can take place in more than one member state. Again, the effect is to strengthen the hand of investigators and prosecutors tackling money laundering – and to add to the vulnerabilities of organisations lacking robust compliance policies and processes.
Regulated businesses face more scrutiny
The bottom line is that 6AMLD will have a significant impact on banks and other regulated organisations. While existing and historic regulation has targeted organisations suspected of participating in money laundering, the “bad apples” defence will no longer hold water. It will be much harder to argue that rogue employees were acting alone, unless an organisation can show it took every possible step to prevent their illegal activity. And in the absence of that defence, regulated businesses will face punitive sanctions for wrongdoing, either of their own or of their employees.
It is therefore crucial that bank executives and their senior compliance leaders review and update their current anti-money laundering practices – these must be fit for the new risk environment now set to emerge.
Such reviews should encompass all of the organisation’s anti-money laundering policies and processes. It may also be necessary to introduce new training for employees (and to retrain staff who have already undertaken training). They will need to understand their new responsibilities – including what suspicious activity to look for in relation to all 22 of the offences set out in 6AMLD.
Technology will also play a vital role in ensuring regulated businesses are able to comply with money laundering regulation in the most comprehensive and cost-efficient way possible. One response will be to leverage the advances in regulatory technology (regtech), where new tools continue to evolve at pace.
These solutions harness technologies such as data analytics, machine learning, artificial intelligence and natural language processing to support transaction monitoring and other anti-money laundering activities. The need to prepare for 6AMLD provides a valuable opportunity to explore what such tools have to offer – and, ultimately, to harness innovative new reg tech to manage this increasingly demanding regulatory regime.