Locations
Anti-money laundering (AML) law is constantly evolving. In the EU, successive legislative updates in this area reflect the bloc's feverish attempts to keep pace with increasingly sophisticated methods of moving illegally-earned cash through criminal networks.
On 12 September, the European Parliament approved a proposal for the EU's latest piece of AML legislation, known as the sixth anti-money laundering directive (6MLD).
Under Article 7 of the directive, any company operating in an EU member state can be held criminally liable for failing to prevent money laundering (ML). This is a significant modification of current EU law, which only applies corporate liability to companies operating in regulated sectors, such as banking.
Pending formal approval from the EU Council of Ministers, EU member states will have two years to implement the new rules.
But with the UK set to leave the EU on 29 March next year, its position on the directive is currently uncertain – creating a potentially difficult situation for British businesses trading or seeking to trade in Europe.
In practical terms, how significant are the changes proposed by the 6MLD?
The most significant change proposed under the 6MLD is the harmonisation of 22 predicate offences which may generate criminal property for the purposes of committing a ML offence.
These are wide reaching and include tax crimes, cybercrimes and environmental crimes, among others.
The 6MLD will also introduce a maximum term of four years' imprisonment for anyone found guilty of ML offences within EU member states. This is intended to align penalties across member states, where the severity of punishments for ML crimes varies considerably.
The directive further creates a framework for corporate criminal liability. Corporate entities could incur criminal liability if an individual commits an offence under the directive and they (1) have authority to represent, (2) can take decisions on behalf of, or (3) exercise control of that entity.
Failure to supervise such individuals is also an offence.
As a result, there will be greater obligations on firms in countries implementing the 6MLD to (1) identify predicate offences under the directive, (2) implement monitoring systems to help identify proceeds potentially linked to such offences and (3) supervise individuals with authority to make the firm criminally liable.
What is UK law's current position on AML?
The UK's latest overhaul of its domestic AML legislation was the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLR 2017), which came into force in June 2017.
This implemented the EU's fourth money laundering directive (4MLD).
The principle money laundering offences already carry a maximum term of 14 years' imprisonment in England and Wales – significantly stricter than the maximum four-year sentence proposed by the 6MLD.
If the UK decides not to adopt the 6MLD post-Brexit, what options does it have to make sure UK businesses are compliant with EU AML law?
The UK is not adopting 6MLD into UK law. However, the UK may still amend the MLR 2017 to ensure a degree of compliance with 6MLD.
It seems likely that, for the time being, the UK government may take the view that existing AML legislation is sufficiently robust and, in view of implementing the changes in EU's fifth money laundering directive (5MLD[1]) and other new domestic legislation designed to disrupt economic crime, such as the Criminal Finances Act 2017, no further amendments are necessary at this stage.
What are the risks to UK business wanting to trade in the EU if the British government does not implement the directive?
UK businesses may fall foul of the 6MLD and the local laws of EU member states if they trade with any state that has transposed the 6MLD into domestic legislation.
Member states will have jurisdiction over offences committed, wholly or partly, in its territory, or if the offender is an EU national.
Therefore, UK businesses should be alert to the 6MLD and remain vigilant of its AML processes.
What will the impact be on businesses if the UK does adopt new legislation equivalent to 6MLD?
If the UK adopts equivalent legislation, more individuals and corporate entities will be in scope for ML and predicate offences – the penalties for which are already stringent.
Businesses should therefore ensure that they have appropriate and satisfactory AML controls in place to protect themselves from unwittingly falling foul of this robust legislation.
They should already have these processes in place to ensure legal compliance and as a matter of best practice.
[1] It should be noted that member states will have until 10 January 2020 to implement 5MLD.