The Fight Against New Money Laundering Schemes

Zac Cohen, General Manager at Trulioo, looks at the 6th Anti-Money Laundering Directive and the things that business leaders and risk and compliance directors need to do to ensure they are compliant with the new regulation.

Non-stop regulation to tackle emerging money laundering threats

For senior executives within regulated industries, yet another article exploring the next round of regulation to tackle international money laundering is likely to have them scratching their heads or maybe raising their eyebrows.

But, whilst many firms are still bedding down new systems and processes to comply with the 5th EU Anti-Money Laundering Directive (5AMLD), additional rules to counter the growing global threat of money laundering were introduced by the European Parliament at the end of last year.

The 6th Anti-Money Laundering Directive (6AMLD) will be transposed into member states’ national laws by December 2020, and organisations within all member states will be required to implement the new regulations by 3rd June 2021.

Importantly, the regulations will cover all regulated entities across the EU, plus any UK organisations that are operating within the EU after Brexit, whatever the outcome of current political negotiations. Brexit does not represent a way around 6AMLD; any UK business wanting to operate within the EU need to comply with the new rules.

What’s more, there’s a definite likelihood that non-EU states around the world will replicate the content and spirit of 6AMLD within their own regulatory frameworks over the next few years. Much like we are seeing with the General Data Protection Regulation (GDPR), the EU’s recently implemented regulatory framework around data security and privacy, other economies wishing to trade with the EU are developing their own versions of these EU-mandated rules in order to reduce barriers to global trade and drive consistency.

The new regulation lists 22 predicate offences relating to money laundering, providing for clear and harmonised definitions of each specific crime.

So, whilst business leaders and risk and compliance directors across a range of sectors – from financial services to payments, online marketplaces and gaming – may be starting to feel as though they are caught in an AML compliance hamster-wheel, they must get to grips with 6AMLD now so that they can devise plans to ensure they are compliant come June 2021.

6AMLD – what you need to know

If 5AMLD was about expanding the scope of businesses’ obligations in countering money laundering, 6AMLD provides the detailed definition of these requirements. As is often the case, regulators cast the net wide in order to tackle emerging money laundering activities but are now clarifying and refining the rules in order to make them more effective and practical.

6AMLD is highly significant for a number of reasons, namely due to the fact it provides context around the newest forms of money laundering which are emerging within an increasingly digital-driven global economy. The new regulation lists 22 predicate offences relating to money laundering, providing for clear and harmonised definitions of each specific crime.

Importantly, the last of these offences is cyber-crime, which for the first time is included within AML regulation. This is significant because it enables organisations and regulators to root out money laundering crimes more easily and effectively across a wide range of online activities.

In addition to this, 6AMLD is noteworthy because it is very clear in its objective of pinpointing the individuals within an organisation who are responsible for money laundering crimes. The introduction of new offences such as ‘aiding and abetting’ and ‘attempting and inciting’ also extends criminal liability from those directly responsible for converting the proceeds of crime to accomplices in the laundering process. No longer can individuals hide behind a business entity; the regulation is designed to provide complete transparency around who owns and controls these entities.

6AMLD is noteworthy because it is very clear in its objective of pinpointing the individuals within an organisation who are responsible for money laundering crimes.

However, the real headline-grabber for 6AMLD is the introduction of far tougher punishments for money laundering crimes, with member states required to impose minimum prison sentences of five years, up from the previous minimum of one year.

Finally, the new regulation enshrines the requirement for member states to co-operate in the prosecution of money laundering crimes. For example, should two member states each have jurisdiction over the prosecution of an offence, they are required to collaborate and agree to prosecute in a single member state.

 Flexibility the key to meeting 6AMLD requirements and driving future growth

While 6AMLD is very much consistent with the spirit of both 4AMLD and 5AMLD, it will require regulated organisations to review their AML monitoring processes and identify areas for improvement within their customer onboarding and operational models.

This will undoubtedly mean further adoption of regulatory technology (RegTech) to automate more of their onboarding processes and tap into a far more comprehensive pool of information on prospective customers, both individuals and businesses.

However, while 6AMLD is set to be the next big deadline, risk and compliance professionals across all relevant sectors should recognise that AML regulation won’t stop there; as new money laundering threats continue to evolve rapidly across the global economy, the pace and scale of new regulation in this area will inevitably accelerate exponentially.

Faced with this level of complexity and change, businesses need to take a broader view of compliance and operational best practices and adopt new processes and technologies in order to stay on the front foot.

So, rather than taking a reactive approach and focusing solely on being compliant with 6AMLD come June 2021, business leaders should focus on instilling a more agile and flexible approach to compliance and strive to establish a governance framework which operates at a higher level than the next, most immediate regulatory requirement, whether that be 6AMLD, 7AMLD or whatever comes next.

Many organisations are now realising that a ‘do the bare minimum’ approach to compliance is simply not sustainable in the digital economy. Instead they are coming to view compliance, and in particular the adoption of RegTech, as a revenue generator and key strategic differentiator. By ensuring they have the flexibility to adapt to changing regulatory requirements easily and quickly, banks can ensure they can be first to market with new products and services, whilst simultaneously minimising their risk.

Indeed, that is why so many businesses are positioning risk and compliance at the centre of their operational model. Whereas once the compliance department was viewed and treated as a back-office function, we see Heads of Risk and Heads of Compliance being elevated into strategic roles and playing a major part in shaping the future direction of the business.

So, as business leaders turn their attention to 6AMLD heading into 2020, they should not only ensure they have the processes, systems and technologies to fulfil their new obligations and minimise risk, but also look on their efforts to do so as an opportunity to achieve a higher level of governance, setting them apart from their competitors in the market. By ensuring they have the flexibility to adapt to an ever-more complex and dynamic regulatory environment, businesses can acquire the speed and agility needed to thrive in the future economy.

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