Finance Monthly May 2019 Edition

Cryptocurrency already holds great promise when it comes to driving greater efficiency and lowering costs for cross-border transactions, and the 5MLD requirements can help in greater adoption of this new technology. Lower identification threshold for pre-paid cards Other innovations in financial technology have also resulted in the greater use of pre-paid cards. Unfortunately, post analysis of the Paris and Brussels attacks revealed that the terrorists financed their activities using these prepaid cards. These anonymous instruments made it easy for them to disguise their identities, consequently meaning it was difficult for law enforcement agencies to track their financing operations. As a direct result of these attacks, 5MLD now lowers the identification threshold of these prepaid cards to over €150 (down from €250), with any remote payment transactions over €50. Any institution selling prepaid cards will need to conduct due diligence checks on their customers to identify suspicious transactions. It is clear that technology innovation and new payments processes are driving greater ease of use in financial transactions globally. While they benefit the general public, bad actors will always be looking to take advantage of these trends to finance their illicit activities. 5MLD represents a significant step forward in addressing these loopholes. However, technology change, especially in financial services, continues to accelerate. 6MLD is already in discussion amongst EU regulators. And it is clearer than ever that there is a need to make it count if we are to stay vigilant and on top of the never-ending fight against money laundering and terrorism. member states will now need to maintain a list of prominent public functions that Obliged Entities (OE) – institutions that are required to comply with the Money Laundering Directives – like financial organisations, can then use to develop their due diligence procedures. While this change is a step in the right direction, there are still challenges, which are largely due to the inconsistent definitions of these functions, especially across all the different EU member states. More of a spotlight on information sharing The second update relates to information sharing by EU member states’ Financial Intelligence Units (FIU). FIUs are tasked with identifying potential money laundering activity based on information received by financial institutions that report suspicious activity. Sharing information across member states helps improve criminal activity detection, especially when these criminal activities move across borders. 5MLD requires member states to set up centralised bank account registers to identify account holders, including the Ultimate Beneficial Owners (UBO) of these accounts. Ultimately, OEs will need to be able to set up efficient processes to share their customer account information with the FIUs. The Paris and Brussels attacks have heightened the role of law enforcement in identifying terrorists, which results in these agencies requesting customer account information without the need for suspicious activity reports (SARs). Previously, law enforcement agencies would only act on potential money laundering suspicions based on the filing of SARs by OEs. However, 5MLD now allows law enforcement agencies the ability to track potential terrorists without these SARs. OEs will need to be able to provide timely, accurate and relevant customer account information as needed. More transparency is now required when identifying UBOs Another significant update within 5MLD relates to the need for additional transparency related to identifying UBOs of corporations. The Panama Papers leak made clear that many shell companies were used for both legitimate and nefarious business transactions. Shell companies make it easy to ‘hide’ assets of corrupt government officials (PEPs). The Prime Minister of Iceland is one prominent PEP uncovered in the Panama Papers leak, resulting in his removal due to less than transparent financial transactions. Under 5MLD, member states will be required to identify beneficial owners and to maintain public registers of these. The result of such public registers is an increase in transparency, making it more challenging to disguise illicit transactions including terrorism and money laundering. Added screening around virtual currencies The rise of new financial technologies has provided consumers with greater choice and flexibility in conducting financial transactions across borders. An example is the introduction of cryptocurrency, including bitcoins. Virtual currency exchanges and custodian wallet providers have now sprung up to service consumers. However, criminals also take advantage of these financial technologies. The innovation from cryptocurrency requires regulations to prevent widespread abuse. 5MLD changes require virtual currency exchanges to screen their customers for potential money laundering. Banks will also now need to screen these virtual currency exchanges as well, including their customers. www. encompasscorporat i on . com 53 www.finance-monthly.com ASK THE EXPERT - MONEY LAUNDERING