Money Laundering Directives: High Rate of Change Puts Pressure on Corporations

With the 4th EU Money Laundering Directive and its implementation into national law between 2016 and 2017, regulatory requirements in the financial industry increased once again. The 5th EU Money Laundering Directive is already being prepared. The new requirements impose more pressure on corporations.

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Looks Easy, but It Is Complicated: Updates to the EU Money Laundering Directive

Although the 4th EU Money Laundering Directive and its national implementation basically “only” substantiates existing standards, they cause the financial industry to face new challenges. In addition to the new guidelines, the continuously increasing frequency of publications (the 5th EU Money Laundering Directive is already being prepared) and the scope of the subject areas, which are attributable to the generic term “compliance”, cause increasing complexity. This is intensified by the fact that it results in an area of tension between individual compliance requirements. Consequently, the requirements for combating money laundering (new Money Laundering Act) and data protection (DSGVO) are not compatible with one another. This can result in contradictions in daily work. Furthermore, economic interests, for example instant payments, often make the implementation of compliance requirements difficult. The 4th EU Money Laundering Directive and its national implementation move within this area of tension.

Key Points for the Money Laundering Act and the German Banking Act based on the Example of Germany

  • Clarification and identification of “fictitious beneficial owners”
  • Transition of the hazard analysis towards risk analysis, whose importance is rising further for integrated risk management
  • Expanded protection of the compliance officer, but also increased requirements for the compliance officer
  • The right and duty to prepare copies and scans of identity documents
  • Expansion of penalty regulation
  • Innovations in relation to the cooperation with the Financial Intelligence Unit (newly domiciled with the German Customs Authority)
  • Demands on correspondent banking business
  • Consideration of safe deposit boxes in Section 24c KWG [German Banking Act]

The directives of the ESAs on risk factors, as well as reduced and increased due diligence  also constitute an important source of future compliance (ESAs Final Guidelines on Risk Factors). These should be understood as an important source for the group-wide analysis on the one hand, as well as for the customer acceptance/existing customer processes.

For this, it is essential that companies document the respective decisions in relation to the regulatory basic parameters in a traceable manner for third parties (e.g. within the scope of a delta analysis or a technical concept for the implementation of the 4th EU Money Laundering Directive / Money Laundering Act / ESAs Risk Factors), as the respective implementations will be the topic of the upcoming annual financial statement audits.

Author: Oliver Schwendinger, Mag. rer. soc. oec., Dip (AML), FICA Fellow and Certified Professional Member of the International Compliance Association, Soltain GmbH.