As of December 3rd, 2020, the European Union’s Sixth Anti-Money Laundering Directive (6AMLD) is in effect for all member states. Regulated entities operating in the union will need to be compliant by June 3, 2021. Like its predecessor, 5AMLD, this new directive is aimed to strengthen anti-money laundering (AML) rules in the union and place larger responsibility on regulated entities to fight money laundering. Specifically, the directive aims to expand the scope of existing legislation, clarify certain regulatory details and toughen criminal penalties.
Under 6AMLD, the definitions of money laundering offences are harmonized throughout member states, a list of 22 predicate offences is introduced, criminal liability is extended to legal persons, tougher punishments for offenders is established, and cooperation between states for prosecutions of financial crimes is enhanced.
6AMLD’s Harmonized Definition and Predicate Offences
The Sixth Anti-Money Laundering Directive harmonizes the definition of money laundering across the bloc with the primary aim to remove any loopholes in national legislations. The new list of 22 predicate offences supports this new definition and member states must criminalize them. The list includes:
1. Participating in an organized crime group or racketeering
3. Human trafficking and migrant smuggling
4. Sexual exploitation
5. Illicit trafficking in narcotic drugs and psychotropic substances
6. Illicit arms trafficking
7. Illicit trafficking in stolen and other goods
10. Counterfeiting currency
11. Counterfeiting and pirating products
13. Kidnapping and hostage-taking
14. Robbery or theft
16. Tax crimes relating to direct and indirect taxes
20. Insider trading and market manipulation
21. Environmental crime
Another example of the expanded regulatory scope introduced by 6AMLD is the introduction of “aiding and abetting”, “inciting” and “attempting” as offences. In these cases, accomplices can be considered to have committed money laundering and face the same penalties as those who profit directly from money laundering activities.
Criminal Liability for Legal Persons
Under the new directive, criminal liability can be applied against “legal persons” such as companies and partnerships. Firms may be criminally liable for the actions of employees who engage in criminal activity. The aim of the provision is to force financial services businesses to take more responsibility for combating money laundering.
As noted in an article by Rahman Ravelli, 6AMLD fails to make it clear what the criteria are under which directors, trustees or MLROs (money laundering reporting officers) might be open to criminal prosecution. What “knowingly” means in a corporate context could be problematic. The author goes on to say that 6AMLD inevitably shifts the onus onto the adequacy of compliance systems in place at firms that fall under the legislation.
Under Article 7, EU members must ensure that legal persons can be held liable for the conversion, transfer, concealment or acquisition of property knowingly derived from, or through, criminal activity. Since money laundering is likely to occur despite the rigor of any AML controls, financial institutions must implement appropriate safeguards for key compliance persons to be able to operate in their role effectively.
Cooperation Among Member States
6AMLD addresses the issue of dual criminality where a crime may be committed in one jurisdiction before its financial proceeds are laundered in another. The new regulations introduce specific requirements for sharing information between jurisdictions so that a criminal prosecution for the connected offenses can take place in more than one EU member state.
The provisions also require all member states to criminalize the above list of 22 predicate offenses whether they are illegal in that jurisdiction or not and that member states involved in prosecution shall work together to centralize legal proceedings within a single jurisdiction.
6AMLD increases the minimum jail sentence from one year to four years for money laundering offenses. The new directive also means that legal entities may face sanctions such as:
(a) exclusion from entitlement to public benefits or aid;
(b) temporary or permanent exclusion from access to public funding, including tender procedures, grants and concessions;
(c) temporary or permanent disqualification from the practice of commercial activities;
(d) placing under judicial supervision;
(e) a judicial winding-up order;
(f) temporary or permanent closure of establishments which have been used for committing the offence.
As mentioned above, the scope of people that can be held accountable for money laundering is also expanded to those that are aiding and abetting, inciting and attempting money laundering.
Brexit and the Sixth Anti-Money Laundering Directive
The UK will not transpose 6AMLD into their domestic AML framework. Part of the reason is that the current UK AML regime already complies with many of rules outlined in the directive.
With regards to beneficial ownership, “UK express trusts with taxable consequences are already required to collect information on beneficial ownership and register with HMRC’s Trust Registration Service. However, the new regulation widens the scope of trusts required to register to include all UK express trusts, including those with no tax consequences, with limited exemptions for some categories of trusts. Trustees of UK trusts that are not exempted must now collect relevant information on beneficial ownership and register by 10 March 2022.”
With regards to corporate criminal liability, it is said that the UK Ministry of Justice will be reviewing the laws. Like in the rest of the EU, “firms will need to consider how their AML procedures are embedded within company culture, as opposed to just a list of policies and procedures. Significantly more attention will likely be required for staff training at all levels, not just for regulated persons. Further, more of an effort from the board level and senior management will likely be required to demonstrate compliance.”
In terms of punishments for the crime of money laundering, if tried at the Magistrates’ Court, the maximum prison sentence is 6 months or 12 months. If found guilty of money laundering in the Crown Court, the maximum prison sentence that can be imposed is 14 years. Those who can prosecuted for money laundering already includes those who enable money laundering. According to the Crown Prosecution Service (CPS), “Money laundering is defined as an act which constitutes an offence under S.327, 328 and 329 or a conspiracy or attempt to commit such an offence. Money laundering includes counselling, aiding or abetting or procuring.”
Complying with 6AMLD
The new directive will have a significant impact on banks and other regulated organizations. In order to prepare, key executive, board and compliance personnel should:
- Consult with legal experts to understand the full impact of the new regulations
- Update current anti-money laundering policies and procedures to fit the new risk environment
- Review policies and procedures to support cooperation between states for prosecutions
- Train employees on the new regulations and their impact, including what suspicious activity to look for in relation to the 22 predicate offences
- Review existing risk scoring methodologies in light of expanded list of predicate offences and new criminal liability of legal persons
- Review how technology is being used to detect suspicious transactions and typologies. This may include reviewing and augmenting existing internal controls and data analytics. It also may mean incorporating technologies such as machine learning and artificial intelligence into existing transaction monitoring systems.