Anti-Money Laundering – New Rules in Force

The 4th Anti Money Laundering Directive (AMLD 4) is aimed at preventing the use of the financial system for money laundering or financing of terrorism, based on the principle that illicit money being channeled through the financial system cause damage to the stability, integrity and reputation of the financial sector – not only of the Member State where this occurs but also that of the entire Union.  


The crimes in question have developed with time, so that it has become ever more necessary to tighten controls in order to protect this sector.  Moreover, such crimes are frequently carried out in the international context so that harmonisation and collaboration of efforts are key to the success in preventing such behaviour.  


The EU looks to coordinate its action with that in international fora, in particular but not limited to the FATF.  Cash payments are considered as being particularly vulnerable to money laundering and terrorist financing, but electronic money products are increasingly considered to be a substitute for bank accounts, which also makes them increasingly subject to illicit use.


Focus is placed on clarifying – or widening – definitions of certain subject persons, to make sure that any such person who provides a relevant service will also be required to comply with the contemplated obligations.  


Identifying the beneficial owner is key to avoiding would-be criminals from hiding behind a corporate structure.  This is the raison-d’etre behind the due diligence and other obligations underlying the Directive. The aim is to look for the individual (natural) person at the very end of the line. Information needs not only be adequate and accurate, but also up-to-date, which is why certain checks need to be repeated regularly.


The main changes are, briefly, the following:


Under AMLD 4, simplified CDD will not be acceptable under most circumstances: clients and transactions are to be first assessed in order to show that they qualify as low-risk, and then will require constant monitoring. Regulated institutions such as banks as well as listed companies and public entities will be removed from the list of those who can be considered as low-risk clients, even though they are in turn subject the AML / CTF Regulation.


Asset-holding vehicles and cash-intensive business will be considered as entities whose transactions are required to undergo enhanced due diligence, or where unusual or very complex structures are in place.  Transactions or entities associated with high-risk jurisdictions will also be required to be subject to enhanced due diligence.


Companies and other legal entities are to have adequate, accurate and current information concerning their beneficial ownership, including of beneficial interests held.  This information is to be held on a central register accessible to the competent authorities, in our case MFSA and FIAU.


Importantly, the definition of PEPs has been widened to include domestic individuals prominent public positions, in addition to those from abroad, and EDD will always apply.


Tax crimes are considered a predicate offence across the EU as a result of this Directive. For ease of reference, a predicate offence is a crime that is a component of a more serious criminal offence. For example, producing unlawful funds is the main offence and money laundering is the predicate offence.  This was the case in the UK but not in all jurisdictions.


One-off cash transactions of more than EUR 10,000 will be subject to  customer due diligence for goods traders; this threshold was previously set at EUR 15,000.


The entire gambling sector is now subject to CDD (this was limited to certain types of gaming operations only prior to entry into force of this Directive).  If the gambling service poses a higher risk, gaming operators are required to apply CDD where transactions amount to EUR 2,000 and over.


Based upon the requirement of Member States to carry their own national risk assessments, it may be considered that the regulatory authorities will apply more stringent obligations on all entities that are subject to this directive.


On the 20th December 2017, the Prevention of Money Laundering and Funding of Terrorism Regulations, 2017 were promulgated in order to bring Maltese law into line with the Directive, and also repealing the regulations that were promulgated in 2008.  Under that regime, subject persons could already carry out CDD on a risk-sensitive basis.  The current Implementing Procedures of the FIAU already gives guidance on such procedures.  Under the new regime, this no longer remains an alternative but will become the main manner in which CDD is carried out.


FIAU has indicated that it is currently working on a revised version of the Implementing Procedures (Part I), which should be issued for consultation in early 2018.  It has announced that during this transitory period it will not insist on a strict application of the rules indicated in Part I; however in the case of a conflict between the Rules and the 2017 regulations, the latter will prevail.

By Geraldine Spiteri

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