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Fourth anti-money laundering directive

In “Civil Liberties, Justice and Home Affairs - LIBE”

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Money laundering is a global phenomenon, the scope of which cannot be reliably estimated. It takes a plethora of forms, characterised by varying degrees of sophistication. Having started with offences related to the proceeds of trading in illegal drugs, regulators have gradually criminalised money laundering with respect to a now extensive catalogue of offences (the so-called “predicate offences”), including tax crimes and fraud.

Their collaborative efforts within such fora as the United Nations, the Council of Europe and the Financial Action Task Force (the FATF – an informal organisation set up by the G7 countries) have led to the drafting of international anti-money laundering (AML) standards. Since 1990, the FATF has issued recommendations that are now arguably the most widely acknowledged standards in this field. Their most recent revision took place in February 2012.

The EU has taken part in drawing up international AML norms and standards and incorporated them into EU law by a series of AML directives following the successive revisions of the FATF recommendations. The third AML Directive (2005/60/EC) contained detailed provisions on 'due diligence' (the requirement to identify the customer, the beneficial owner, to obtain information on the business relationship, and to monitor it). It had a wider scope than the previous directives, as it also covered terrorist financing.

To bring the EU legal framework in line with the FATF recommendations, fundamentally revised in 2012, the Commission put forward, in February 2013, a package composed of two legislative instruments based on Article 114 TFEU (a treaty provision dealing with the approximation of national laws and regulations on the establishment and functioning of the internal market):

  • Directive 2015/849 on the prevention of the use of the financial system for the purpose of money laundering (the fourth AML Directive), and
  • Regulation 2015/847 on information accompanying transfers of funds.

The European Parliament adopted its first reading position on both pieces of legislation on 11 March 2014. Parliament's amendments considerably strengthened the directive's provisions on beneficial ownership. They imposed on a wide range of entities the obligation to obtain and hold information concerning them and their beneficial ownership and transmit it to a national public central register, commercial register or companies register. They also introduced a requirement for such information to be made available online to 'all persons in an open and secure data format, in line with data protection rules'. Moreover, Parliament charged the European Commission with:

  • drawing up a list of domestic politically exposed persons, as well as Member States' residents holding prominent functions in international organisations;
  • producing an assessment on the money laundering and terrorist financing risks affecting the internal market;
  • coordinating preparatory work at the European level on the identification of third countries with grave strategic deficiencies in their money laundering systems, and
  • increasing the pressure on tax havens to improve their cooperation and exchange of information in order to combat money laundering.

The co-legislators reached a political agreement in December 2014. Both acts were published in the Official Journal on 5 June 2015 and entered into force in the same month. With a two-year window for transposition, the EU Member States had to adopt relevant provisions by 26 June 2017.

Compared to its predecessor, the fourth AML Directive creates a strengthened, yet more flexible, regime by further promoting a risk-based approach. The directive thus recognises that, whilst in some situations enhanced customer due diligence measures may be necessary, in others a reduced risk may justify less rigorous controls. Member States are now required to hold information on the beneficial owners of all corporate and other legal entities incorporated within their territory in a national central register. Competent authorities and entities have access to it, as well as any person or organisation demonstrating 'a legitimate interest'. Such provisions on beneficial ownership information substantially depart from the Commission's proposal and largely meet the Parliament's requirements put forward at the first reading stage.

Even though the fourth AML Directive had to be transposed by Member States only by 26 June 2017, it has already been revised, as the fifth AML directive was published in the Official Journal on 19 June 2018.

References:

Further reading:

Author: Piotr Bąkowski, Members' Research Service, legislative-train@europarl.europa.eu

As of 20/11/2019.