AML refers to the process & procedures used to prevent criminals from disguising illegally obtained money as legitimate funds. For clean money to circulate in the economy, strict regulation and monitoring are crucial. This is where an AMLD becomes imperative.
As financial fraud risk looms large over all kinds of businesses at all times, a set of regulatory requirements are issued as a directive by the European Union (EU) to combat all money laundering & terrorist financing activities by EU member states. This is called the EU Anti-Money laundering directive (AMLD).
There are different sets of AML laws for every country, which are often based on Financial Action Task Force guidance. Every EU member state individually implements these anti-money laundering regulations into their legal system.
The EU issued the first AML directive in 1991. But there have been many updates since then. There have been changes in money laundering practices & techniques across the globe. However, these changes have been made in line with changing FATF guidelines.
All updates reflected in these newly-issued directives either add to or are improvements upon the previous directives. All these directives issued by the EU parliament need to be implemented by the member states within given deadlines. There are, in total, six directives, with the last one having been recently implemented in June 2021.
The first directive (or 1AMLD) was launched in 1991. Though it was a major step in the EU policy, there were many gaps & omissions in it, with the main focus on banks being one of them.
But these shortcomings were addressed in 2AMLD that was released in 2001. In the second directive, there was an extended coverage beyond banks.
In the third directive (or 3AMLD), the ever-growing threat of terrorism was addressed. This was largely a response to the 9/11 terrorist attacks in the US. New terrorist financing updates were made, there was an increased emphasis on Enhanced Due Diligence, and stringent penalties were introduced for AML breaches.
It was in 2017 that major changes were released in the fourth directive (4AMLD). This was a development on the updated FATF guidelines released in 2012. Here, the gambling sector was included in the scope of regulations & the concept of a UBO register was first introduced (it was mandated for the EU member states to establish a central UBO). Other significant changes included a more rigorous risk-based approach to monitoring, as per which firms were required to add many factors into their customer risk profiles.
The fifth AMLD followed in January 2020. Like the third directive, it was motivated by increasing terrorist activity during the time. There came a new focus on sources of finance, including cryptocurrencies & pre-paid cards.
A set of AML/CFT was particularly applied to certain kinds of Virtual Asset Service Providers. The virtual currency exchange platforms & custodian wallet providers were classified as ‘obliged entities’ under 5AMLD. So now, they had due diligence and reporting obligations.
This is the most recent update that came into force in June 2021. Most of the changes in 6AMLD have been made to ensure consistent understanding & treatment across the EU.
The directive—having a set of 22 predicate offenses—formalizes various crimes under money laundering. The 6AMLD also extends & strengthens punishments.
There is a strict emphasis on firms to tackle financial cooperation among member states, the extension of criminal liability to legal persons, ensure staff AML training, and impose harsher penalties for those who fail to adhere to anti-money laundering compliance regulations.
Criminal liability can be applied against “legal persons” like companies and partnerships. In other words, firms may be criminally liable for the actions of employees who engage in crime.
The duration lasts between one to four years for those who commit money laundering offenses.
Such a person cannot avail public benefits or aid, is subject to temporary or permanent exclusion from access to public funding, including tender procedures, concessions, and grants.
This harmonizes the criminal nature of money laundering across the EU.
This includes concealing the source of illicit gains, “aiding & abetting,” “inciting,” & “attempting.”
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