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The revelations in the "Panama papers" have focussed attention on money laundering. In the UK, there has been a particular realisation that investment in real estate has been a significant opportunity for money-laundering. This is hardly news, but has prompted a response from the Government that further action will be taken to combat the problem.
The updated framework for this was established in 2015 in the form of the European Anti Money Laundering Directive IV.
The Directive was published in the Official Journal of the EU on 5th June 2015 and came into effect on 26th June 2015. Implementation will take place over the next two years. More details are provided below.
In its reaction to the Panama papers, the FCA said that it will work closely with the Treasury on the Directive, which requires implementation in the UK by mid-2017. The regulator added it will continue to work with the European Supervisory Authorities on drafting guidance to support the Directive and will also continue to be a major participant in the financial action task force and carry out a mutual evaluation review of the UK in late 2017.
The EU Fourth Anti-Money Laundering Directive establishes an updated framework for AML in the EU. Although some aspects are prescribed in detail, in general it sets out broad approaches, the detail of which will be set by local countries as the rules are transposed into local law. Countries have two years to implement this.
The entities ("obliged entities") to which the rules will apply are defined in the Directive.
In the case of Financial Institutions, this is generally by reference to existing EU Directives.
a). Life insurance companies;
b). Investment firms
c). Collective investment undertakings.
For real estate investment businesses, it is important to note that there is a recognition of the role that real estate plays in money-laundering and estate agents are included as obliged persons.
Other service providers are also covered, accountants, lawyers, notaries as well as trust and company service providers.
There are number of themes that emerge from the new Directive.
Firstly, at both a national and an entity level, the focus is on a risk-based approach. Efforts will be concentrated on those areas that are perceived as higher risk.
There is a focus on the risk posed by third countries that do not have as rigorous an approach to AML as the EU. The Directive gives the EU Commission the authority to introduce further measures to counter such cases.
There is a greater focus on systems and process within entities. Greater emphasis will be placed on controls environment, risk management etc.
Where the operation of AML procedures are outsourced to a third party, it is the "obliged entity" that remains responsible.
EU Fourth Anti-Money Laundering Directive