4Th Money Laundering Directive (4MLD) - DDE articles on money laundering

4Th Money Laundering Directive (4MLD) – DDE articles on money laundering

What is changing?

• threshold reduced

Reduced to €10,000 for single and linked transactions. More businesses will be caught by the regulations and the need to monitor cash receipts to identify potential linked transactions become more complex.

• changes to due diligence controls

The need for differing levels of due diligence dictated by risk assessment is a key focus of the 4th money laundering directive. Businesses are to apply standard due diligence (SDD), customer due diligence (CDD) and enhanced due diligence (EDD) more effectively. While regulated businesses have vastly improved on their EDD controls, lower levels of due diligence are usually lacking. The further focus on risk based due diligence detailed below and above indicates HMRC will be testing due diligence controls in relation to all levels of risk and the effectiveness of these controls to mitigate the perceived level of risk.Articles on money laundering

How will this affect you?

Businesses may face issues with controls applied to lower levels of risk in terms of effectiveness and commercial viability. Businesses will also need to demonstrate how changing levels of risk are identified to apply ongoing due diligence at the appropriate time. Businesses will therefore need improved systems to demonstrate ongoing monitoring and application of risk assessment. This is reinforced in the 4th money laundering directive as it states that if two triggers (triggers will be provided as a non-exhaustive list by regulating bodies) are met then renewed risk based due diligence checks must be applied.

• significant focus on reinforcing need for risk based approach and risk assessment

Consultation focuses heavily on regulated entities needing to apply all controls on risk based approach and implementing higher level of risk assessment.Articles on money laundering this will require more sophisticated systems to identify risk and will lead to increased frequency of risk based due diligence to mitigate risk. Criticising businesses risk assessments has been a key tool for HMRC in undermining a business’s compliance controls as these assessments can only be formed by the regulated entity. This will prove difficult for regulated parties who have no experience of forming risk assessments as these are very open to interpretation as to their effectiveness.

What will this mean to your business?

This means regulated entities are likely to need to:

• demonstrate and document that risk assessments are conducted and kept up to date, taking into account continually changing risk factors including those relating to their customers, countries or geographic areas, products, services, transactions or delivery channels.

• have in place written money laundering policies and procedures that take the business’s risk assessment into consideration.Articles on money laundering

• conduct a regular audit of controls and procedures to demonstrate they remain effective and account for changing risk factors.

• learn how to conduct an effective risk assessment and ongoing monitoring

• larger focus on beneficial owners

All member states are required to maintain a register of all beneficial owners. This has been demonstrated by the introduction of persons with significant control replacing annual returns which enables companies house to more accurately capture details of all beneficial owners.

Process of verifying beneficial owners?

The identification and verification of beneficial owners currently poses a significant challenge to regulated businesses. While a central register will be held only banks, law firms and “any person or organisation that can demonstrate a legitimate interest ” will be able to access this register. It is unlikely regulated businesses will meet this criteria.Articles on money laundering

Businesses will also face issues in identifying all beneficial owners as fraudulent beneficial owners are unlikely to register their details. This clearly indicates HMRC will more vigorously test controls around the identification and verification of beneficial owners and businesses will likely face difficulty in this area of their compliance controls.