What you need to know about the 6th EU Anti-Money Laundering Directive

4 Mins

The implementation of the new EU money laundering directive came into effect on 6th December 2020 and must be applied by all relevant financial institutions by 3rd June 2021.

While the 5th Anti-Money Laundering Directive (5AMLD) only came into effect in January 2020, change is already on the horizon. 6AMLD is designed to incentivise financial institutions and authorities to do more in the fight against money laundering by toughening criminal penalties for offences.

With the clock ticking, it is essential that all businesses who service European clients start preparing for the upcoming changes as soon as possible. In this guide, we highlight who needs to comply, the previous changes implemented in 5AMLD and what you need to know about 6AMLD.

Chapter 1

What industries are regulated by Anti-Money Laundering Regulations?

6AMLD affects all financial institutions and obliged entities operating in the EU. Any newly obliged entities will have to implement robust AML processes and policies to comply with the new money laundering regulations as of June 2021.

Likewise, if any other sectors now find they are now transacting with a higher risk sector, they will need to carry out a risk assessment and ensure they conduct appropriate Customer Due Diligence (CCD).

The below list is a guideline on who needs to comply with 6AMLD, these could include (but are not limited to): 

·         Banks and credit institutions.

·         Stock brokers and investment firms.

·         Insurance companies and insurance intermediaries.

·         Auditors, accountants, book-keepers, tax advisors.

·         Property dealers and estate agents.

·         Trust or company formation and management.

·         Legal services.

·         Companies trading in goods for cash of at least £13,000.

·         Casinos.

·         Auction platforms.

·         Crypto currency trading platforms and brokerages.

·         Art dealers with cash transactions.

*Each business should check if they fall into the scope of having to comply with 6MLD, the above should be seen as guideline only.

Chapter 1

Summarising 5AMLD

Before we look into 6AMLD, it’s important to understand the foundations implemented before it. The 5th Anti-Money Laundering Directive (5AMLD) was announced in June 2018 and introduced a number of key changes for businesses servicing the European market. Here’s a brief summary of the changes it introduced:

  1. Cryptocurrencies

    To mitigate risk and money laundering prevention, 5AMLD was a landmark regulation when it came to virtual currencies as they have been a well-known offender to the aid of money laundering. Since 5AMLD crypto service providers are now classified as obliged entities and platforms that manage their users’ private keys, they now have to conform to the same AML and CTF requirements as mainstream financial institutions.

  2. Ultimate Beneficial Owner (UBO)

    In order to mitigate risk and money laundering prevention, under 5AMLD, businesses now need to establish who is ultimately controlling and benefiting from the business relationship. If transparency cannot be identified, the client should be turned away.

  3. Politically Exposed Persons (PEPs)

    Under 5AMLD, PEPs are now treated as high-risk individuals regardless of where they are situated. Before 5AMLD was introduced, PEPs were open to a certain amount of interpretation and anyone who resided in the same national jurisdiction as a service provider did not have to be treated with any due diligence checks.

  4. High-risk third countries

    Companies that do business with customers from high-risk third countries such as Iran and The Bahamas are required to perform enhanced due diligence checks under 5AMLD. This is specifically focused on identifying the deficiencies in the AML procedures in those countries and the risks they present.

  5. Financial Intelligence Unit (FIU)

    5AMLD gave the FIU more authority, including the ability to obtain the addresses and identities of cryptocurrency holders.

The changes that 5AMLD introduced marked a huge change, particularly for anyone dealing with digital assets. Financial institutions and other organisations within the European Union are now required to perform extensive monitoring of their potential and current clients. If you want to learn more about 5AMLD, we’ve written an extensive guide, which you can read here.

Onboarding a business or an individual?

Speed up and simplify your onboarding process with the most comprehensive, real-time data to help protect your business. You'll benefit from business and consumer credit information, anti-money laundering checks, ID verification, PEPs & sanctions lists all in a single platform designed to help comply with regulatory requirements. 

Chapter 1

What are the changes in 6AMLD?

6AMLD is the EU’s biggest step in the fight against money laundering and aims to strengthen its measures on combatting financial crime and terrorist financing by giving Governments and regulatory authorities prosecuting power. The directive also gives businesses more responsibility to ensure compliance. 

Arguably this directive is tougher than the regulations announced in 5AMLD and now aims to place a greater responsibility on financial institutions to fight against terrorism financing and money laundering.

The new regulation list recognises 22 offences relating to money laundering and provides clear definitions for each specific crime. 

Here’s an overview of some of the biggest changes introduced in 6AMLD:

22 Predicate Offenses
Chapter 1

Improved Harmonization

The 6th AML directive aims to harmonise the definition of money laundering across the EU with the goal of removing loopholes in the local legislation of member states. 

The 22 ground offences that are outlined in 6AMLD truly reflect the changing nature of the money laundering landscape, and now include offences such as tax crime, insider trading, and environmental crime. One of the stand out offences included in the EU money laundering directive is Cyber Crime which is being highlighted for the first time in this type of context. 

When 6AMLD becomes effective in June, all member states have to ensure that their domestic legislation accurately reflects these predicate offences as they relate to financial crimes. This might mean organisations will have to train employees to adjust their compliance processes so they can properly prevent and identify these illegal activities.

Chapter 1

Liability

One of the revisions under the new directive is the extension of criminal liability to legal persons such as companies or incorporated partnerships. The new rules mean that a legal person could be found guilty of money laundering if it is established that it has not prevented a “directing mind” of the company from carrying out the illegal activity. 

Previous regulations only prosecuted those individuals and organisations that directly profited from money laundering, but this new directive ensures that anybody that enables financial crimes is also held legally responsible. Ultimately this step puts organisations on the line for lack of compliance under the new AML legislation. 

This step puts organisations on the line for lack of compliance under the new AML legislation.

Chapter 1

Tougher punishments

In a significant step, 6AMLD changed the minimum prison sentence from one year to four years for money laundering offences and also any sentence may be supplemented with fines up to €5 million. 

The increase in prison sentences for money laundering and potential financial consequences were introduced to improve consistency in punishments across member states. Not only does the EU want to send a message that they are committed to strictly enforcing money laundering regulations, but they also want to ensure that all member states apply this in the same way.

Chapter 1

Cooperation Among Member States

Under the 6AMLD, EU member states are now required to cooperate with another in the prosecution of money laundering crimes. For example, if a money laundering operation is taking place across two different member States, then these two states should work together going forward to identify the illegal operations, then prosecute and convict the criminals in question.

This means that every member state who was impacted by a specific financial crime will now work together to prosecute the perpetrators. This will help centralise legal proceedings and ensure that judgments are issued in a standardised way across the European Union.

6AMLD also provides a list of factors for authorities to consider when deciding how and where to conduct their investigations. This includes the country of origin of the victim, where the perpetrator resides, and the jurisdiction where the crime took place.

Chapter 1

Does Brexit affect 6AMLD?

The UK has announced it's not taking part in the adoption of 6AMLD. The UK Government states: “The UK’s domestic legislation is already largely compliant with the Directive’s measures, and in relation to the offences and sentences set out in the Directive, the UK already goes much further”.

Although the UK is not taking part in the adoption of 6AMLD, if you are a regulated UK business in the financial sector that operates within the EU jurisdiction, you will still need to comply with changes set out in 6AMLD. 

Chapter 1

Steps your business can take to help comply with 6AMLD

The increased emphasis on criminality and accountability should encourage obliged organisations to review existing AML systems and processses, to identify improvements and future-proof compliance efforts to cope with new threats from tech-savvy accomplices.

In order to comply with the upcoming implementation period, here are some some steps we recommend taking to help mitigate money laundering risks:

  1. Business verification & enhanced UBO checks

    Obliged entities should assess the information available in Know Your Business (KYB) records and begin the information-gathering process to mitigate any gaps in the Ultimate Beneficial Ownership (UBO) data.

  2. Perform ongoing due diligence

    Monitor the business relationship and scrutinise transactions undertaken throughout the course of that relationship. Ensure that transactions are consistent with the obliged entity's knowledge of the customer, the business and the source of funds.

  3. Review current Technology

    The new legislation should encourage firms to review their current technology deployment in order to ensure that they have the capability to meet their new transaction monitoring and screening obligations.

  4. Train Employees

    It may also be necessary to introduce new training for employees in order to understand their new responsibilities – including what suspicious activity to look for in relation to all 22 of the offences set out in 6AMLD.

The content on this page is provided for general information only and is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on this page.

Experience Creditsafe's Compliance and Onboarding Solutions for free

Access multiple compliance and onboarding solutions on one easy to use platform.