The majority of European Union member states have missed the deadline for implementing new laws aimed at combating money laundering and the funding of terrorism, according to an EU commissioner.

Clients of London Registrars presently undertaking a company governance review may be interested to hear that justice commissioner Vera Jourová has written to 17 EU countries in relation to their failure to fully implement the bloc’s 4th Anti-Money Laundering Directive (MLD4). EU member states had been asked to completely transpose MLD4 into national law by 26th June 2017.

As reported by the Financial Times, the UK, France, Germany, Italy, Spain, Slovenia, Sweden, Austria, Belgium, the Czech Republic and Croatia all implemented the Directive before the deadline. The newspaper added that of the 17 countries contacted by Jourová, 14 had not yet introduced any new legislation for the implementation of the reforms, while the remaining countries had only partially transposed the Directive into national law.

Jourová stated that she expected the 17 non-conforming countries to take “swift action” to implement the Directive. Member states of the EU that do not implement EU law can be hit with financial penalties.

What does the Directive involve?

MLD4 targets banks and other financial firms, in addition to gambling service providers and accountancy firms. Such businesses are referred to as “obliged entities” by the Directive, which sets out various customer due diligence (CDD) measures that they are required to undertake.

Such measures include checks on the identity and beneficial ownership of customers, understanding who owns and controls the customer, and assessing the purpose and nature of the business relationship.

CDD is required to be carried out when obliged entities are establishing a business relationship or undertaking occasional transactions of specified amounts; when money laundering or terrorist financing is suspected; and where there are doubts about previously obtained customer information, to name just some of the potential situations.

While obliged entities are expected to carry out each of the measures, they are able to determine their extent taking a risk-based approach endorsed in the Directive. Affected firms are also required by MLD4 to apply CDD measures to existing customers at “appropriate times”. The UK Treasury has supported a risk-based CDD approach to address such circumstances.

In the case of lower-risk transactions or business relationships, it is possible for simplified CDD measures to be undertaken. The degree of risk here is based on such factors as the types of customers, geographical areas and the products and services involved.

In higher-risk cases, it is necessary for enhanced CDD checks to be undertaken. Such cases include where firms have business relationships or carry out transactions with politically exposed persons, as well as when the affected companies are dealing with natural persons or legal entities in third countries identified by the Commission as high-risk.

MLD4 also requires each EU country to establish a ‘central register’ to record information on the beneficial owners of companies and other legal entities incorporated in their territories. Such information must also be ‘current’.

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August, 2017