Launching AI-driven Fraud Detection
The European Union’s 6th Anti-Money Laundering Directive (6AMLD) brought about four key changes that member states had to introduce into local legislation by June 3rd 2021. Broadly categorized under the themes of liability, punishment, cooperation and jurisdiction, these changes have implications for firms operating in anti-money laundering and counter-terrorist financing (AML/CFT). Compliance teams must ensure that they understand how these changes apply to them, their staff and senior management.
Innovation in 6AMLD
6AMLD introduced several legal innovations to make it easier to trigger criminal proceedings. The first relates to the introduction of 22 predicate offenses – underlying criminal acts that generate money to be laundered – that must be criminalized by all EU members. These range from crimes traditionally associated with money laundering or terrorist financing, such as drug, human or arms trafficking and corruption, to other crimes such as sexual exploitation (including online), environmental crime, tax crimes and cybercrime. 6AMLD also created a new money laundering offense that specifically targets “professional enablers,” who act as gatekeepers to financial services and provide services to help criminals hide and clean dirty funds. The EU classified all money laundering offenses as converting or transferring, concealing or disguising, acquiring, possessing or using criminal property and introduced a new offense of “aiding and abetting, inciting and attempting.” 6AMLD also presented the concept of ‘self-laundering.’ This occurs when a criminal cleans the property or proceeds of their own criminal activity, which had not previously been addressed at the regulatory level.
Firms must update their money laundering business-wide risk assessments. Firms must also ensure that they have the correct screening tools to identify evidence of criminality related to the 22 predicate offenses. When onboarding obliged entities including lawyers, accountants and company service providers or other gatekeepers, particularly when providing omni accounts, firms should ensure that their clients are properly registered, have clean records and a good reputation, and have the right AML/CFT controls in place to prevent downstream risk.
Liability in 6AMLD
6AMLD expanded the scope of criminal liability to legal persons, introducing a corporate failure to prevent offense through negligence and reckless behavior. This includes limited liability companies, publicly listed companies, partnerships, and any other entity listed on a corporate registry. Where a person has the authority to make decisions, control over the organization and the power to represent a firm, they can be regarded as a legal person. They can be held responsible for any money laundering offenses committed for the benefit of the organization by an individual who is working in, for, or on behalf of that organization.
This effectively means that management may be held liable for acts of other employees. 6AMLD is clear that even if criminal proceedings are launched against a company, that does not prevent criminal action being taken against individuals.
Firms must ensure that they train senior management on their roles and responsibilities with regards to AML/CFT. It is also essential that AML/CFT systems and controls undergo regular assessments to ensure that they are working effectively. Businesses must ensure that they are reviewing their risk assessments on an on-going basis and tweaking their control environment to ensure that they remain up-to-date and accurate. They should also ensure that the control environment remains adequate and relevant to the firm.
Punishment in 6AMLD
6AMLD is clear in its objective “to subject money laundering…to effective, proportionate and dissuasive criminal penalties.” 6AMLD extended the minimum term of imprisonment for individuals guilty of committing money laundering offenses from 1 to 4 years. It also listed additional measures that can be taken against money launderers including fines, preventing access to public funding, disqualifications from commercial activities, and bans on running for public office. For corporates, 6AMLD included a menu of additional punishments. These include preventing access to public aid; exclusion from participating in public tenders; bans on public funding; disqualification from participating in public events; temporary or permanent closure or a winding up order.
It is essential that firms update any contracts, policies or training materials that mention AML/CFT roles and obligations of employees to reference punishments now included in local laws as part of the implementation of 6AMLD. This information should also form part of senior management training so that they are aware of legal, operational and reputational risks and can ensure that their AML/CFT functions are appropriately resourced.
Cooperation in 6AMLD
Finally, 6AMLD set out additional information sharing arrangements to promote international cooperation in criminal proceedings. It introduced guidance on what should be considered by authorities to make it easier to prosecute money launderers where conduct has taken place in one country and legal action in another. States should cooperate and consider where the offense was committed, where the victim is from, and the offender’s nationality, residence or country of arrest. It further introduced the principle of extraterritoriality to allow countries to prosecute money launderers where conduct has taken place outside of their jurisdiction. This applies where the criminal is a national or resident and where the offense was committed (even in part) or benefitted someone in the prosecuting country. It also introduced common rules on asset confiscation including where the perpetrator has not been convicted.
Firms should be aware that they may be required to respond to customer or account information request orders or account freezing orders from other jurisdictions. They must have documented procedures in place that enable them to liaise with local law enforcement and present the information that is requested. This may include discussing with legal counsel and understanding time frames available to respond to law enforcement requests.
To explore the scope and implications of 6AMLD in more detail, download our report.