10th June 2021
How To Prepare For 6AMLD: Checklist
The European Union introduced the Sixth Anti-Money Laundering Directive (6AMLD) on 3rd December 2020. All financial institutions within EU member-states must be compliant with 6AMLD by 3 June 2021: in practice this means that firms must understand the regulatory changes that the directive entails and adjust their internal AML/CFT programs accordingly.
Given the deadline for the implementation, it is important that firms are ready for the new compliance environment: with that in mind, we’ve put together a guide to the 6AMLD preparation process.
What is 6AMLD?
6AMLD builds on measures introduced in 5AMLD which broadly expanded AML reporting and record-keeping provisions for a range of financial products and transaction types, including cryptocurrencies, prepaid cards, and high value art. With that in mind, the key AML provisions of 6AMLD are as follows:
- Harmonized predicate offences: 6AMLD harmonizes a list of 22 money laundering predicate offences across the EU, adding cybercrime and environmental crime.
- Expanded scope: 6AMLD expands the criminal definition of money laundering. Accordingly, under 6AMLD, ‘aiding and abetting’ now also constitutes a money laundering offence.
- Criminal liability: Under 6AMLD, criminal liability for money laundering is extended to legal persons, meaning that a firm’s management employees may also be responsible for offences committed by their employees.
- Tougher penalties: 6AMLD introduces minimum 4 year prison sentences for money laundering offences in the EU.
International cooperation: 6AMLD introduces information sharing requirements between EU jurisdictions in order to address money laundering offences that are committed in one state and prosecuted in another.
The changes that 6AMLD introduces may create a number of regulatory challenges for firms that operate within EU jurisdiction. In order to prepare effectively for those challenges, firms should consider the following steps:
Defining money laundering and predicate offences: Since 6AMLD harmonizes the regulatory definition of money laundering across EU member states, it is important that employees know which activities constitute the crime of money laundering, and its predicate offences. In particular, employees should be trained to understand the cybercrime and environmental crime offences which have been added to the list of money laundering predicate offences under 6AMLD.
Examining criminal liability: Since legal persons are now responsible for money laundering offences, firms’ should ensure their management employees understand their AML/CFT responsibilities and their place within the internal AML/CFT program, and are providing suitable oversight for compliance employees.
Performing risk assessments: The regulatory changes that 6AMLD introduces may change the compliance landscape significantly and increase the AML risk that certain customers present. Accordingly, firms should perform an enterprise-wide risk assessment (EWRA) to gauge the effectiveness of their AML infrastructure, including integrated technology solutions, and make adjustments to address specific issues and challenges. The EWRA should be a comprehensive audit of the AML solution, including an assessment of inherent business risks, geographical risk, and the risk posed by clients. In order to manage the specific challenges of 6AMLD, firms may need to adjust certain aspects of their AML response including:
- Customer due diligence procedures: Firms must be able to accurately identify the customers they do business with and establish beneficial ownership of customer entities.
- Transaction monitoring: Firms must be able to detect transactions that pose a higher risk under 6AMLD, especially transactions that involve a risk of cyber-crime or environmental crime.
- Screening and monitoring: Firms should monitor their customers’ politically exposed person (PEP) status, and for customer involvement in adverse media stories that could indicate their AML risk profile has changed.
Training: Compliance employees must understand how 6AMLD will change their responsibilities and duties. Accordingly, firms should reassess the training and mentorship that they provide to employees with a specific focus on the 22 predicate offences that 6AMLD harmonizes, and their associated criminal typologies.
Technology: In order to meet the new compliance demands of 6AMLD, it may be necessary to integrate new technology solutions. Automated smart technology tools not only offer speed, accuracy, and efficiency advantages when analyzing AML data, but can help firms reduce friction and adapt smoothly to regulatory challenges that emerge as they acclimatize to the 6AMLD regime.