In September, the European Parliament approved a proposal for the EU's latest piece of Anti Money Laundering (AML) legislation, known as the sixth anti-money laundering directive (6MLD).
One of the major changes is that criminal liability will be extended to corporates where a money laundering offence is committed for their benefit by an individual in a leading position within that corporate, or where a lack of supervision or control by such individual has made possible the commission of a money laundering offence.
This is a significant change, as currently, criminal liability is only applied to companies that operate in AML regulated sectors. Another significant change proposed under the 6th money laundering directive is “the harmonisation of 22 predicate offences which may generate criminal property for the purposes of committing a ML offence”
The term ‘predicate offence' means a criminal activity that gives rise to, or underpins, a money laundering offence and the 22 offences set out in the directive are wide-reaching and include environmental crimes, tax crimes and cybercrime, as well as more traditional examples such as the trafficking of drugs and humans, fraud and corruption.
This change could put an additional burden on firms to detect and identify signs of predicate offences, implement monitoring systems to help identify proceeds potentially linked to such offences and supervise individuals with authority to make the firm criminally liable. The 6th money laundering directive also looks to increase the minimum prison sentence for money laundering from one year to four years.
Following formal approval of the 6th money laundering directives, EU member states have two years to implement these new rules.
Unless you have been living under a rock for the past two and half years, you will know that the UK is set to leave the EU on March 29th this year. This leaves the UK’s position on the 6th money laundering directive unclear. The latest overhaul of AML legislation in the UK was the Money Laundering, Terrorist Financing and Transfer of Funds Regulations which came into force in June 2017 and implemented the EU's 4th money laundering directive.
In UK law, the principle money laundering offences already carry a maximum term of 14 years' imprisonment in England and Wales – which is significantly stricter than the maximum four-year sentence proposed by the 6th money laundering directive – so it may be that the UK government feels that, once the 5th money laundering directive is imposed – our existing AML legislation is sufficiently robust.
If the UK does adopt the 6th money laundering directive - or equivalent legislation - more individuals and corporate entities will be in scope for money laundering and predicate offences. So businesses need to make sure they have appropriate AML controls in place to protect themselves – ideally an electronic identification system as per the 5th money laundering directive. If the UK doesn’t adopt the 6th money laundering directive, UK businesses should still be aware of it to ensure they do not fall foul of it when trading with countries that have brought it into law.