Diamonds are (not) forever: NCA keeps up pressure on unexplained wealth
It took ten years to get from the third money laundering directive to the fourth, but no sooner has the fourth been implemented (through the Money Laundering Regulations 2017) then the fifth is on its way. [See our related blogs]
On 19 April 2018, the European Parliament voted to adopt the proposed Fifth Money Laundering Directive (2016/0208(COD)) (MLD5). This time matters are complicated for the UK – will the directive be adopted before we exit the EU and what are the consequences for the UK if we don’t?
A number of new provisions are introduced to address the ever-changing economic crime landscape and allow law enforcement authorities to keep pace! The revised directive address five key issues:
The next step is for the official publication of the directive, following which the clock starts ticking for Member States to implement. It is anticipated that there will be an 18-month period in which to implement, taking us to the end of 2019, well past 29 March 2019 which is “Brexit-Day”.
Earlier this year the House of Commons European Scrutiny Committee set out its concerns relating to the MLD5. It noted that although the date when most of the new directive is to take effect falls well beyond “Brexit-day” … ” it now appears likely the Government will agree to a post-Brexit transitional arrangement during which the UK would effectively stay in the Single Market to avoid an abrupt change in the trading relationship between the UK and the EU”. The consequence of this being that “in return, the other Member States have said the UK would have to continue applying EU law for the duration of that arrangement as if it were still an EU country.” The EU is also expected to argue for some level of long-term regulatory convergence in return for preferential access to the Single Market under a free trade agreement. Therefore, stated the committee, “on balance, given the Government itself is seeking a transitional period, we consider it likely that most, if not all, of the new AMLD will have to be transposed in the UK as a matter of law.”
The obvious question is, with so much going on for the UK Parliament trying to sort out a wealth of post-Brexit legislation and trade deals, will it have the time, resource and inclination to adopt a directive from the very institutions the UK is attempting to distance itself from? Moreover what consequences would there be for failing to meet the directive’s transposition deadline when the infringement process begins with action by the European Commission and ultimately litigated before the Court of Justice in Luxembourg. “Freedom” from the Court of Justice of the EU being one of the UK government’s red lines.
That said, the UK Government has long sought to show leadership in this area, traditionally going further in its implementation of EU directives than is strictly required. In addition the UK will remain a member of the Financial Action Task Force (FATF), an inter-governmental body who sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. As a result of the UK’s membership of FATF it will continue to be involved in setting the standards upon which the EU legislation is based. Indeed, in the UK Anti-Corruption Plan 2017-22, further enhancing anti-money laundering and counterterrorist financing capability alongside stronger law enforcement, prosecutorial and criminal justice action, are set out as core actions to “strengthen the integrity of the UK as an international financial centre” and tackle illicit financing.
It appears likely therefore that in order for the UK to benefit from a favourable trade agreement with the EU post-Brexit, it will be required to ensure that is Anti-Money Laundering standards are in line with the standards expected by the EU and that technically the simplest way to do this is to adopt MLD5 in its entirety whether that falls before or after Brexit-day.
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