EU Anti-Money Laundering rules: tackling risky business and reckless conduct

26 June 2017

Soft Brexit or Hard Brexit there is no getting away from the fact that 26 June 2017 marks the day that the 4th EU Money Laundering Regulation (“4MLD”) applies. Great Repeal Bill or no the UK has to meet its obligations in this area and will do so under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“MLR 2017”). These will replace the Money Laundering Regulations 2007 and the Transfer of Funds (Information on the Payer) Regulations 2007 (“MLR 2007”) and entered into force on the same day.

The 4MLD, as its name would suggest, is one in a series of instruments seeking to tackle money laundering and terrorist financing and is the European Union’s way of giving effect to updated international standards in this area as set out by the Financial Action Task Force (FATF) recommendations from 2012 on international standards on combating money laundering and the financing of terrorism and proliferation.  It builds on the regime to date and enacts a number of important changes with an increased emphasis on a risk-based approach. It reduces the “checklist” mentality inherent in a “rules-based” approach that requires compliance with rules irrespective of the underlying risk [see related blog].

Tackling money laundering and terrorist financing is a key priority for UK government and law enforcement - with the UK national risk assessment of money laundering and terrorist financing of 2016 stating that “both money laundering itself and the criminality that drives the need to launder money present a significant risk to the UK”. 

Whilst it is important to note that changes are not made to the principal money laundering offences under the Proceeds of Crime Act, the UK Government will seek to use the new regulations to make the UK financial system an increasingly hostile environment for illicit finances. The Financial Conduct Authority cites tackling financial crime and money laundering as a key priority under its Business Plan 2017-18.

To that end a new provision is introduced that seeks to hold individuals accountable where “if in purported compliance” with obligations set out under the investigation and enforcement provisions (i.e. compelled interviews) that individual not only makes a statement that they KNOW to be false or misleading but where they RECKLESSLY make a statement that is false or misleading. If they do so they are committing an offence that is punishable by a fine or up to 2 years’ imprisonment. It is worth recalling that the MRL 2007 set out provisions on (amongst other things): the power to require information (but with safeguards as to admissibility); entry of a premises without a warrant; entry with a warrant; and makes provision for retention of documents. These provisions are transferred over to the MLR 2017. 

What the prospects are for the City and the financial sector post-Brexit are not yet clear. What it unlikely is that the UK would row back from its approach to tackling money laundering and financial crime. Not only because it has previously gone further than the requirements under the Third Money Laundering Directive (so called “gold plating”) but it is a member of the Financial Action Task Force independently.

So this is not a time to wait-and-see. Business and individuals need to be alive to the stringent new conditions under the re-vamped money laundering regime and be alert to the risks involved in business transactions with customers old and new. 

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