CFT IS THE NEW AML

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The publishing of the amended 4th AML Directive and its implications

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10th July 2016

On the 5th of July 2016, the soon to be implemented, 4th European Parliament Directive on Anti Money Laundering (4AMLD) was amended.  The reason – a chain of tragic events that served as a reminder to us all that the western economy and the world is under a real evolving threat of terrorism.

Following work already done by the UN Security Council and the FATF on Counter Financing of Terrorism (CFT), the adaptation of the 4thAML Directive in May 2015 marked a significant step in bringing European legislation in line.  It was due to be implemented on the 26th June 2017 but on the 2nd of February 2016 the European Commission, having learnt a harsh lesson in modern terrorism,  had issued a proposal to amend the 4AMLD, strengthening it and making it more effective in the fight against terrorism financing.  A few days ago, the amendments were introduced and the implementation date moved forward to the end of 2016.

True to its action plan, the European Commission’s refined 4th Directive means business.  It lists a series of recommendations, empowering member states through their Financial Intelligence Units (FIU) and financial institutions (FI) to go out there, collect intelligence, identify suspicious activities and take decisive, timely action.

Some of the main changes proposed:

FI’s are to undertake Enhanced Due Diligence on high risk “third countries” listed on a black list.

Regulate virtual currency exchanges, applying licensing rules under “Payment Services Directive”.

Reduce threshold on purchase of unidentified prepaid instruments.

National level registers of payment accounts.

Increase scope of FIU from dealing with SAR’s to actively collecting intelligence, having access to available information and sharing it with other FIU’s and authorities.

Reduction of cash movements through all means.

Targeting of sources of funding such as charities, legal businesses, international trade, cultural goods, and wildlife trafficking, and so on.

The amended 4AMLD is of course much more than the sum of its measures.  It represents a major shift from thinking about financial crimes as separate local risks, to harmonizing money laundering related criminal offences and sanctions on a global scale.  As such, it addresses the level of cooperation between jurisdictions, the methods of enforcing and actions taken on asset freezing and seizure, the harmonization of local legislative instruments, the support of third countries in combating FT and most importantly, it deepens coordination with the FATF.

The amended 4AMLD applies not only to banks and the classic Financial Institutions, but to other means of currency flows.  It paves the way to a new future where financial businesses, from FinTech startups to legal advisers, will become a part of the AML & CFT fight. What remains to be seen is how these new players take to understanding and implementing their newly acquired responsibilities.

The newly unveiled 4th Directive is sending a message and it is clear:  Mitigating Money Laundering risk is no longer enough, we are now in a bigger fight.  We are now obliged to learn the behavior of, identify Terrorism Financing activities and take decisive action.  Financial Institutions should take a stand now, expanding their AML controls policy to include CFT, protecting themselves from illicit activities and protecting our right to peaceful conduct.

Applying a disciplined, new approach, FI’s can take on this adaptation with relatively small yet sufficient steps, making them compliant with upcoming requirements while maintaining client orientated focus and even leveraging the new regulations into real value adding policy.

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SECURITY BEGINS AT HOME

The financial industry had been charged with the responsibility of leading the fight against crime and terrorism through focusing on drying up

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