What is the Anti-Money Laundering Directive?
Every country issues its own AML laws, often based closely on FATF guidance. Anti-Money Laundering (AML) refers to the process and procedures that are used to prevent criminals disguising illegally obtained money as legitimate funds.
In Europe, AML rules are issued by the EU Parliament as the EU Anti-Money laundering directive (AMLD). Each EU member state then implements this into their legal system.
The EU AML directive is intended to prevent money laundering and terrorist financing. It establishes a regulatory environment for this that is consistent across all EU member countries.
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How many AML directives are there?
The EU issued its first AML directive in 1991. Since then, there have been several updates. These follow changes in money laundering practices and techniques internationally and are typically made in line with changing FATF guidelines.
Updates are reflected in newly issued directives, which add to or update previous directives. The EU parliament issues new directives with implementation deadlines for member states.
So far, there have been five further directives issues, with the latest sixth directive (also referred to as 6AMLD) implemented in June 2021.
The first three AMLDs
The first directive (also known as 1AMLD) was launched in 1991. This was a major step in EU policy, but it had many gaps and omissions. These included a focus mainly just on banks. These shortcomings were addressed by 2AMLD, released in 2001. This followed extensive new guidelines produced by the FATF in 1996 and extended coverage beyond banks.
The third directive, 3AMLD, addressed the growing threat of terrorism. This responded largely to the 9/11 terrorist attacks in the US. Changes included terrorist financing updates, enhanced due diligence, and the introduction of penalties for AML breaches.
The fourth AMLD
After a lengthy gap, major changes were released in the fourth directive (4AMLD) in 2017. This again followed updated guidelines from FATF, released in 2012. It widened the scope of regulations further to include other sectors such as gambling.
Other major changes included a more risk-based approach to monitoring, with firms required to incorporate many factors into their customer risk profiles. It also introduced the concept of beneficial ownership, where the ultimate owners of legal entities are recorded centrally. This aims to create more transparency of structures that money launderers could use to hide funds.
The fifth AMLD
The next update, 5AMLD, followed quickly in January 2020. This was (like the third directive) motivated by increasing terrorist activity at the time. This added a new focus on sources of finance, including pre-paid cards and cryptocurrencies.
5AMLD also furthered the concept of Politically Exposed Persons (PEP). The regulations require member states to produce lists of roles entrusted with a prominent position. These are considered more susceptible to bribery or corruption and require enhanced due diligence and monitoring.
The sixth AMLD
The latest update, 6AMLD, came into force in June 2021 (having been released in 2018). Many of the changes in 6AMLD focus on ensuring consistent understanding and treatment across the EU. It formalizes the different crimes under money laundering, with a set of 22 predicate offenses. It also extends and strengthens punishments.
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