Sixth Anti-Money Laundering Directive — what should you know?

EU directive 2018/16 on combating money laundering by criminal law was adopted on 23rd of October 2018 (hereinafter “Directive”). According to the transposition article, member states have to force laws, regulations and administrative provisions necessary to comply with the Directive by 3rd of December 2020. At a glance, the deadline seems far off but it is essential to know the changes, to understand them and to make necessary preparations in order to avoid unpleasant surprises.

Directive in essence establishes minimum rules on criminal liability for money laundering — “predicate offences” are defined, minimum sanction requirements are set and criminal liability is extended to legal entities and persons acting on behalf of legal entities.

Predicate offences to money laundering

Predicate offence refers to crimes that are components of a larger crime or differently — a crime that generates money that predicates the crime of money laundering. For example, illicit trafficking in narcotic drugs generates money, which will eventually be laundered. As a result, drug trafficking is a predicate offence, which leads to eventual money laundering offences.

Directive aims to sufficiently uniform in Member States the definition of criminal activities, which constitute predicate offences for money laundering. As per Directive, Member States should ensure that all offences that are punishable by a term of imprisonment as set out in the Directive are considered predicate offences for money laundering. Directive lists 22 predicate offences, defined as criminal activities in the Directive main body, including for example participation in an organised criminal group and racketeering, terrorism, human trafficking, arms trafficking, kidnapping smuggling, tax crimes and cybercrime. According to the Directive, following conduct, when committed intentionally, should be punishable as a criminal offence (money laundering):

• the conversion or transfer of property, knowing that such property is derived from criminal activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action;
• the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is derived from criminal activity;
• the acquisition, possession or use of property, knowing at the time of receipt, that such property was derived from criminal activity.

The harmonization of predicate crimes and punitive measures may inevitably require businesses to reassess and look over their internal control procedures, internal policies and in some cases even risk appetite.

Turning a blind eye is not an option!

Important thing to note down is that Directive clearly sets forth that Member States have to take necessary measures to ensure that aiding and abetting, inciting and attempting of a money laundering offence is punishable as a criminal offence. That means that so-called “enablers” (persons who enable money laundering to take place) will also be punished through criminal liability and in some cases, even unwilling and unknowing persons may be held criminally liable if they actually had to know and understand that they were aiding and/or abetting.

Therefore, it is essentially important to ensure that no-one would aid and abet money laundering offences. Ignorance is no excuse and when conducting business, you always have to be aware of potential risks. Ignoring risks or not knowing risks is not an option as it could bring forth severe consequences.

Liability of legal persons

According to the Directive, Member States shall have to take necessary measures to ensure that legal persons can be held liable for any of the money laundering offences committed for their benefit by any person, acting either individually or as part of an organ of the legal person and having leading position, based on the following:

• a power of representation of the legal person;
• an authority to take decisions on behalf of the legal person;
• an authority to exercise control within the legal person.

Also, even more importantly, legal person should be held liable where the lack of supervision or control (by the person(s) referred to above) has made possible the commission of any of the money laundering offences for the benefit of the legal person by a person under its authority. In principle, this includes situations where lack of supervision by the person in charge made it possible for persons under the authority to commit offences.

Therefore, businesses should revise their internal governance mechanisms and internal control rules to avoid punitive measures that could arise due to ineffective governance and/or internal control.

Effective sanctions for natural and legal persons

Directive also regulates aggravating circumstances in money laundering offences. The following circumstances are to be regarded as aggravating circumstances:

• offense was committed within the framework of criminal organisation;
• The offender is an obliged entity and has committed the offence in the exercise of their professional activities.

Member States may provide that, for example, when the laundered property is of considerable value, it can be regarded as an aggravating circumstance.

As a considerable change, money laundering offences should be punishable by a maximum term of imprisonment of at least four years. Additionally, where necessary, natural persons should be subject to additional sanctions or measures (fines, for example). This is a significant increase from one year as it was previously. Sanctions for legal persons have to be effective, proportionate and dissuasive, which shall include criminal or non-criminal fines and other sanctions. Other sanctions could be exclusion from entitlement to public benefits or aid, exclusion from public funding (including tender procedures) or even temporary or permanent closure.

Potential sanctions for legal entities are very wide and severe, businesses (especially obliged entities) should consider reinforcing their existing internal procedures and oversight in order to mitigate the risk of criminal proceedings. It is essential to ensure that the real procedures also follow the updated procedures on paper — this is the only effective way to combat money laundering and terrorism financing.

Stay focused, be innovative!

Compliance should not be viewed as a black mass that holds companies back. Staying compliant and adjusting to changing regulations provides clarity and transparency. It enables innovation as well — constantly reviewing internal procedures will help businesses to a more effective way of governance. Companies are turning their eyes towards modern IT solutions that help automate certain processes (yes, even AML/KYC processes) that ensure quality, are more effective and way faster.