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The Sixth Money Laundering Directive, (EU) 2018/1673 (‘6MLD’ or ‘the Directive’)) entered into force on 2 December 2018. EU Member States should implement requirements into national law by 3 December 2020. The Directive’s key elements include:
The Directive notes: "In accordance with Articles 1 and 2 of Protocol No 21 on the position of the United Kingdom and Ireland in respect of the area of freedom, security and justice, annexed to the [Treaty on European Union] and to the [Treaty on the Functioning of the European Union], and without prejudice to Article 4 of that Protocol, the United Kingdom and Ireland are not taking part in the adoption of this Directive and are not bound by it or subject to its application.”
See also ‘Money Laundering: EU Law: Written question - 281755’ on UK Parliament website: "… UK Government decided not to opt into the EU Directive on combating money laundering by criminal law as our domestic legislation is already largely compliant with the Directive’s measures, and in relation to the offences and sentences set out in the Directive, the UK already goes much further. Therefore, it was not considered that opting in would enhance the UK’s approach to tackling money laundering. "
For the purposes of the 6MLD, the following definitions apply:
The following conduct, when committed intentionally, will be punishable as a criminal offence:
The Directive includes: "Member States may take the necessary measures to ensure that the conduct referred to … is punishable as a criminal offence where the offender suspected or ought to have known that the property was derived from criminal activity".
Member States should take necessary measures to ensure that aiding and abetting, inciting and attempting a money laundering offence is also punishable as a criminal offence.
Member States are expected to implement measures to ensure that legal persons can be held liable for any money laundering offences under 6MLD (as referred to in Article 3(1) and (5) and Article 4) committed for their benefit by any person, acting either individually or as part of an organ of the legal person and having a leading position within the legal person (i.e. ‘in a key influencing role’), based on any of the following:
Member States should also take measures to ensure that legal persons can be held liable where the lack of supervision or control by a person in a key influencing role has made possible, the commission of a money laundering offence for the benefit of that legal person, by a person under its authority.
Member States should take necessary measures to ensure that where a legal person is found to be liable, punishment should be effective, proportionate and dissuasive, to include criminal or non-criminal fines and may include other sanctions, such as:
Criminal proceedings implemented against a legal person might be in addition to criminal proceedings against a natural person who perpetrates, incites or is an accessory to a money laundering offence.
6MLD includes: "Member States shall take the necessary measures to ensure that effective investigative tools, such as those used in combating organised crime or other serious crimes are available to the persons, units or services responsible for investigating or prosecuting the offences referred to in Article 3(1) and (5) and Article 4."
How the above statement transposes into each Member State’s priorities for its national (or regional) law enforcement capability on-the-ground is, as-yet unclear. The Directive mentions mobility of perpetrators and proceeds stemming from criminal activities, as well as the complexities involved in cross-border investigations. Whilst the intention is that Member States should enable competent authorities to investigate and prosecute such activities, each jurisdiction will have its own issues and priorities to address, which might impact the potential for addressing situations where an offence is committed in another Member State’s territory.
During membership of the EU, the UK’s anti-money laundering and counter terrorist financing (‘AML/CTF’) framework has been influenced by the EU’s Money Laundering Directives (MLDs). Their content generally being transposed into UK domestic Regulations by HM Treasury (‘HMT’) under the European Communities Act 1972 (ECA 1972).
As noted in FAQ 1, the United Kingdom (‘UK’) is not intending to adopt the 6MLD, or to be bound by its application. Also, as of 31 January 2020, the UK is no longer an EU member. Whilst the UK agreed terms of its EU departure, negotiations continue in 2020 to determine what the UK’s future relationship will look like with the EU. This is due to end by 31 December 2020.
In addition to conducting trade with EU Member States, other aspects of the future UK-EU relationship to be decided during the 2020 transition period include - for example - law enforcement, data sharing and security.
Irrespective of the UK’s exit from the EU, UK businesses which trade with or operate in or via the EU, or which facilitate transactions in Euro currency post-Brexit, will likely be impacted by 6MLD requirements, where these have been transposed into a Member State’s domestic legislation.
UK banks, insurers and other financial services firms which maintain a branch, customer relationships or otherwise facilitate transactions covered by EU territorial requirements, are likely to have to assess, implement and monitor appropriate risk-based measures to mitigate EU related risk.
By defining predicate offences and establishing that it will not be necessary for there to have been a criminal conviction in relation to an underlying predicate offence, 6MLD is likely to result in:
The potential for variance in applicable law and regulation following transposition of 6LMD in EU Member States will need to be considered for impact, if any, on content of policies, procedure and related guidance. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (Reg. 19 (6) include: "A relevant person must, where relevant, communicate the policies, controls and procedures which it establishes and maintains in accordance with this regulation to its branches and subsidiary undertakings which are located outside the United Kingdom".
UK banks, insurers and other financial services firms may encounter an increase in due diligence requirements made of them by EU based regulated firms. Firms operating beyond the UK borders will not automatically benefit from being considered to operate to ‘EU Equivalence’. This could lead to an increase in EU firms requesting information of UK based business counterparties and customers, before entering into or retaining a trading or transactional relationship with them.
The Directive notes that prosecutions for money laundering should not be impeded by the fact that criminal activity was committed in another Member State or in a third country. Post-Brexit, the UK will be considered a third country. Information requests to UK head-quartered firms originating from EU law enforcement and prosecution bodies, might be routed via the EU based affiliates or branches of UK legal entities or regulated firms.
Member States are expected to implement measures to ensure that legal persons can be held liable for certain money laundering offences, where ‘Legal Person’ means: "any entity having legal personality under the applicable law, except for states or public bodies in the exercise of state authority and for public international organisations."
The 6MLD extension of criminal liability to corporates where a money laundering offence is committed for their benefit, brings a new dimension to AML law and regulation. In principle, a money laundering offence may be committed by an individual in a leading (or influencing) role within a corporate, or where a lack of supervision or control by such an influencer has made possible the commission of a money laundering offence (or otherwise is considered to be ‘a failure to prevent’ the commission of a money laundering offence).
It is unclear if 6MLD allows a corporate defence to the ‘failure to prevent’ offence, along the lines of those provided in the UK Bribery Act 2010 (i.e. ‘adequate procedures’) and the Criminal Finances Act 2017 (i.e. ‘reasonable procedures’). These enable a defence to prosecution where the requisite level of adequate or reasonable procedures can be demonstrated to have been in place and to be operating effectively.
Irrespective of the UK’s exit from the EU, a UK legal entity which trades with or operates in or via the EU, or which transacts in Euro currency post-Brexit, will likely be impacted by 6MLD requirements, where these have been transposed into a Member State’s domestic legislation.
The Directive aims to criminalise money laundering when committed intentionally and with the knowledge that the property was derived from criminal activity. However, the Directive also includes: "Member States should be able, for example, to provide that money laundering committed recklessly or by serious negligence constitutes a criminal offence."
The nature of money laundering risk facing a corporate will be influenced by its nature of business, as well as the how and where business is undertaken. Predicate offences listed in the 6MLD may be more relevant to some legal entities than to others. For example, the nature of risk will vary as between the risk of involvement (or a failure to prevent) money laundering linked to:
A UK legal entity with an EU presence or business relationships with EU partners, agents or intermediaries, which might present contagion risk linked to bribery, corruption or other predicate offence (e.g. in the supply-chain or channel to market), should assess, implement and monitor appropriate risk-based measures to address 6MLD risk.
Some aspects of the 6MLD objective are already covered in UK law. For example:
Whether the UK formally implements all 6MLD provisions into national law is relevant to risk facing all UK businesses which trade or transact with, or facilitate transactions for those who trade or transact with customers or third parties in an EU Member State – In particular as to where Directive requirements have been transposed into domestic legislation.
A Member State will have jurisdiction where an offence is committed, wholly or partly, in its territory, or if the offender is an EU national.
If the UK adopts the new corporate offence (i.e. failure to prevent the commission of money laundering), this will impact risk-management in all UK businesses.
Regulated entities operating inside the EU perimeter, including UK firms will have to assess whether to implement new/updated arrangements, if not already covered in their existing framework under current UK legal and regulatory requirements.
If you would like more information on adopting a risk-based AML framework – see our Money Laundering FAQ 10.
For more on our AML services - See AML Services