Financial Crime Risk Management

6MLD - FAQ

May not cover factors relevant to a particular situation or circumstance.


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Frequently Asked Questions

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FAQ not legal advice

FCRM Ltd does not provide legal advice and no reliance therefore should be placed on this FAQ series for an interpretation of relevant law or regulation.

EU Context

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 defines criminal activities which give rise to, or underpin, a money laundering offence (i.e. predicate offences for money laundering), to be punishable by a maximum imprisonment term of at least four years; alongside discretionary additional sanctions or measures under domestic legislation, which takes into account the circumstances of a particular case.
  • Legal persons (e.g. companies, etc.) could be held liable for money laundering offences where, the offence was committed for the benefit of the organisation; and those who have the power to represent, make decisions for and exercise control within the organisation (i.e. its controlling minds) have either committed the offence or allowed the offence to be committed through a lack of supervision.
  • The use of virtual currencies presents new risks and challenges from an anti-money laundering (‘AML’) perspective. Member States should ensure that those risks are addressed appropriately and include the proceeds of criminal activity linked to cybercrime (and environmental crimes) are in scope for money laundering.
  • Certain tax crimes relating to direct and indirect taxes should be defined as criminal activity - the context of which will be determined by each Member State’s national law.
  • Money laundering offences committed by holders of public office might involve more severe penalties.
  • Money laundering activities are also to be punishable when committed by the perpetrator of criminal activity that generated the property (i.e. ‘self-laundering’ where, in addition to possession or use of property, the perpetrator transfers, converts, conceals or disguises property, in order to conceal its unlawful origin).
  • For criminal law measures to be effective against money laundering, a conviction should be possible without having to establish precisely which criminal activity generated the property, or for there to be a prior or simultaneous conviction for that criminal activity, while taking into account all relevant circumstances and evidence.
  • Member States should ensure their jurisdiction caters for where an offence is committed by means of information and communication technology from their territory, whether such technology is based on their territory or not).
  • Where appropriate, matters should be referred to Eurojust (e.g. when two or more Member States conduct parallel criminal proceedings in respect of the same facts involving the same person).
UK Context

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:

  1. ‘Criminal activity’ means any kind of criminal involvement in the commission of any offence punishable, in accordance with national law, by deprivation of liberty or a detention order for a maximum of more than one year or, as regards Member States that have a minimum threshold for offences in their legal systems, any offence punishable by deprivation of liberty or a detention order for a minimum of more than six months. In any case, offences within the following categories are considered as criminal activity:
    1. participation in an organised criminal group and racketeering, including any offence set out in Framework Decision 2008/841/JHA;
    2. terrorism, including any offence set out in Directive (EU) 2017/541 of the European Parliament and of the Council;
    3. trafficking in human beings and migrant smuggling, including any offence set out in Directive 2011/36/EU of the European Parliament and of the Council and Council Framework Decision 2002/946/JHA;
    4. sexual exploitation, including any offence set out in Directive 2011/93/EU of the European Parliament and of the Council;
    5. illicit trafficking in narcotic drugs and psychotropic substances, including any offence set out in Council Framework Decision 2004/757/JHA;
    6. illicit arms trafficking;
    7. illicit trafficking in stolen goods and other goods;
    8. corruption, including any offence set out in the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union and in Council Framework Decision 2003/568/JHA;
    9. fraud, including any offence set out in Council Framework Decision 2001/413/JHA;
    10. counterfeiting of currency, including any offence set out in Directive 2014/62/EU of the European Parliament and of the Council;
    11. counterfeiting and piracy of products;
    12. environmental crime, including any offence set out in Directive 2008/99/EC of the European Parliament and of the Council or in Directive 2009/123/EC of the European Parliament and of the Council;
    13. murder, grievous bodily injury;
    14. kidnapping, illegal restraint and hostage-taking;
    15. robbery or theft;
    16. smuggling;
    17. tax crimes relating to direct and indirect taxes, as laid down in national law;
    18. extortion;
    19. forgery;
    20. piracy;
    21. insider trading and market manipulation, including any offence set out in Directive 2014/57/EU of the European Parliament and of the Council;
    22. cybercrime, including any offence set out in Directive 2013/40/EU of the European Parliament and of the Council.
  2. ‘Property’ means assets of any kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or an interest in, such assets;
  3. ‘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 following conduct, when committed intentionally, will be punishable as a criminal offence:

  1. 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.
  2. 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.
  3. The acquisition, possession or use of property, knowing at the time of receipt, that such property was derived from criminal activity.

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.

  1. Member States are expected to ensure that money laundering committed in the following circumstances are to be regarded as ‘aggravating circumstances’:
    1. the offence was committed within the context of an organised crime group (i.e. the framework of a criminal organisation within the meaning of Framework Decision 2008/841/JHA); or
    2. the offender is an obliged entity (e.g. a firm covered by requirements of the UK’s Money Laundering Regulations) within the meaning of Article 2 of Directive (EU) 2015/849 and has committed the offence in the exercise of their professional activities.
  2. Member States may provide that money laundering in the following circumstances might also be regarded as aggravating circumstances:
    1. the laundered property is of considerable value; or
    2. the laundered property derives from one of the following:
      • participation in an organised criminal group and racketeering, including any offence set out in Framework Decision 2008/841/JHA;
      • terrorism, including any offence set out in Directive (EU) 2017/541 of the European Parliament and of the Council;
      • trafficking in human beings and migrant smuggling, including any offence set out in Directive 2011/36/EU of the European Parliament and of the Council and Council Framework Decision 2002/946/JHA;
      • sexual exploitation, including any offence set out in Directive 2011/93/EU of the European Parliament and of the Council;
      • illicit trafficking in narcotic drugs and psychotropic substances, including any offence set out in Council Framework Decision 2004/757/JHA;
      • corruption, including any offence set out in the Convention on the fight against corruption involving officials of the European Communities or officials of Member States of the European Union and in Council Framework Decision 2003/568/JHA;

Supervision and control

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:

  1. a power of representation of the legal person;
  2. an authority to take decisions on behalf of the legal person; or
  3. an authority to exercise control within the legal person.

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.

Sanctions for legal persons

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:

  1. exclusion from entitlement to public benefits or aid;
  2. temporary or permanent exclusion from access to public funding, including tender procedures, grants and concessions;
  3. temporary or permanent disqualification from the practice of commercial activities;
  4. placing under judicial supervision;
  5. a judicial winding-up order;
  6. temporary or permanent closure of establishments which have been used for committing the offence.
Other proceedings

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.

EU legacy, Brexit and next steps – To be clarified

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.

Operational considerations

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:

  • Additional onus on staff in regulated firms to assess ‘predicate offence’ or AML risk in business relationships and transactions.
  • Updates being required to the content of AML training for relevant staff.
  • Change to customer and transaction monitoring systems, where necessary (i.e. to detect red-flag or other indicator of a predicate offence nexus).
  • Increased reporting of suspicious activity linked to ‘potential’ money laundering associated with predicate offences committed in another Member State or third country.

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".

Responding to due diligence enquiry

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.

Responding to law enforcement enquiry

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.

Risk ownership and accountability

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.

Operational considerations

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:

  • Corruption.
  • Counterfeiting and piracy of products.
  • Environmental crime.
  • Tax crimes relating to direct and indirect taxes.
  • Insider trading and market manipulation.
Risk management

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.

Overview

Some aspects of the 6MLD objective are already covered in UK law. For example:

  • Money laundering is defined in the Proceeds of Crimes Act 2002 (‘POCA’) and includes all forms of handling or possessing criminal property, including possessing the proceeds of one's own crime, and facilitating any handling or possession of criminal property.
  • Criminal property is also defined in s.340 of POCA: that is to say, property is criminal property if:
    1. it constitutes a person’s benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and
    2. the alleged offender knows or suspects that it constitutes or represents such a benefit.

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.

EU risk

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.

More information?

If you would like more information on adopting a risk-based AML framework – see our Money Laundering FAQ 10.

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