Anti-money laundering wrings tighter

More than two years in the planning the Third Money Laundering Directive came into force across Europe on 15 December.

As with other Europe-wide directives that preceded it, MiFID for example, money laundering legislation, though wide reaching and high profile, will have less of an impact in the UK than in the rest of Europe. This is because, says Baker & McKenzie lawyer Oliver Kerrige, much of the directive had already been undertaken in the UK despite not being written into law.

“The regulations will have a greater impact in Europe than the UK. This is because joint money laundering steering group guidance notes, which provide guidance for the financial services sector and are looked at by the regulated sector, already provided a lot of the detail confirmed in the money laundering regulations."

"For example, in the UK the regulated sector has always had a pro-active reporting obligation. Under the new regulations, however, the regulated sector has been extended to include trust and company service providers and life insurance intermediaries.”

As such, Kerrige adds, under the new regulations everybody who is regarded as being part of the regulated sector must report suspicions of money laundering.

The reason for revamping the regulations, which are more prescriptive than those set out in the Second Money Laundering Directive, was to ensure a tougher stance was taken against money laundering and terrorist financing, which also falls under the directive’s remit.

According to a Treasury spokeswoman the regulations have been designed to actually reduce the regulatory burden in low risk areas. For example, she says, while there will be a greater number of checks carried out on people thought to pose a higher risk of money laundering, such as foreign heads of state, in general the number of identity checks carried out on regulated businesses will fall. Instead the Government will rely on checks already carried out by, for example, financial advisers or solicitors.

That said, the regulations do require that all regulated firms implement a customer due diligence strategy, something that was done on a far more informal basis before.

Kerrige says: “Under the new directive customer due diligence requirements are set out in greater detail than before and firms are obliged to implement a risk-based aproach to customer due diligence. For example, if a customer comes from a country where there are lighter money laundering control, firms must conduct extra due diligence on the source of the funds they are using.”

In the UK, then, this change to the application of due diligence procedures will see the widest-reaching impact of the directive.

“The UK's statutory framework under the Terrorism Act and Proceeds Of Crime Act already criminalises money laundering and terrorist financing activities to the standard required under the Third Money Laundering Directive,” says Kerrige.

“While the UK's Money Laundering Regulations 2003 also required firms which carry on a relevant business to have in place anti-money laundering compliance procedures, these did not meet the specific requirements under the third directive.”

1 January 2008