The Importance of Due Diligence
The deadline has passed. On 10th January 2020, the Fifth Anti-Money Laundering Directive (5AMLD) officially became part of EU law – and by extension, part of UK law.
Businesses would be forgiven for not closely following the twists and turns of anti-money laundering directives over the years. But the penalties for non-compliance are not to be taken lightly: fines of up to €5 million, 10% of annual turnover, and extremely harmful negative publicity.
Enforcing Due Diligence
Previous directives called for higher standards of scrutiny on the part of businesses dealing with third parties. However, there was little provision forcing legal entities to file information in the public domain, making the work of compliance officers extremely laborious.
This was partly addressed in the Fourth Directive (4AMLD). Beneficial ownership registers were created to identify anyone who owned more than 25% of an organisation – preventing bad actors from hiding behind business entities. However, the implementation was seen as inconsistent, with member states each deciding how this information was shared more widely.
5AMLD seeks to go one step further by requiring countries to establish a national register of beneficial ownership to make beneficial ownership data publicly available. This increased transparency and consistency across member states has been widely welcomed by businesses, as it should help to simplify and harmonise their compliance and due diligence activities.
However, there seems to be a gap between the promise and reality.
The Reality of Compliance
Jurisdictions have often said they’re committed to creating an ownership register, but this won’t necessarily translate into the agile customer due diligence (CDD) processes that businesses are hoping for.
Compliance professionals may still be faced with a range of formats, frequencies and local nuances, all of which could hamper compliance activities. This is particularly true when accessing registers across multiple countries and jurisdictions, although the directive aims for beneficial ownership registers to be interconnected by March 2021.
The Impact of Brexit
As the UK has fully committed to implementing the EU directives during its transition and implementation period, it’s unlikely that Brexit will have an impact on the UK’s adoption of 5AMLD.
However, there is uncertainty over whether later iterations will be adopted once the UK has exited from the European Union. Although the UK is leading the way on anti-money laundering efforts, the Government has stated that they will work to support alternative options rather than Europe-wide regulation.
As the EU appears to be moving towards a more harmonized approach, the compliance profession will be monitoring developments closely to assess the impact on due diligence activities for those working within or with the UK.