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What is AMLD6? Defining, deterring and detecting illicit finance
by James Emin, Financial Crime Expert
Historical shortfalls: defining illicit finance
Before the European Union’s (EU) latest Anti-Money Laundering Directive Six (AMLD6), certain pre-existing elements of ‘Illicit Finance’ legislation across the EU had non-unification, affording criminals the sophisticated tactical means to abuse legal loopholes amongst certain EU Member States. AMLD6 formal designation: “Directive (EU) 2018/1673”
There could be confusion within the title, as is the term Money Laundering (ML) within AMLD6. Money laundering is bad money being financially engineered to look clean.
The scope of AMLD6 also includes good money doing bad things, i.e., charities funding terrorism, child sex offenders abusing their legitimate income to purchase on-demand viewing platforms, or oppressive regimes using state taxes to procure weapons that are under rigorous EU export control.
AMLD6 was born out of the enforcement and multi-lateral Member State data sharing constraints highlighted from emerging Financial Crime scandals (primarily raised by the free press) that bought the global supervised financial system into disrepute. Whereby, reputable firms facilitated wrongdoing, with the EU’s Swedbank, Danske Bank, ING and ABN AMRO being prominent firms that fell afoul of the regulatory stick. Westpac’s complicity in detecting the facilitation of child abuse had bought on a dramatic loss of both consumer confidence and share value. Though a non-EU matter, its shortcomings have certainly formed part of an agenda to define part of AMLD6’s, 22 predicated offences.
A brief history of AMLD6
The EU’s AMLD6 came into force on 3rd December 2020, which directs, but more importantly, instructs all pan-EU Member States to enhance and enact current ‘Economic Crime’ legislation—requiring all obligated entities to have implemented a distilled, minimal subset of checks and balances within their Anti-Financial Crime framework by 3rd June 2021. Currently, the EU commission has a program that evaluates AMLD6 effectiveness via continued monitoring and revision. Firms can (and should) be active participants by conveying success or conflicting fault lines that need to be iron out, thus provide the EU Commission with a viable channel to execute their comprehensive impact report by Q4 2023.
What does AMLD6 do?
In response to the 9/11 attacks in 2001, the FATF redefined its purpose. Effective implementation of The passage of 6AMLD has now defined and broadened the scale and scope of ‘illicit finance’ that facilitates crime, by plugging the gaps of current inconsistent Member States regulation, that has corralled lawmakers into ratifying effective harmonization and collaboration across the union, constituting the following themes:
1. Clarifies twenty-two predicate offenses that constitute money laundering or illicit finance
|1. Participation in an organized crime group/racketeering||12. Counterfeiting and piracy of products|
|2. Terrorism||13. Environmental crime (newly added)|
|3. Human trafficking and migrant smuggling||14. Murder and grievous bodily harm|
|4. Sexual exploitation||15. Kidnapping and hostage-taking|
|5. Illicit trafficking in narcotics and psychotropic substances||16. Robbery and theft|
|6. Illegal arms trafficking||17. Smuggling|
|7. Trafficking in stolen goods||18. Tax crime relating to direct and indirect taxes|
|8. Corruption||19. Extortion|
|9. Fraud||20. Forgery|
|10. Counterfeiting currency||21. Piracy|
|11. Counterfeiting and piracy of products||22. Cybercrime (newly added)|
Under Article 2, there is now a duty of careful consideration for all obliged entities and those accountable to take individual responsibility by ensuring that their Anti -Economic and Financial Crime framework have sufficient internal controls. They must also have in place an adequate framework to deter and detect illicit finance funding criminal behavior, or the proceeds of crime that enters the supervised financial system derived from the 22 predicated offenses.
2. Stricter criminal penalties, tougher punishment with the extension of criminal liability
In the pursuit of creating money laundering as a strident and harsh offense, AMLD6 has fundamentally expanded the intent, nature, and scope of financial crime. This measure has broadened with Article 4 the violation of ‘Aiding and abetting, inciting and attempting’ illicit finance, targeting white-collar enablers who facilitate professional money laundering schemes. Furthermore, it focuses on criminals’ families or associates who corroborate in obfuscating, disguising or hiding illicit assets or funds.
A prominent example is participating corporate and individual trustee’s, settlors, and beneficiaries of opaque trust funds. Whereby, these assets and funds originate from the 22 predicated offenses. Those who facilitate or knowingly benefit can no longer claim ignorance as a defense. Articles 7 and 8 outline ‘Liability and Sanctions of legal persons’ with punitive ramifications, such as the closure of a firm that has been abused for facilitating illicit finance or individuals (temporarily or permanently) being disqualified from the practice of commercial and supervised activities. That said, the one sanction that acts as an actual deterrent is the expansion of a minimum prison sentence from one year to four years for money laundering offenses.
3. Member State cooperation
AMLD6 enacts and ensures Member-State cooperation in investigating and seeking the prosecution of both individuals and firms conducting, enabling, or facilitating illicit finance offenses. This initiative has created a foundation for Member States to have “effective investigative tools”, with enhanced measures for “more efficient and swifter cross-border cooperation between Financial Intelligent Units (FIU) and competent authorities.
Where one or more Member States each has jurisdiction over the prosecution of an offense, they are required to collaborate with an outcome to agree where to prosecute in a single Member State. When determining jurisdiction, there is a multitude of essential considerations. These factors include (but are not limited to); the nationality or residency of perpetrators; the country of origin of the victim(s); and the jurisdiction of where the offender was found, where the offense was committed in one Member State before the illicit funds are transferred or laundered from one jurisdiction to another.
AMLD6 and Brexit
The UK has opted out and not transposed AMLD6 into domestic legislation, therefore making it a ‘Third Country”. The justification is that the UK’s “Economic Crime Bill” and its financial services regulatory perimeter has a far higher standard of effectiveness, superseding all EU money laundering directives.
These standards pertain to a broader range of predicated offenses, intelligence-sharing initiatives, corporate registry transparency, enforcement action and the stringent penalties and sentences imposed on Financial Crime wrongdoing and enablement. In the UK, the maximum penalty for money laundering is 14 years. The UKs National Crime Agency (NCA) FIU is still an active member of Europol. Firms operating a UK nexus or branch should continue to horizon scan to evaluate and consider relevant UK legislation. By adequately ensuring that their firm’s compliance controls do not have any form of regulatory arbitrage.
Pandora Papers scandal
In light of the recent Pandora Papers revelation, AML6 targets ‘white-collar enablers’ of tax evasion as a predicated offense, with punitive action, in short: real jail time.
This regulatory regime coupled with Pandora Papers documentation data should provide wealthy countries – competent authorities and FIU’s with the legislative and evidential means to enforce those who act out or facilitate wrongdoing. Therefore, regulatory ignorance is no longer a defence for those who need to be on top of their continued compliance obligations.
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