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EC to publish 4th anti-money laundering directive

Governments are stepping up the fight against money laundering - but honest businesses may get caught in the crossfire, writes Peter Bartram

27 Sep 2012

By Pater Bartram

money-laundering

EARLIER THIS YEAR, the Financial Action Task Force (FATF), the international body that spearheads the fight against financial crime, announced a set of strengthened recommendations designed to take on new financing threats, including a tougher approach on corruption.

Now the European Commission is planning to publish a fourth anti-money laundering directive this autumn, which will take on board the 40 recommendations in the latest FATF proposals. This comes hard on the heels of a review of the third anti-money laundering directive by the Commission. The review found the third directive was working well and there were no “fundamental shortcomings”. But that didn’t take account of the new proposals.

Companies most in the firing line of the new regulations include financial services firms, estate agents, accountants, law firms, casinos and company service providers. The current regulations also apply to any “providers of goods” when receiving cash payments above €15,000 (£12,444).

But with FATF estimating the global cost of money laundering and its associated serious crime at 2-5% of the world’s GDP, almost any business could inadvertently find dirty money passing through its accounts.

For example, a common trick among money launderers is the advanced payment scam. A fake building company orders, say, £20,000 of supplies and pays for them in advance. Before delivery, it cancels the order and receives a refund less any penalty payment (money launderers never worry about paying a commission for laundering cash). The money launderers have a legitimate cheque from a bona fide company in their bank account.

Risk-based approach

At the heart of the recommendations is a risk-based approach. The aim is to identify those situations in which the risk is higher and focus more attention on them. FATF identifies the two countries with the highest risk of money laundering and terrorist financing as Iran and North Korea, but there are a further 18 countries on the naughty step where it says there are “strategic deficiencies” in money laundering and anti-corruption measures and where FDs need to be vigilant when doing business. These include Indonesia, Nigeria and Pakistan. Three of the 18 - Kenya, Myanmar and Turkey - are on a watch list of places that are not making sufficient progress.

FATF says: “The risk-based approach will allow financial institutions and other sectors to apply their resources more efficiently by focusing on higher-risk areas while there is more flexibility for simplified measures to be applied to low-risk areas.”

The new recommendations also require relevant organisations to tighten up the way they deal with politically exposed persons (PEPs) - individuals who may represent a higher risk of corruption because they hold a position of power. The previous recommendations required organisations to focus on foreign PEPs. They must now look at domestic PEPs as well as those working for international organisations. And there will be a stronger focus on PEPs’ family members and close associates. This, says FATF, “reflects the methods used by corrupt officials and kleptocrats to launder the proceeds of corruption”.

A further change is that major tax crimes are included as “predicate offences” within money laundering. FATF says: “This will contribute to better co-ordination between anti-money laundering and tax authorities, and remove obstacles to international co-operation regarding tax crimes.”

As always with regulations, the devil is in the detail and FDs can find information about the FATF’s recommendations on its website at www.fatf-gafi.org. ■

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