Money laundering is a complex and sophisticated criminal activity that involves the process of disguising the proceeds of illegal activities as legitimate. It is a serious problem that has far-reaching consequences, including the financing of terrorism, corruption, and the destabilization of financial systems. The fight against money laundering is a global issue, and regulators worldwide have taken significant steps to combat this illegal activity. The implementation of anti-money laundering (AML) laws and regulations is a vital aspect of the efforts to prevent and combat money laundering. This guide will provide an overview of AML, including the key principles and practices, and explore the current state of AML in 2020.
Why is AML important?
Money laundering has serious consequences that affect various sectors of society. It is often used to finance illegal activities such as terrorism, corruption, and drug trafficking. The use of funds obtained through money laundering can also destabilize financial systems and distort markets, creating unfair competition and impeding economic growth. AML measures are crucial in preventing these negative impacts, as they help identify, prevent and report suspicious transactions, thus reducing the risk of money laundering.
Current state of AML in 2020
The global AML landscape is constantly evolving, with regulators and financial institutions working together to combat money laundering. In 2020, AML measures have become more critical than ever, as the COVID-19 pandemic has increased the risk of money laundering and fraud. The pandemic has brought new challenges to the implementation of AML measures, including remote customer onboarding, remote monitoring, and virtual currencies. As a result, regulators have issued new guidelines and recommendations to help financial institutions adapt to these challenges.
In the United States, the Financial Crimes Enforcement Network (FinCEN) has issued new guidance on virtual currencies and money laundering, providing clarity on the application of AML regulations to cryptocurrency transactions. In Europe, the European Union's Fifth Anti-Money Laundering Directive (5AMLD) came into effect in January 2020, strengthening the AML framework and introducing new requirements for AML compliance.
Anti-Money Laundering Directives of the European Union
The consequences of money laundering involve material and material intangible losses that are difficult to assess and lead to sustainable, long-term growth prevention.
As the money laundering and predicate offenses that are needed to fund money laundering are very difficult to define, and due to the increasing digitization and the expansion of the circle of obligated persons, the EU is tightening the compliance requirements of companies with each new directive. To date, four EU Money Laundering Directives have been implemented in all Member States (for a more detailed fine, see below).
With the new 5th and 6th EU Money Laundering Directives, which must be transposed into national law in January 2020 and December 2020, the European Union is expanding the compulsory program of a company's anti-money laundering compliance system. The companies concerned are, therefore, obliged to conduct appropriate risk controlling and risk management. In the context of an anti-money laundering compliance program, business operations must be organized in a manner that avoids violations of applicable anti-money laundering policy.
The following figure presents the timeline of the development of the EU Anti-Money Laundering (AML) Guidelines, which provides an overview of the overall progress of the fight against money laundering.
Money Laundering Guidelines
Regulations against drug trafficking.
Inclusion of the non-financial sector in the fight against money laundering.
Tightening of due diligence obligations, consideration of terrorist financing; Transposition of the Directive into German Law through the Money Laundering Act (2008).
Combating high cash payments and tightening customer due diligence -> Then new Money Laundering Act 2017.
New rules for potential uses of virtual currencies EU Directive 2018/843.
Introduction of minimum standards for the definition of predicate offenses and sanctions in the field of money laundering EU Directive 2018/1673.
The Fifth Anti-Money Laundering Directive
The 5th EU Money Laundering Directive, adopted in May 2018, has taken a major step forward in innovative payment methods. New regulations thus provide a framework for more transparency in business and strengthen the overall supervision and exchange of information on money laundering across the EU. At the end of July 2019, the Federal Government adopted a draft law transposing the amending directive to the 4th EU Anti-Money Laundering Directive, which serves to transpose EU Directive 2018/843 into national law.
The main themes addressed by the 5th Anti-Money Laundering Directive included dealing with high-risk countries, incorporating exchange platforms for virtual currencies, expanding the circle of obligated parties, access to the Transparency Register, and strengthening the exchange of information between authorities. The EU has expanded the list of third countries that have significant weaknesses in the fight against money laundering. According to the new legal regulations, they have to fulfill the "Enhanced Due Diligence" obligations towards their contractual partners established in one of these third countries.
Regulations of Cryptocurrency
As cryptocurrency transactions and the business models that build on Blockchain are well-suited for money laundering, the scope is broadened to include the service providers that exchange legal fiat currencies in cryptocurrency. Since cryptocurrencies are organized decentrally, they can be difficult to monitor and control by state bodies. The new Directive also provides for the obligation to declare money laundering to professionals for real estate transactions and transactions in the sale of works of art when the transaction amounts to € 10,000 or more.
New rules now provide that access to the Transparency Register is granted not only to the designated circle of entitled persons but to "all members of the public." Improving the exchange of information and providing rapid access to the Financial Intelligence Units (FIUs), the central body for financial transaction investigations, through the holders of payment accounts through centralized registers, should enhance cooperation between supervisors and FIUs.