Money laundering for banks is becoming increasingly important, both in terms of regulation and in public perception. Many financial institutions are worried that digitization will greatly increase the risk of money laundering and fraud. In this article, the Sanction Scanner addresses the regulatory requirements for money laundering through Regulatory Roadmap.
What Is Money Laundering?
The term "money laundering" is said to go back to Al Capone, who, during the prohibition in 1920 (USA), has invested the illegally acquired money in launderettes to disguise the origin of the money. Today you hear the word "money laundering" more often than ever.
Money laundering is the unnoticed introduction of illegally generated money through as unobtrusive business transactions in the legal, financial district, and out of it. The source of the money, which comes from illegal activities such as corruption, arms or drug trafficking, and tax evasion, is masked by feeding, concealment, and integration.
Methods and Stages in Money Laundering
The feed is regarded as money laundering of the first degree, where it is intended to convert illegally acquired cash back into book money. This is done on the basis of smaller amounts to cover up illegal activities. However, money laundering is usually carried out at this stage, with a high detection risk for the offender.
In obfuscation, the money transactions are carried out so often that the document path is broken through, and the money is anonymized. With each additional transaction, money laundering becomes harder to track. In the course of the business process and through countless transactions, the risk of discovery is reduced.
The third and last phase of money laundering is integration. If the origin of the money can no longer be determined, the illegal money is replaced by z. B. Real estate purchases used as a result of legitimate business activity.
For these reasons, the volume and extent of money laundering deals worldwide are very difficult to estimate and therefore remain undetected. However, studies reveal the immense sums that circulate in the illegal sector and affect the entire financial system and the global economy. No other institution can transfer the laundered money more effectively and faster than a bank. Every bank that conducts banking is aware of all sorts of money laundering scenarios and risks. However, to minimize the risk of detection, the criminals are always developing new and different techniques to get rid of their cash.
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 list, 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 compliance system. The companies concerned are, therefore, obliged to conduct appropriate risk controlling and risk management. In the context of money laundering compliance, business operations must be organized in a manner that avoids violations of applicable law.
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.
The Sixth Anti-Money Laundering Directive
Under the Brussels legislative mechanism, further measures were taken in November 2018 to strengthen the fight against money laundering. The European Commission has proposed these measures because it considers that the existing arrangements are neither comprehensive nor coherent.
In particular, the European Commission emphasizes that cooperation between national police forces is not optimal due to national differences in the definition of offenses, the scope, and sanctioning of money laundering offenses. It also notes that criminals are exploiting these legal discrepancies to cover up crimes. These additional measures are popularly referred to as the 6th Anti-Money Laundering Directive. The new rules are designed to facilitate more efficient and speedier cross-border cooperation between competent authorities.
The most important element of the Sixth Money Laundering Directive is the provision of a harmonized list of 22 criminal activities that constitute predicate offenses anti-money laundering. The definitions should be sufficiently uniform in all Member States. By explicitly defining all of these predicate offenses, the Sixth Money Laundering Directive will inevitably impose greater obligations on companies. Your own staff should be trained as well as possible to identify possible indicators of all these predicate offenses. In addition, companies should implement monitoring systems to identify returns that may be related to these violations.
With a common EU-wide definition of money laundering, the European Commission also suggests that "self-laundering" falls within the scope of criminal offenses. Previously, the definition of self-laundering was not a criminal offense. Support, favoritism, and money laundering are also illegal under the directive. In this context, the Member States covered by the Directive have to impose effective, proportionate, and dissuasive criminal sanctions. However, Member States have to apply similar techniques and measures to combat organized crime and other serious crimes.
The Fifth and Sixth Anti-Money Laundering Directives should provide greater protection for the financial system through the prevention and detection of money laundering practices. This means for all companies concerned that their internal measures and the compliance program have to comply with and the anti-money laundering systems implemented in a short time.
AML Compliance with Sanction Scanner
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