AMLD: The Past, Present, and FutureWith the 6AMLD deadline just around the corner, we’re looking back at key changes, the new updates that are going into effect on June 3, and the potential future for the anti-money laundering directive.
The History of the Anti-Money Laundering Directive
The European Union passed the first regulatory directive (1AMLD) in 1990, and it was primarily focused on holding financial institutions accountable. At the time, drug trafficking was really the only outlined threat, although the 2AMLD update (passed in 2001) also introduced corruption as a source of illegal funds, along with the precedent to freeze assets arising from criminal activity. At the time, it was essentially impossible to fathom just how intricate illicit financial activities would become, especially with the explosive and unprecedented technology boom.
The 3AMLD passed in 2006, and it included counter-terrorism financing rules as a key aspect, after the world suffered from multiple terrorist attacks in years prior, including 9/11. This directive also extended to include parties outside the scope of finance, like lawyers and notaries, when high-value payments were made in cash. This change had a big impact on the Know Your Customer (KYC) process, as it emphasized the importance of customer due diligence.
The 4AMLD, which came into force in 2015, was designed to bring a more robust risk-based approach to the prevention of money laundering and terrorist financing. This included simplified due diligence for risk assessments, a broader definition of Politically Exposed Persons (PEP), and a decrease in the threshold for making and receiving cash payments for high value dealers, with the new sum being €10,000. The 4AMLD also saw tax crimes included as a predicate offence for money laundering for the first time in the EU.
The 5AMLD, which was implemented January 10 of 2020, primarily tackled some of the gaps in the existing transparency rules. With this update, cryptocurrencies, letting agents, art market participants, and tax advisors then became subject to the same regulations as traditional financial institutions. The 5AMLD also included substantial changes to both regular and enhanced customer due diligence obligations.
Key Elements of 6AMLD
No other directive update has provided such detailed descriptions of liable parties, and the introduction of 6AMLD is a major step in the right direction when it comes to defining criminal liability. With accountability now extending beyond physical persons, companies and partnerships are becoming subject to criminal penalties as well. This should see internal procedures being put under a microscope in an effort to avoid violations and prevent possible abuse of power while making decisions on behalf of the legal person. With the new, drastically clarified regulatory details, defining the current risk environment will become easier. With that said, companies now also must refine their safeguards to detect suspicious activities that are linked to newly outlined offenses.
The Future of AMLD
With fraud methods continuing to evolve, most recently with the creation of so-called deepfakes, regulators will have to include more layers of security to filter identity fraudsters out and enhance due diligence in the near future. We are also likely to see new threats emerge, like the usage of artificial intelligence (AI). Although it has yet to be outlined as potentially dangerous by regulators, AI and similar technologies will likely be included in future updates. With that said, artificial intelligence can also be used to better distinguish fraudulent transactions, suspicious activities, and false alarms with much better precision.
Are you ready for 6AMLD?
As the risk environment continues to evolve, the AML directives will play an important role in the finance sector security framework. To be ready for 6AMLD, financial institutions need to make sure that they really know their current and potential customers. Thankfully, we can help you with that. If you have yet to take action ahead of the full compliance that will be required by June 3, we are ready to assist you in adapting to the new regulations. At ZignSec, we’re experts at fighting against money laundering, and excel in reducing bureaucracy and costs related to customer relationships.
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