The EU anti-money laundering law has been reformed and will take effect from 10 January 2020. The reform introduces new requirements for banks handling transactions linked to high-risk nations.
EU member states are required to write the 5th Anti-Money Laundering Directive (5AMLD) into national law by the end of this week. This amendment is in line with EU’s attempts to tighten controls around the illicit movement of funds. Banks which are considered “obliged entities” and so, covered by the 5AMLD, will face more stringent demands when executing transactions linked to countries deemed to pose a high risk of financial crime.
The law now requires trade finance lenders collect additional details on customers and on beneficial owner especially information such as nature of the business relationship, source of funds of customers and beneficial owners, and the reasons for the transactions. They will also require validation from senior management before a continued business relationship.
The demand for greater scrutiny over high-risk international transactions is not new for banks in the EU. In the trade finance sector, legally binding guidelines have been in place since March 2018 – prior to the introduction of 5AMLD – that elaborate on how enhanced due diligence should be carried out.
Acknowledging that banks can occasionally have limited oversight of an underlying trade when executing a transaction, the framework suggests that financial institutions should use company registries and third-party intelligence sources to obtain information on their clients. Consequently, they can use their professional judgement to decide whether ongoing pricing makes commercial sense, particularly for commodities trading.
However, there is an ongoing dispute between the European Commission and Council over which countries are considered high risk in terms of money laundering. The current list – still legally binding across the EU – includes Afghanistan, Bosnia and Herzegovina, Ethiopia, Guyana, Iran, Iraq, Lao, North Korea, Pakistan, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Uganda, Vanuatu and Yemen. This list was criticized by the European Council in February 2018 and the council demanded more transparent methods to select the nations. The list was updated by adding 8 more nations and removing 5 countries but the same was again rejected by the Council. European Commission is now set to release another updated list using an updated technique but it is not clear when this will be released.
Date: 13 Jan 2020
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