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The 5th AML Directive of the European Union

Bloomberg’s Elisa Martinuzzi has noted the increase in Europe’s vulnerability to dirty cash as banks and authorities have failed to effectively prevent money-laundering. As new fintech companies and virtual currencies continue to threaten financial institutions, significant AML regulations are needed. A positive step to this end is EU’s 5th AML Directive (5AMLD). The laws under 5AMLD will detail new requirements for banks involved in international transactions, especially those linked to high-risk nations. All EU member states must implement 5AMLD by January 10 to stop illicit movement of funds across EU countries. To meet this deadline, the crypto-asset sector has been recommended to use quick tools such as background check software to detect changes in ownership and digital process automation to help extract financial information from banks. The German parliament has already amended its AML law to implement 5AMLD. Its new law requires service providers operating in crypto-financial systems, lawyers, real estate agents, traders of goods and art brokers to become obligated persons to identify clients suspected of money-laundering. Just before Christmas break, the UK government also amended its AML/CFT regulations to implement 5AMLD. The galleries and art sector in the UK will come under purview of the new regulations and failure to comply may attract fines and prosecution.

Money-laundering and other finance crimes, globally

In Singapore, an employee of a foreign corporate service provider, has been sentenced to jail for using fake documents to open a bank account for money-laundering. Similarly, US-Nigerian citizen Arinze Michael Ozor used two fake passports to open eight ‘drop-accounts’ and launder about $1 million through business email and romance fraud schemes. Elsewhere, Spain’s Ana Maria Cameno will face a new trial over crimes such as money-laundering and endangerment of public health due to her involvement in the sales of over 100 kilos of cocaine for around 15 million euros in 2014. Meanwhile, Indian and Swiss authorities are investigating India’s overseas tax haven trusts involved in tax evasion through Swiss banks. Suspected tax evaders must share their banking details with the Swiss authorities. Another bank fraud was exposed by Bangladesh Bank, involving money-laundering by Md. Shahidul Ahsan, former director of Mercantile Bank. Ahsan intended to buy shares of Peoples Bank using a loan from another bank, violating Bangladeshi finance laws. Meanwhile, the Bank of the Philippines Islands (BPI) is being scrutinized over alleged links to the Westpac money-laundering scheme in Australia. Westpac, previously on contract with BPI, failed to report over 19.5 million transactions suspected to be linked with child exploitation.

Governments making their AML laws more effective

The Qatar Financial Centre stated that the exchange or trade of crypto-currency has been banned until further notice, and any violation will invite penalties. This comes after a new AML/CFT act defined the responsibilities of the Qatar government and regulatory ministries in combating money-laundering and terrorist financing. UAE also reviewed its AML/CFT plans during a meeting with the Financial Action Task Force to achieve international standards. The AML law of the country features standards for monitoring credit standing, disclosure, and compliance in the activities of the Central Bank of the UAE. A similar review took place in Togo, where a 2-day workshop was organized by the Financial Data Management Center and the inter-ministerial AML committee to review a report on financial crime risk assessment, and to devise an AML/CFT action plan that matches international standards. Meanwhile, Rwanda has raised penalties for criminals involved in financing terrorism. Omar Munyaneza, the chairman of the parliament budgetary committee, announced that the jail term would increase from 7-10 years to 20-25 years and the fines would increase to 3-5 times of the amount involved. The decision to revise the act came after the country’s AML/CFT law was found to be ineffective due to the low severity or complete lack of punishment.

Clarifying ambiguities in AML laws

India has amended its Prevention of Money Laundering Act to address the rising cases of financial crimes and clarify the ambiguities that existed before. The amendment now clearly explains that a person will be guilty of money-laundering if he/she has a connection with properties obtained through concealment, possession, acquisition and use in an illegal manner. It explains that money laundering offence is not bailable, and an authorized officer can arrest anyone suspected, without a warrant. Meanwhile, US lawmakers have proposed the Cryptocurrency Act 2020 to provide clarification on digital asset regulations. This act has classified digital assets into cryptocurrencies, crypto-commodities and crypto-securities, each to be overseen by different authorities. This has come at a time when Richard Nephew, a senior research scholar at Columbia University, has already advised the US Treasury to provide better and more transparent guidance on AML sanctions and compliance, so its directives are not undermined. Nephew’s comment came after a court absolved ExxonMobil Corp from paying a fine of $2 million because the judge ruled that Exxon was not given fair notice by the Treasury, and that applicable sanctions were being treated contradictorily by the US government.

Fintech improvements to prevent money-laundering

To prevent money-laundering through cross-border payments, a Shanghai-based firm named XTransfer has taken fintech firms’ responsibilities of risk assessment and payment processing. The company helps in the movement of cash in and out of China legitimately, thereby providing risk-control services. In a different manner, the Financial Conduct Authority (FCA) is also making fintech improvements in the UK through a new strategy that will improve the usage of data analytics and help identify and mitigate the situations that require FCA’s intervention. While the strategy will be implemented over the next 5 years, the target for 2020 includes increasing FCA’s data science resources and testing and deploying new tools to detect financial crimes.

Teaching AML strategies to stakeholders

In Canada’s British Columbia (B.C.), the regulatory agency for real estate professionals has initiated a compulsory AML course to help them flag suspicious transactions and prevent money-laundering. It should be noted that several billions of dollars have been reported to be laundered in 2018-19 in the B.C. property market. In a similar move motivated by different reasons, some Dutch banks such as Rabobank have developed their own Customer Due Diligence (CDD) training academies to facilitate effective training and coaching. Such initiatives are necessary because owing to the dullness of junior level CDD work, Dutch banks have been unsuccessful in recruiting any staff to strengthen their compliance departments against money laundering.

Targeting the gambling industry to strengthen AML laws

The Serbian government is amending the country’s law on gambling to counter money laundering and improve consumer protection. Under the new law, the owners and beneficiaries of licensed gambling firms will be subjected to a new monitoring system aimed at collecting information on the management and ownership structure of their companies. In a similar AML move, Sweden’s gambling regulator Spelinspektionen told its Ministry of Finance to increase the penalty on gambling operators who violate the AML/CFT act to up to 10% of their revenue. It said that the currently imposed penalty of €1 million is not sufficient to scare violators, as the revenue they generated was between SEK 173 million and SEK 3.5 billion.