Money laundering rules keep on coming

The burden of money laundering rules, and their application to the legal profession, are proving to be the proverbial bad penny. 

The publication last week of the SRA’s annual risk assessment is just one of a range of current stories of interest.

For instance, there is the upcoming implementation of the 5th EU Money Laundering Directive. Amusingly, the UK has to implement this by 10 January 2020, just 3 weeks before the next Brexit deadline.

The present government’s Political Declaration on our future relationship with the EU is identical in this respect to the Political Declaration drawn up by the previous government, namely that our future relationship should cover arrangements for anti-money laundering and counter terrorism financing. Moreover:

‘The Parties agree to support international efforts to prevent and fight against money laundering and terrorist financing, particularly through compliance with Financial Action Task Force (FATF) standards and associated cooperation. The Parties agree to go beyond the FATF standards with regard to beneficial ownership transparency and ending the anonymity associated with the use of virtual currencies’.

The government consulted on the implementation of the 5th Money Laundering Directive earlier this year, and the Law Society responded. The government’s website says that it will publish the outcome, but nothing has yet appeared.

The intriguing question is: with the deadlock and inertia in government and parliament, particularly in light of the general election, will we make the deadline for implementation? Will we implement the 5th directive at all? The general view is that the government is likely to implement it regardless of Brexit – indeed the government has itself said this - as the UK shares the EU’s objectives on the prevention of money laundering and terrorist financing.

As for what the directive does, here is a summary. It will:

• enhance transparency by setting up publicly available registers for companies, trusts and other legal arrangements;

• enhance the powers of EU Financial Intelligence Units, and provide them with access to broad information for the carrying out of their tasks;

• limit the anonymity related to virtual currencies and wallet providers, but also for pre-paid cards;

• broaden the criteria for the assessment of high-risk third countries and improve the safeguards for financial transactions to and from such countries; 

• set up central bank account registries or retrieval systems in all member states;

• improve the cooperation and exchange of information between anti-money laundering supervisors both among themselves and between them and prudential supervisors and the European Central Bank.

The Law Society says that, because the transposition of the 5th Directive will result in amendments to the Money Laundering Regulations, the position will affect those who carry out regulated work. Firms will in due course need to update their policies, controls and procedures to ensure they comply with the changes to the Money Laundering Regulations. Firms that act for trusts will need to familiarise themselves with the changes to the registration requirements, so that they are able to advise trustees.

Believe it or not, there is also a 6^th EU Money Laundering Directive. Its implementation date is 3 December 2020. Those who cannot wait to escape from the EU yoke can breathe a sigh of relief: given that it concerns combating money laundering by criminal law, the UK is not bound by it anyway. In any case the UK would not have to make many changes to its laws to comply.

So what else awaits us? There are certain plans afoot in the EU. The question of whether they will in due course apply to us depends on our departure date and, once we are gone, how closely we choose to adhere to EU standards (pretty closely on this issue, it seems so far).

Within the EU, the European Parliament is keen to change money laundering legislation from the framework of directives, which can lead to variations in implementation at national level, into a regulation, which will requires harmonised standards. This is on their list of eventual wishes, but is unlikely to affect us outside the EU.

There was also a recent supranational risk assessment of money laundering risks affecting the EU.

Lawyers and other non-financial professionals were highlighted as being at risk: ‘One study indicates that 20-30% of all proceeds from crime are laundered in the non-financial sector’. As usual, confidentiality and privilege are viewed through a hostile lens: ‘The remit of confidentiality, legal professional privilege and professional secrecy varies from one country to another, and the practical basis on which this protection can be overridden should be clarified.’ There are recommendations with which lawyers’ bodies are going to have to deal.

All in all, we should expect a good few more years of new laws and regulations and continuing close examination in this area, whether we are in or outside the EU.