Beneficial owners AND third-parties AND a Four Step Due Diligence ProcessThe European Commission has been working on updating its nine-year-old Third E.U. Anti-Money Laundering (AML) Directive to accommodate new international standards and to address previous shortcomings.

Earlier this year, the E.U. Parliament approved new draft legislation, bringing the Fourth AML Directive one step closer to implementation.

Though implementation is unlikely to take effect before 2015, employers doing business across the EU should start buttoning down their compliance programmes now—particularly around third-parties.

One of the major outputs of the Fourth AML Directive is that organisations across the E.U. are expected to

• know and document the “beneficial owner” of any third-party doing business on its behalf and, in some cases, its customers.

Beneficial owners refer to any single person that has 25 per cent or more ownership of an entity.

Organisations are expected to

• know who these owners are and take steps to mitigate risk posed by working with third-parties associated with persons on a PEP or sanctions list, or that otherwise elicit any corruption “red flags.”

This kind of due diligence is extended to customers in some industries, like banking, where customers can present an inherent risk of money laundering.

IN THIS REGARD a lot of organisations struggle to manage their third party risk however a standard four-step process to manage third-party due diligence will always help:

1. Identify/Prioritise: Identify your universe of third party relationships (don’t forget customers!) and prioritise by risk level.
2. Assess: Conduct due diligence on a risk-adjusted basis. Uncover and assess possible risks.
3. Mitigate: Take steps to mitigate risk that was uncovered.
4. Monitor: Continuous monitoring and periodic re-screening to identify new risk events to keep information current and ensure policy compliance is in force.