Tick, tick, tick; June 26, 2017, is coming up fast. If you are in Europe and work in compliance, you know that is the full-implementation date for the Fourth Anti-Money Laundering Directive (AMLD 4). As with any compliance regulation, there are many factors to consider, so let’s take a look at some of the main considerations.

Enhanced Customer Due Diligence (CDD)

1. Customer due diligence (CDD) is a critical element of effectively managing your risks and protecting yourself against potential financial crimes and nefarious activities.

2. The practical issue is the cost and complexity of performing due diligence; in what cases do you need to do so, and to what extent? AMLD 4 puts an emphasis on a risk-based approach — the directive mentions risk 149 times — so tools, policies and procedures need to be in place for ongoing risk assessment.

This risk-based approach to CDD requires:

1. Written, documented policies that explicitly state what risk-assessments to run under various circumstances, or scenarios.
   1. What are risk factors accounted for and at what level?
   2. Consider different customers, transaction types, countries, amounts and all other risk factors appropriate for your institution.
2. Ensure the risk-assessments are run and document that in preparation for any potential audit.
3. Have compliance teams’ check and stress the procedures to safeguard against loopholes and oversights.
4. Establish and maintain sufficient training for all staff that involves any step of the CDD process.
5. With an effective risk-based approach to due diligence, the decision to undertake enhanced due diligence (EDD) or allow simplified due diligence (SDD) is clear.

REMEMBER a risk-based approach allows for customization to your institution’s circumstances, as long as it is defendable.

For the record, any transaction of over 10,000 Euros, or any gamble of over 2,000 Euros, requires CDD, just in case you were wondering about the specific numbers.

Beneficial Ownership

1. Who is your customer? If you want to do effective customer due to diligence, it is more than checking the name given to you. Are they just a front, a figurehead, for someone or entity behind the scenes? Are they connected, or doing business with other entities that you do not want any part of?

2. One of the main changes in AMLD 4 — mentioned 51 times — is the approach to beneficial ownership. You need to Know Your Customer (KYC), but you also need to Know Your Customers Customer (KYCC).

3. As the European Commission states in the Directive, “understanding the beneficial ownership of companies is at the heart of the risk mitigation of financial crime and prevention strategies for regulated firms.”

4. All corporations and other legal entities need to gather, and maintain accurate, beneficial ownership data and share that with their appropriate government agencies. One innovation, which is a radical departure from before, is the use of a central depository:

5. Having a central depository will allow parties to investigate beneficial ownership relationships across Europe. This central depository should make it easier to analyse business relationships and ensure that effective CDD is possible.

AMLD 5

The ink is not even dry on legislation the 4th AMLD and amendments are already being debated – The so-called 5th AML Directive has a starting framework and focuses on:

1. High-risk 3rd countries,
2. Virtual currencies,
3. Strengthening requirements for prepaid instruments,
4. Enhancing and aligning powers of FIUs (Financial Intelligence Units),