Insights / 02-12-2020

The 5th Money Laundering Directive (5MLD) came into force in January 2020. Although it is not yet a year since the implementation of 5MLD, the countdown is now in motion to focus on the 6th Money Laundering Directive (6MLD). The 6MLD involves a widening of the scope of liability for money laundering offences, including introducing the offence of aiding and abetting money laundering and extending the liability from “natural persons” to “legal persons”. This means that corporate entities or firms may be held liable for committing an offence under the 6MLD. In addition, 22 “predicate offences” are introduced.

Transposition Deadline: December 2020

EU Member States are expected to have implemented the 6MLD into their national legal frameworks by the 3 December 2020. Unlike EU Regulations, Directives are not directly applicable without implementation at a national level. Therefore, it is important that impacted firms understand the exact requirements and legal nuances of each country in which they are conducting business.

It is worth noting that the United Kingdom has opted out of 6MLD as the Government considers  that the “domestic legislation is already largely compliant with the Directive’s measures, and in relation to the offences and sentences set out in the Directive, the UK already goes much further”[1]. However, Brexit cannot be used as an excuse from delaying any plan for implementation. The 6MLD requirements will have to be complied with by any UK business that wants to operate within the EU regardless. Firms should start preparing.

Implementation Deadline: June 2021

Firms must implement the 6MLD by the 3 June 2021. By this point, firms need to be confident that they are in compliance with the 6MLD which includes: carrying out a business risk assessment; updating relevant processes, policies or procedures; and rolling out any training and education to the business. It is important that effective training and education is in place due to the widened scope of liability and stricter penalties which firms may be subject to for non-compliance. For example, prison sentences for individuals found guilty of money laundering crimes will increase from one to four years.

The key provisions of 6MLD are set out below:

A harmonised definition of money laundering offences

The 6MLD provides a harmonised definition of what constitutes a “money laundering offence”. It specifies the types of conduct that will, when committed intentionally, be punishable as a criminal offence. The types of conduct are as follows:

• converting or transferring of property (assets of any kind) which is derived from criminal activity, for the purpose to hide or disguise its illicit origin or to assist anybody involved to evade the legal consequences of their actions;
• concealing or disguising the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that it came from criminal activity;
• acquiring, possessing or using property knowing, at the time it is received, that it had come from criminal activity;
• aiding and abetting, inciting and attempting these offences. Basically, this means that helping a money launderer (an accomplice/enabler) in any way is also punishable as a criminal offence.  

A single definition of predicate offences

The 6MLD also defines a ‘criminal activity’ in Article 2[2] and has been narrowed down to 22 predicate offences. A predicate offence is a criminal activity that enables a more serious crime. For example, a predicate offence would be any crime that generates monetary proceeds. The larger crime would be money laundering or terrorist financing.

The 22 predicate offences are wide-reaching and include environmental crimes, tax crimes and cybercrime, as well as more traditional examples such as terrorism, the trafficking of narcotic drugs and humans, corruption and fraud. Please see the list of 22 predicate offences below:

• Participating in an organised crime group or racketeering

• Human trafficking and migrant smuggling

• Sexual exploitation

• Illicit trafficking in narcotics and psychotropic substances

• Illegal arms trafficking

• Trafficking in stolen goods

• Corruption

• Murder and grievous bodily harm (GBH)

• Fraud

• Counterfeiting currency

• Counterfeiting and piracy of products

• Environmental crime

• Kidnapping and hostage taking

• Robbery and theft

• Smuggling

• Tax crime relating to both direct and indirect taxes

• Extortion

• Forgery

• Piracy

• Insider trading and market manipulation

Increased Penalties for Natural Persons

‘Natural persons’ will now face up to four years imprisonment for money laundering offences as the EU is requiring member states to increase the penalty of maximum of one year. This clearly demonstrates that the EU aims to take a stricter approach with individuals who are caught money laundering and want to deter individuals from carrying out these offences in the future.

Criminal Liability and Sanctions for 'Legal Persons'

It is not just the individual that can be punished. One of the significant changes in 6MLD is the extension of criminal liability to legal persons (e.g. a company or partnership). Organisations operating in the EU Member States will now be held criminally liable for failing to prevent the illegal activity conducted by a ‘directing mind’ within the company. Therefore, even if the criminal activity that generated illicit funds cannot be identified, an individual or legal person can be convicted.

Some of these sanctions and penalties contain criminal or non-criminal fines. These range from being disqualified from the practice of commercial activities (temporarily or permanently); going under judicial supervision; or, the temporary or permanent closure of the establishment which has been used for committing the offence.

Tougher punishments

The 6MLD ushers in a new, tougher enforcement regime in the EU. Apart from the increased imprisonment term for natural persons and the sanctions for legal persons, competent authorities will now be required to freeze or confiscate both the proceeds and instrumentalities used in the commission of money laundering offences in order to remove the financial incentives which drive perpetrators.

Cooperation of Member States

The 6MLD seeks to promote the EU’s commitment to enable more efficient and swifter cross-border cooperation Member States in the prosecution of firms/individuals who are conducting money laundering offences. For example, in Article 10(3), where a money laundering offence has occurred, within the jurisdiction of more than one Member State, the concerned Member States shall cooperate when deciding which will prosecute the individual/firm, with the aim of centralising proceedings in a single Member State.

6MLD also provides factors to consider when determining this, including where the offence was committed; the nationality or residency of the offender; the country of origin of the victim(s); and, the territory of where the offender was found.

Next Steps

The 6MLD’s focus is on accountability and enforcement. This alone should motivate compliance officers, MLROs and executives to review their AML programme including policies, procedures, risk assessment, monitoring, training and make any needed improvements.

Companies will need to pivot and view compliance as something that can enable rather than hinder business practices as 6MLD can empower companies to create more effective AML programmes that help the innocent victims of money laundering crimes. If 6MLD does anything, it creates the urgency for companies to implement a fool-proof AML programme. 

The broad spectrum of money laundering predicate offences means having to develop more flexible approaches to compliance. This can be achieved by employing AML/financial crime expertise together with utilising technology solutions to reduce the risk exposure to the growing threat of money laundering.

[1] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/684374/eighth-annual-report-to-parliament-eu-justice-home-affairs-matters.PDF

[2] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2018.284.01.0022.01.ENG