13 Jun 2019

Anti-Money Laundering Acts — 3 You Need To Know

Unfortunately, ignorance is not a valid excuse and non-compliance can have devastating consequences. That is why we are dedicated to providing valuable educational content to help you implement Compliance best practices.

KYC-Chain can help you automate the AML and KYC process, allowing you to concentrate on growing your business. We know a lot about compliance and come in contact with anti-money laundering acts on a daily basis.

We decided to turn our knowledge into this blog post to help others stay on top of the most important AML acts.

1. 5th AML Directive (5AMLD) — The European Union

The 5th AML Directive was announced in June 2018 and introduces a number of important changes for businesses servicing European clients. We covered it in a lot of detail in a previous post, but here is a brief summary of the most important changes:

  • Cryptocurrencies — 5AMLD introduces a legal definition for cryptocurrencies and classifies service providers as obliged entities. More specifically, platforms managing their customers’ private keys will have to conform to the same AML and CTF requirements as mainstream financial institutions. Read more here.
  • Politically Exposed Persons — PEPs will be treated as high-risk individuals whether they are located in the domestic jurisdiction or abroad. Until 5AMLD comes into effect, PEPs residing within the same national jurisdiction as the service provider can be treated with regular customer due diligence rather than enhanced due diligence.
  • Ultimate Beneficial Owner — Businesses will need to establish who is the natural person ultimately controlling and benefiting from the business relationship. If transparency cannot be achieved, the customer — whether retail or corporate — should be turned away.
  • Up to date information on UBOs — 5AMLD emphasises the importance of keeping up to date records of UBOs. Make sure to monitor your customers and ask them to inform you whenever the natural person behind the business relationship changes. In the case of corporate clients, it is vital that you understand who owns shares and check them accordingly.
  • Prepaid cards — In the European Union, individuals will have to pass KYC in order to top up prepaid cards with €150 or more. This is down from the current threshold which is €250.
  • Sweeping powers for the Financial Intelligence Unit — 5AMLD gives the FIU the power to obtain addresses and identities of cryptocurrency holders.

As you can see 5AMLD will introduce a number of important changes, reshaping the relationship you have with at least some of your clients. The legislation comes into effecton the 10th of January 2020, and subsequent amendments are already under way.

Read more.

2. The Patriot Act — USA

Effective since 2001, the Patriot Act was passed in response to the September 11 attacks. It made the fight against terrorism the centerpiece of international compliance legislation, and categorized money laundering as a crucial component of terrorist financing.

It introduced a number of important changes that still have a strong impact on how compliance is done today:

  • Enhanced Know Your Customer (KYC) procedures — The Patriot Act criminalized the financing of terrorism and compeled company’s to complete more rigorous identification procedures on customers. These now have to collect personally identifiable information including name, residence, email and an array of additional information.
  • Prohibited working with Shell banks — Shell banks process vast sums of money and often reside in jurisdictions with lax compliance requirements. As a result, The Patriot Act prohibited working with Shell banks to prevent their potential misuse by criminals.
  • Increased customer due diligence — Corporations are required to perform due diligence on customers, ensuring they do not pose a risk to the health of the global financial system. PEPs and residents from sanctioned countries are deemed “high-risk” and require enhanced monitoring.
  • Increased reporting duties — The Patriot Act introduced detailed reporting requirements designed to compel businesses to communicate suspicious customer behaviour. This measure improves the flow of communication throughout the financial industry, helping to identify fraudulent behaviour and financial crime sooner.
  • Ramped up the penalty for money laundering — The civil and criminal penalties for money laundering were significantly heightened, with individuals facing a maximum $250,000 and five years’ imprisonment for each violation.
  • Required AML compliance programs — All financial institutions are required to establish an AML compliance program which comprises a methodology for fighting money laundering. Typically this would also involve the designation of an AML compliance officer, internal controls, an employee training program and independent audits.

The Patriot Act is one of the most important Anti-Money Laundering Acts because it introduced new best practices for Compliance and impacted almost every area of business. Along with the Bank Secrecy Act it fundamentally shaped the way corporations deal with customers and fight money laundering on a day-to-day basis.

3. Prevention of Money Laundering & Countering The Financing Of Terrorism — Hong Kong

Hong Kong has introduced an array of powerful legislation to help fight the flow of illegally acquired money back into the financial system. As a result the jurisdiction has a strong international reputation and fights financial crime with an iron first.

The Anti-Money Laundering Act first passed in 2007 but revised up until 2014 laid the groundwork for Hong Kong’s legislative landscape. Here is what you need to know:

  • Enhanced due diligence — “Obliged entities” must carry out due diligence procedures to ascertain the identity of the prospective customer. Customer information must be kept up to date and changes in the person’s circumstances (change of address, name etc) must be recorded.
  • Collecting additional information when required — The Act compels financial institutions to double-check previously submitted information for its veracity. Should the information seem suspect, additional data needs to be collected and the customer relationship ended if required.
  • Customers need to be screened against sanction lists — It is not enough to simply identify customers. Instead AML sanctions screenings need to be performed with both new and existing customers to ensure that criminals and high-risk individuals are identified.
  • Regular customer account reviews — The MAS Act compels financial institutions to conduct regular reviews of customer accounts and reassess their risk profile. Suspicious activity must be reported to authorities and transactions amounts should be closely monitored.
  • Penalties of up to $1 Million — Non-compliance with AML and CTF measures is punishable with a fine of up to $1 million.

New Anti-Money Laundering Acts continuously change the Compliance requirements for businesses of all sizes. As you can see, this trend is international with regulatory bodies everywhere joining the fight to counter Money Laundering and Terrorism Financing.

The good news is that technology can help us adapt to the ever changing threat of financial crime. Sophisticated compliance solutions automate much of the screening and authentication process and provide a dashboard from which compliance staff can easily monitor customer behaviour.

Do you want to meet industry best practices while saving money and time? Then get in touch with the kyc-chain.com team to book a demo.

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