Anti-money laundering directive: Highlights and strategies

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Luca Primerano
Head of Strategy
Fortytwo Data
Columnist
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No compliance professional, accountant or otherwise, could have escaped the fanfare that accompanied the arrival of the Fourth EU Anti-Money Laundering Directive (4AMLD) last week.

In a world where regulators are always fighting to keep pace with technology, all eyes were on what impact it is likely to have in the fight against organised crime.

No surprise then that during its passage onto the statute books, the 4AMLD directive was subject to amendments which became known, confusingly, as the 5AMLD.

So what are the highlights?

Grabbing the headlines were changes and extensions to the current regulations, including rules that will mean anyone who owns more than 25% of a company will have to be identified on a central register. The definition of a politically exposed person (PEP) has been widened to include domestic, not just foreign, politicians.

And the threshold for customer due diligence for those dealing goods in cash has been lowered to £8,750 (€10,000 down from €15,000).

Of special interest to us here is the now far-reaching onus on accountants, bankers and lawyers to do more to identify funds being laundered for terrorism and serious criminality. In reality, this means the painstaking analysis of billions of transactions, to zero in on those that contain red flags.

These days, the transactional ecosystems criminals and terrorists use to hide their funds are so complex and vast that manually they can be nearly impossible to identify. The flow of illicit funds is often hidden in plain sight.

Accountancy firms, banks, prepaid card operators, as well as digital currency processors and exchanges, will now need to embrace the digitalisation of traditionally cumbersome processes if they’re to weed out potentially threatening anomalies.

With terrorist attacks on the rise, any legislation that creates a more hostile environment for the funding behind them must be welcomed.

But the level of sophistication that today’s terrorist and criminal organisations use to launder their money is frightening, and while the new regulation is a step in the right direction strategically, operationally the average accountancy firm is light years behind the techniques being employed by terrorist networks.

One of the major difficulties is how to make sure you stay compliant in the face of these new rules. The answer lies in the fact that the criminal is not the only enemy of today’s AML professional.

He or she must first defeat the false positive - red flags raised over transactions and customers that turn out to be perfectly innocent. These are by-products of the sudden explosion of technology in this sector over the last decade which, while well-meaning, have provided as many problems as answers.

This is because these false positives are one of the biggest regulatory costs faced by financial institutions today.

Suspicious transactions can often only be identified through the analysis of billions of financial transactions and broader data sets in real time. This is beyond the limits of human intelligence, let alone conventional compliance, and can only be achieved through big data technologies that are enhanced by machine learning.

Today’s compliance professionals will have to be armed with big data and machine learning-powered tools that can identify transactional patterns a human would never spot.

They are the single biggest obstacle in the financial fight against terror. Defeat this enemy first and the second will inevitably fall too.

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04th Jul 2017 10:39

Extract above
'Of special interest to us here is the now far-reaching onus on accountants, bankers and lawyers to do more to identify funds being laundered for terrorism and serious criminality'.

Here we go, lets put Accountants, Bankers, and lawyers in the front line, did you know we all have to be policemen now (and have been for a while), un-paid policemen that is.

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04th Jul 2017 11:35

Yawn. Precisely HOW are we supposed to be policemen and have a day job? Ban computers please, they are making more work, not less work. Give a bureaucrat a computer and they'll invent a thousand unpaid jobs for us.

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By Ammie
04th Jul 2017 12:15

Just visit and inspect more often and leave us to catch a breath between the other endless list of compliance tasks.

Not many of us have the resources or inclination to dedicated departments and staff purely to fulfil civil service posts.

They cannot cope but we have to, or else!! Sounds familiar?

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By chatman
04th Jul 2017 12:19

We're not supposed to be able to comply. We are supposed to be always in default of some law or other in case the government ever wants to get us for anything.

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04th Jul 2017 23:45

For the vast majority of accountants the danger is not so much that a client has, or may have, a complex and vast transactional ecosystem - but something more mundane.

Beside the obvious tax evasion there is a risk that a client may be engaged in some other criminality for profit. That could be selling pirate DVDs or growing some cannabis plants for a bit of extra income. The risk to the accountant of a failure to report a suspicion of such things has been with us for more than a decade now.

What is new & of direct relevance to accountants is the new hierarchy of risk assessments (starting with HM Government for the UK, then professional body for the accountancy sector, then firm-wide for the firm's activities, then for the individual client) and the likely increased keenness of the supervisors to bear down on firms (if only to demonstrate to the new supervisory body of supervisory bodies that they are doing their stuff).

But there are some interesting tweaks - for estate agents for example (who are now obliged to regard the purchaser, as well as the seller, of the property as a customer requiring due diligence).
David

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to davidwinch
20th Jul 2017 09:49

I would have no easy way of working out whether a client is selling pirate dvds or cannabis and nor would my staff, unless the client was stupid enough to take non-cash payments and tell us what they were for or turn up in a Rolls Royce when he was earning £10k a year.

I would also hope that the authorities have more important things to worry about, unless it was on a large scale.

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to BryanS1958
12th Jul 2017 22:22

Selling pirate DVDs (not "private" ones) - described as dealing in an article that infringes copyright - or growing cannabis plants - unlawful production of a controlled drug - are both considered serious enough to rank as "criminal lifestyle" offences for confiscation purposes. The financial consequences can be significant (in terms of loss for the offender and income for the prosecuting body).
I routinely see these offences prosecuted.
David

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to davidwinch
20th Jul 2017 10:03

I wouldn't dispute that they are criminal offences, although at a low level I would hope the authorities have better things to do with their time than clog the system up with minor offences. However, the point is that it would be almost impossible for an accountant to spot such activities in their role as unpaid State policemen and and do their normal day to day paid work, for which they have less and less time available. I suppose we could all give up paid work and concentrate on AML!

The article also states that 'Accountancy firms....will now need to embrace the digitalisation .... to weed out potentially threatening anomalies.' In the vast majority of cases digitalisation lead to less engagement of brain and more box ticking, so I do not really think this route will help.

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to BryanS1958
20th Jul 2017 12:17

BryanS1958 wrote:

I wouldn't dispute that they are criminal offences, although at a low level I would hope the authorities have better things to do with their time than clog the system up with minor offences.


Do not overlook the prospect of revenue for police forces etc from prosecuting these offences (they get a share of monies recovered from confiscation proceedings) and the activity of bodies such as FACT UK & commercial companies in promoting prosecutions for copyright / trade mark offences.
The police / CPS typically regard cannabis production as a serious offence which they should prosecute (even where it is small scale).
David
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to davidwinch
27th Jul 2017 16:07

So the paid policemen get the revenue, the unpaid policemen have more and more ridiculous regulation from all directions to cope with and penalties if they do not do their unpaid job. Other workers are entitled to the minimum wage for their efforts, we are entitled to nothing. Seems fair.

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