Credit institutions, auditors, accountants, notaries, real-estate agents, letting agents, trust companies, gambling service providers and persons dealing in cash over €10,000 are all considered as subject persons in terms of Anti-Money Laundering and Counter-Terrorist financing law with various onerous compliance obligations imposed on them. The following paragraphs attempt to give a brief overview of the background to these compliance obligations.
The term Money Laundering is said to have originated in the United States, during the 1920’s gangsters era. The infamous bootlegging activity yielded large amounts of cash that required to be laundered, disguising their origin and warding off suspicion of the authorities. Crafty methods were devised by these gangsters that masked the true nature of the origin of the funds. Most notably, were the operation of businesses involving slot-machines and launderettes. However, it has been documented that activities of the same economic nature predate the early 20th century by more than 2000 years. According to American historian Sterling Seagrave, merchants in China and other Asian countries, used to hide their profits with the fear that rulers would claim their earnings. Many forms of commercial trading were banned, and merchants were considered as being rootless and greedy. These merchants became skilled in converting money into readily movable assets, in moving cash outside of their territory to invest it in business and traded at inflated prices to expatriate moneys. In essence, it could be observed that these techniques are still very much in use till this day.
The flow of illicit funds into the economy is considered as a serious threat to the integrity of credit and financial institutions, and undermines the confidence in the financial system as a whole. Although money laundering does not have an immediate individual as a victim, it nonetheless causes a widespread devastating effect on all the economy, hence the reason why it attracts penal retribution.
The crime of money laundering could be described in broad terms as being the process through which the financial earning of criminal activity is concealed and is integrated into the economy, appearing to be deriving from legitimate sources. This crime thus, presupposes the existence of a preceding criminal offence, which is also referred to as the predicate offence. It is important to point out that money laundering is a crime in itself and it does not require that a conviction for the predicate offence is found for it to subsist. Generally, although there exist various processes through which money is laundered, the traditional stages of money laundering are three. There is the Placement stage, which referrers to the introduction of illicit funds into the economy. Then various transactions and conversions are carried out by the launderer so as to distance the illicit funds from the source. This is known as the Layering stage. It is then followed by the Integration stage whereby the funds are integrated back into the economy through investments such as in immovable property, expensive goods or business ventures.
On the 26th June 2015, the fourth anti-money laundering directive entered into force replacing the third anti-money laundering directive. This directive followed the 2012 review carried out by the FATF to their 40 recommendations.
The first prominent change which this directive brings about is that it further extends its scope of application to include gambling service providers. The threshold of payments in cash which would lead a trader in goods to be considered as an obliged entity has also been reduced to €10,000 from €15,000. Moreover, in line with the revised recommendations of the FATF, the directive highlights that tax crimes are included as part of the list of predicate offences.
A new proposal which is provided for by this directive, and which has been met with a lot of criticism, concerns the creation of a central register containing information on the beneficial ownership of corporations. The EU legislator observes in the preamble that, ‘the need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminals who might otherwise hide their identity behind a corporate structure.’ Such information is to be made available to competent authorities, FIUs and obliged entities with a view to enhancing transparency in order to combat the misuse of legal entities.
On the 5th of July 2016, the Commission published a set of proposed amendments to the fourth anti-money laundering directive. These amendments came in the context of coordinated action with the G20 and the OECD in response to the latest financial scandals and the increased practices in tax evasion, which were prompted by the Paris terrorist attacks and the infamous Panama Papers scandal. Interestingly, this proposal came just after a year from the entry into force of the fourth directive and during the period allocated for its implementation.
One of the most controversial amendments which the proposal seeks to bring about concerns the access rights to the central register containing beneficial ownership information. The proposal envisages extending this right of access to the general public, without the need to demonstrate a legitimate interest. This intends to allow greater public scrutiny of information by society at large. Another amendment concerns the change in definition of ‘virtual currencies’. This change brings virtual currency platforms and wallet providers under the scope of the directive, including them as obliged entities. The threshold for identifying customers in remote payment transactions for anonymous prepaid cards is lowered to €50.
For further information on your compliance obligations with anti-money laundering and counter terrorist financing law, we invite you to get in touch with us.
 Kevin Sullivan, Anti-Money Laundering in a Nutshell: Awareness and Compliance for Financial Personnel and Business Managers (1st edn, Apress 2015) 1.
 Seagrave Sterling, Lords of the Rim (Putnam Publishing Group 1995) 12.
 Directive (EU) 2015/849 (n 59).
 ‘Subject Persons’ are referred to as ‘Obliged Entities’ under the fourth anti-money laundering directive.
 Directive (EU) 2015/849 (n 59) recital 14.
 COM(2016) 450 final, Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC .
The above is only for information purposes and should in no way be construed as legal advice. Each situation requires to be examined on its own merits. We at Calleja Legal can assist you with your compliance needs or represent you in criminal proceedings. As such we invite you to contact us with your query.
Various onerous obligations are imposed on subject persons. Speak to us for more information.