New anti-money laundering legislation – 6AMLD – is set to be implemented across the European Union (EU) by 2020, requiring regulated entities to make significant changes to the way they vet and monitor their customers. Jane Jee, CEO of Kompli-Global, explores how 6AMLD will impact businesses and explains how a new generation of advanced augmented intelligence technology is needed to help them remain compliant.
Money laundering scandals at banks have dominated the headlines in recent months along with the efforts of pan European bodies and financial market regulators to find ways to strengthen the EU’s defences against criminal exploitation of the financial systems.
On the 12th November 2018, shortly after the adoption of the 5th EU Anti-Money Laundering Directive (5AMLD), the European Parliament published updated rules to further strengthen the fight against money laundering through the 6th EU Money Laundering Directive (6AMLD).
Member States are required to transpose the 6AMLD into national law by the 3rd December 2020, after which, relevant regulations must be implemented by firms within Member States by the 3rd June 2021. The regulations will have implications for regulated entities across the EU, and for any UK businesses seeking to operate within the EU after Brexit, regardless of the nature of the UK’s post-Brexit relationship with the EU. Furthermore, the EU recognises the measures to combat money laundering “should therefore be compatible with, and at least as stringent as, other actions undertaken in international fora.”
But how does the new directive compare with the existing 5AMLD? What do regulated entities need to be aware of?
Designed to eliminate loopholes in domestic legislation across Europe, 6AMLD provides a harmonised definition of money laundering offences, featuring 22 predicate offences that now include cybercrime and environmental crime. This is a reflection of the changing nature of the threat landscape and shifting priorities within the EU.
In addition to this, 6AMLD will add “aiding and abetting”, “attempting and inciting” to the list of money laundering offences, extending criminal liability from those directly responsible for converting the proceeds of crime to “enablers” who act as accomplices in the laundering process.
6AMLD provides a harmonised definition of money laundering offences, featuring 22 predicate offences that now include cybercrime and environmental crime.
Moreover, legal persons and business leaders are liable for penalties, where they failed to prevent illegal activity conducted by a “directing mind” within the organisation. Even if the criminal activity responsible for the illegal funds can’t be identified, the legal person still faces liability.
On top of the new offences and extended liability, a key feature of the updated directive is the tightening of punishments for money laundering.
Under the new legislation, states within the EU will have to impose a minimum prison sentence of five years for money laundering offences rather than the current one year. Any sentence may be supplemented with “effective, proportionate and dissuasive sanctions” which can be combined with fines. This includes the full shut-down of a business.
The increased severity of penalties for organisations that – wittingly or not – facilitate financial crime has grave implications for regulated entities and for their owners. They will require them to further enhance the diligence with which they monitor their business operations and customer onboarding in order to identify potential criminal activity before it becomes an issue.
These new provisions will require regulated entities to take steps to significantly improve their AML monitoring processes – given the demands of new regulations, manual checks and the use of single sources of information will no longer suffice.
These new provisions will require regulated entities to take steps to significantly improve their AML monitoring processes
Preparing for 6AMLD
So how can regulated entities achieve this deeper due diligence, and prepare for compliance with future regulations?
Already concerned about the demands of the current 5AMLD, it would be no surprise if businesses are daunted by the challenge of compliance with the future 6AMLD. However, provided organisations are willing to incorporate more specialised Regulatory Technology (RegTech) solutions in their AML processes, they can avoid penalties and protect their reputation.
Such real-time technology can support regulated entities in preparing for the arrival of 6AMLD by enabling them to automate their on-boarding and monitoring procedures while leveraging the essential human judgement which is involved in determining customer risk.
In particular, RegTech that features advanced “augmented intelligence” solutions, combined with machine learning (ML) and natural language processing (NLP) can significantly ease the legislative burden for businesses. These solutions can take on the heavy lifting in searching global databases for information on customers which is credible, reliable and up to date, as required by the legislation.
Kompli-Global’s kompli-IQ and Kompli-IQ plus, for example, are augmented intelligence solutions designed to replicate the activities of the very best due diligence analyst. These systems use hundreds of search terms in multiple languages to perform real-time searches of the surface and deep web, as well as other key global databases for information to onboard new and monitor existing customers.
Carrying out a number of checks simultaneously and searching 24 hours a day, seven days a week, such RegTech can flag any adverse media to human compliance managers the instant it appears, without delay. Enhancing – rather than replacing – the work of human analysts, this technology provides vital information to enable effective risk judgements by compliance staff.
In doing so, it can help regulated firms to identify customers and beneficial owners, uncovering any links they may have to suspect businesses, “bad actors” and high-risk third countries. By freeing up human compliance managers to make effective informed judgements about the risk, such solutions help regulated entities to meet their new due diligence obligations effectively, efficiently and reliably.
More legislation to come
In July this year, the Commission published a report on the assessment of alleged money laundering cases affecting EU banks 2012 – 2018, without disclosing their names. The analysis showed substantial examples of failures by regulated entities to comply with basic requirements of the Anti-Money Laundering Directives.
It is becoming harder for human compliance managers to carry out comprehensive KYC checks on their own
A further passage mentioned that “in a few instances, deficiencies were so severe that they ultimately led to the failure or closure of the credit institution or specific business.” This begs the question, how many failures will occur before a regulator closes a major bank? The report concluded that there is “regulatory and supervisory fragmentation in the anti-money laundering/countering the financing of terrorism” and identified the need for further pan European harmonisation of AML regimes.
Time to act
6AMLD will pose challenges for businesses as they look to ensure they continue to comply with changing regulations. The globalisation of the financial system and the expansion of the global communications network means that the amount of information available on individuals and businesses is growing exponentially. It is becoming harder for human compliance managers to carry out comprehensive KYC checks on their own, and even more of a challenge for them to take account of any delays in updating the information available on databases and watchlists.
However, the development of RegTech with advanced augmented intelligence offers an ideal solution for regulated entities keen to safeguard their business from being targeted by money launderers and other criminals. Harnessing this technology, businesses can access and monitor all new information as and when it arrives. In doing so, they can close gaps in their defences for criminals to exploit, ensuring they are prepared to comply with the rigorous demands of 6AMLD.