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12° Nicosia,
09 December, 2019
 

Anti-Money Laundering and Terrorist Financing Preventing Framework: Legislation Gaps

K. Treppides & Co Ltd: Anti-Money Laundering and Terrorist Financing Preventing Framework: Legislation Gaps

Maria Sourmeli
Director
K. Treppides & Co Ltd

Money laundering and terrorist financing was always a major concern for the integrity of European Union's financial system and the security of its citizens. Over the last years, the EU has developed a solid regulatory framework for preventing money laundering and terrorist financing. However, these rules are not always able to capture the growing technological developments and potential gaps that can be exploited by criminals.

Terrorist attacks have brought to light emerging new trends, in particular regarding the way terrorist groups finance and conduct their operations.  Certain modern technology services are becoming increasingly popular as alternative financial system. In order to be align with evolving trends, further measures shall be taken to ensure the increased transparency of financial transactions, of corporate and other legal entities, as well as trusts and other legal arrangements having a similar structure, with a view to improving the existing preventing framework and to more effectively countering terrorist financing.

Furthermore, providers engaged in exchange services between virtual currencies and fiat currencies, as well as custodian wallet providers have currently no obligation to identify suspicious activity.  As the anonymity of virtual currencies allows their potential misuse for criminal purposes, it is essential for the scope of the preventing framework to be extended to include these categories of providers.

Business relationships or transactions involving high risk third countries, should be limited when significant weaknesses in the prevention regime of the third countries concerned are identified unless adequate additional mitigating measures are applied.  When dealing with such cases, financial institutions shall apply enhanced customer due diligence measures in order to manage and mitigate those risks.  Each member state therefore, determines at national level the type of enhanced due diligence measures to be taken. Those different approaches between member states, are not always harmonized and may not be able to effectively identify and mitigate potential threats.  

Information of prudential nature relating to financial institutions are also important for an effective supervision. In this respect, it is important for authorities supervising financial institutions to be able to exchange information, including confidential information and collaborate in order to better preform their supervisory tasks. At the same time, it is very important to respect privacy and protect personal data, when exchanging this information.

Member states are currently required to ensure that corporate and other legal entities incorporated within their territory obtain and hold adequate, accurate and current information on the beneficial ownership.  The need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminals who might otherwise be able to hide their identity behind corporate structures.  In this respect it is important that rules that apply to trusts and similar arrangements, with respect to access to information relating to their beneficial ownership to be comparable to the corresponding rules that apply to corporate and other legal entities and consistent across the EU.

Financial Intelligence Units play an important role in identifying the financial operations of terrorist networks, especially cross-border.  Due to lack of prescriptive international standards, they maintain significant differences as regards their functions, competences and powers. Furthermore, in the exercise of their tasks, they should have access to information and be able to freely exchange it, especially in cases involving the financing of terrorism.

Finally, the definition of criminal activities which constitute predicate offences for money laundering are not currently uniform in all member states, which makes difficult the investigation and punishment in the event that the offence falls under the jurisdiction of more than one member state.

In order to address these concerns, the European Parliament has adopted the 5th AML Directive on 30 May 2018, which needs to be transposed into a national law by member states by 10 January 2020.  On 23 October 2018, the 6th AML Directive was adopted, which shall be transposed into a national law by member states, by 3 December 2020.

K. Treppides & Co Ltd, the largest independent consulting firm in Cyprus, with established international presence and offices in London and Malta, it offers a full range of legal, tax, accounting, consulting and financial advisory services to international Investors that are operating within a wide range of industry sectors. The company possesses many years of experience and a team of experienced members of staff who remain on hand to assist individuals and businesses throughout the entire investment process, in and through Cyprus.

References:

  1. DIRECTIVE (EU) 2018/843 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 30 May 2018 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 Directives 2009/138/EC and 2013/36/EU
  2. DIRECTIVE (EU) 2018/1673 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 23 October 2018 on combating money laundering by criminal law

 

Contact Details:

msourmeli@treppides.com

www.treppides.com

Nicosia: Treppides Tower, Kafkasou 9, Aglantzia, CY 2112, Nicosia, Cyprus

Limassol: Kristellina Tower, 12 Arch.Makarios III Avenue, Mesa Geitonia, CY 4000 Limassol, Cyprus

London: 7 Milner Street, London SW3 2QA

Malta: Level 1, Somnium, Tower Road, Swatar, Birkirkara BKR 4012

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