In his latest blog, our anti-money laundering and compliance expert looks at how AML regulation can differ, even amongst European countries
The EU’s current anti-money laundering legislation was introduced in 2005 with the so-called 3rd AML Directive, but there is still a lot of work to be done as it is not approached in the same way universally.
Not only intermediaries, but also professionals are impacted by the rules and they still have a lot difficulties in applying them, having often weak policies and procedures.
Many watchdogs also are still fighting with the application, and have used much of their specialist resource so far on AML work in the biggest banks – this, despite the fact money laundering risk does not necessarily correlate with the size of a firm, as openly admitted by the Financial Conduct Authority (FCA) in its AML yearly report 2013/2014.
Money laundering is the conversion of the proceeds of criminal activity into apparently clean funds, changing its form, or moving the funds to a place where they are less likely to attract attention, but sometime we see the paradox that even in Europe different local regulators treat specific situations differently.
The increasing attention given to laundering matters by different countries has thus far resulted in some bizarre situations. This happens typically because the attribution of the AML level or risk differs substantially country by country depending on different factors, such as the tax structure. So we may find the stunning situation where the same investor is considered low risk in one country and, due to local regulatory requirements, high risk for another.
Guernsey could be considered an example. It has introduced a quite strong local AML regulation, but not all European countries (Italy among them) consider it as applicable and equivalent. The consequences are that it is possible that a regulated investor (i.e. in UK), which decide to operate through an SPV established in Guernsey for investing in Italy is considered high risk and consequently subject to a deep Know Your Client process.
Unfortunately the different local approaches - which can often result in high bureaucratic duties - make it difficult to work in some countries; intermediaries facing these situations may not have the instruments to be fully compliant.
As a result, “Know Your Client” standards have developed globally, and this implies that a business will carry out due diligence on a client to verify that they are who they say they are and to prevent theft fraud, money laundering and terrorist financing.
In the face of these risks, it is essential that you adopt a long-term vision in order to proactively respond and achieve a real competitive advantage. Taking this strategic approach will ensure you are able to successfully manage your reputational risk, build healthier customer relationships and maximise your long-term business potential.
Read more about Know Your Client processes.