The EU’s 6th AML Directive – The Inclusion of Non-Financial Companies in the Regulation Preventing Money Laundering

Shortly after the 4^th AML Directive took final effect and prior to the 5^th AML Directive final compliance date (3 January 2020), the European Parliament passed Directive 2018/1673 – the 6^th AML Directive.  AMLD6 has a compliance date of 3 December 2020.

The Directive increased the number of predicate offense categories to twenty-two.  The newly named include illicit arms trafficking, illicit trafficking in stolen goods and other goods, counterfeiting and piracy of products, murder and grievous bodily injury, kidnapping and illegal restraint and hostage-taking, robbery, smuggling, tax crimes relating to both direct and indirect taxes, extortion, forgery, and piracy, environmental crime and cyber crime.  Each category may include numerous other related crimes.

The defined money laundering offences are three: (a) the conversion or transfer of property, knowing that such property is derived from criminal activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action; (b) the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is derived from criminal activity; and (c) the acquisition, possession or use of property, knowing at the time of receipt, that such property was derived from criminal activity.

A major impetus of the Directive is the assignment of criminal liability to legal entities AND the senior personnel of the legal entity, be they owners, managers, beneficial owners, defined as: (a) a power of representation of the legal person; (b) an authority to take decisions on behalf of the legal person; or (c) an authority to exercise control within the legal person.

In essence there are two sets of penalties and sanctions applied to legal persons, the penalties applied to the natural persons with criminal liability arising from the associated legal person’s activity and the sanctions applied to the legal person itself.  For the natural person, the penalties are defined as: 1) the necessary measures to ensure that the offences are punishable by effective, proportionate and dissuasive criminal penalties, 2) the necessary measures to ensure that the offences for certain acts are punishable by a maximum term of imprisonment of at least four years, and 3) the necessary measures to ensure that natural persons who have committed the offences of money laundering or aiding and abetting or inciting and attempting are, where necessary, subject to additional sanctions or measures.  The sanctions to be imposed on the legal person would include fines and: (a) exclusion from entitlement to public benefits or aid; (b) temporary or permanent exclusion from access to public funding, including tender procedures, grants and concessions; (c) temporary or permanent disqualification from the practice of commercial activities; (d) placing under judicial supervision; (e) a judicial winding-up order; (f) temporary or permanent closure of establishments which have been used for committing the offence.

Another major impetus of the Directive was to create a pan-European legal environment that eliminated disparities in national laws that could be exploited by bad actors.  The glaring example of these disparities in the “Spanish Bullfighter” effect.  In that case, if a Spanish national who is a professional bullfighter were to purchase a home in England, he would technically be guilty in England of money laundering, since his purchase would be with illegal funds; the anomaly is created by the fact that bullfighting is legal in Spain, but illegal in the UK.  Hence from the home country perspective of the bullfighter, the funds are legally obtained, but in the UK, the same funds are from criminal activity.

This points to another anomaly.  If a Belgian national commits an act of money laundering in Italy, who gets to prosecute? Italy, because that was where the crime took place, or Belgium since the perpetrator is a Belgian national?  The answer to that question is not particularly clear.  It is this situation that AMLD6 also attempts to clarify.

A derivative to the concept just noted is the idea of an “habitual resident.” If a person has principal residency in one country, but owns a summer home in the resort area of another country and commits a crime there, which Member State has jurisdiction? What if the person is in another Member State on business from his employer? And on and on and on …

In reference to the above situations, the pre-amble to AMLD6 states that national differences in the definition, scope and sanctioning of money laundering offences, results in co-operation between national police forces being substandard creates an enforcement gap. It is also suggested that criminals exploit these legislative discrepancies to launder criminal proceeds.

If one were to categorize AMLD6, the category would be “harmonization.”  The Directive seeks to harmonize the definitions of criminal offences, minimum penalties, sanctions, and geographic scope.  With all of that Brexit looms as a de-harmonizing condition.

The harmonization concept also applies to virtual currencies, another of the global gray areas.  In addition to making cybercrime a predicate offense for money laundering, the directive seems to create uniform standards among the member states and setting rules for determining which Member State has jurisdiction when cybercrime falls within more than one Member State.

The directive also includes provisions for “self-laundering.” In some Member States, criminals who transfer or control funds arising from their own criminal activity are not committing a predicate offense. AMLD6 seeks to set this self-laundering as a predicate offense.

For a better understanding from this side of the Pond, we have only to look at the questions and issues surrounding marijuana-related business.  Under federal law, production, sales and distribution of marijuana is still illegal. But any number states have made it legal, but maybe not totally, distinguishing between medical and recreational products.  All of which leaves financial institutions in a perplexing middle.  One can only wonder what it is like for financial institutions in Europe!

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