Amended Money Laundering Act entered into force
Act implementing the amending directive to the Fourth EU Money Laundering Directive entered into force
Following intensive discussion of the government draft and the adoption of the amendments most recently proposed by the Federal Parliament’s Finance Committee, the Act implementing the amending directive to the Fourth EU Money Laundering Directive (Implementation Act) entered into force on 1 January 2020. The Fifth EU Money Laundering Amending Directive has now been transposed into national law.
The Implementation Act relates in particular to amendments to the Anti-Money Laundering Act (AMLA Amendment), but also to other laws, such as the Banking Act, the Payment Services Supervision Act and the Insurance Act.
- The law implementing the Fifth EU Money Laundering Directive came into force on 1 January 2020.
- The AMLA Amendment imposes important changes in the areas of obligated parties, customer care obligations, transparency register and other aspects, such as, among others, an obligation to register without exception.
- Privileged goods traders must continue to comply primarily with the reporting obligations of section 43 AMLA, whereby the requirements for privileged treatment will in future also extend to third parties involved.
- The transparency register will be in future open to the public.
In our blog article of 28 May 2019 we had already reported on the Implementation Act, at that time published still publishes as draft bill. The main changes relating to the AMLA Amendment can be summarized in the following topics:
In addition to extending the circle of obligated parties, including providers of electronic purses, exchange platforms for the exchange of virtual currencies for legal tender and vice versa, but also art warehouse owners who store art commercially in duty-free areas, the AMLA Amendment now provides a welcome clarification for holding companies: they are explicitly excluded from the definition of financial institutions in section 2 (24) AMLA and thus do not fall within the scope of the AMLA.
Goods traders continue to be obligated under the AMLA Amendment but may be privileged regarding risk management and customer due diligence requirements if they demonstrably exclude the payment or receipt of cash in an amount of at least EUR 10,000. What is new, however, is that cash payments made or received by third parties are also relevant in this context. In future, it will be necessary to specify which groups of persons ultimately are to be subsumed under the term “third parties”. It appears likely, that those groups of persons who are legally and factually under the control of goods traders (e.g. representatives or vicarious agents) should be classified as “third parties”.
While the government draft aimed to mandatorily require parent companies to group-widely implement risk management structures and internal control mechanisms irrespective of any privileged treatment, this extended requirement of section 4 AMLA has, due to the urging of the Finance Committee of the Federal Parliament, not become part of the Implementation Act. Provided that parent companies effectively exclude cash payments of EUR 10,000 or more, they must continue to comply primarily with the suspicion-related reporting obligations under section 43 AMLA.
Customer Due Diligence and Documentation Requirements
The AMLA Amendment provides for various changes in relation to customer due diligence requirements to be performed by obligated parties: Obligated parties who firstly identify their business partners during the establishment of a business relationship must accomplish the identification in future without delay. When establishing a new business relationship, for example with partnerships or certain other legal entities such as trusts, obligated parties will in future have to obtain either proof of registration or an extract from the transparency register.
Recording and retention requirements regarding measures taken to identify a business partner’s beneficial owner will not only be applied to the determination of the ownership and control structures of legal entities but will also be extended: any difficulties in verifying a (fictitious) beneficial owner must also be documented and retained. Generally, all records must be securely stored for at least five years. However, the AMLA Amendment has now introduced an absolute maximum period of ten years.
Furthermore, obligated parties must also take into account an extension of the enhanced due diligence requirements in section 15 (4) AMLA that have been introduced by the Implementation Act: The enhanced due diligence requirements no longer only apply to obligated parties if a business relationship is entered into with a natural or legal person resident or established in a high-risk third country, but already if a high-risk country or a natural or legal person resident therein is involved in the transaction or business relationship.
Despite the critical discussions that have been taking place since 2018, the transparency register will now be accessible to the public without proof of a legitimate interest. Beneficial owners can request information about the relevant requests filed to the transparency register, albeit in anonymized form. If discrepancies are found between the data stored in the transparency register and the data collected when identifying a business partner, or if straw man transactions are suspected, the obligated party must report this to the registry administrator. In future, a fine may be imposed on the obligated party if the reporting obligations are not complied with.
Other Important Changes
Politically Exposed Persons (“PEP”)-lists
In order to implement a standardized and harmonized definition of requirements qualifying individuals as PEPs all over the EU, a list of functions and offices justifying the PEP status was to be submitted to the EU Commission by January 10, 2020; Germany has submitted its list along with the enactment procedure of the Implementation Act. This list is still subject to consolidation by the EU Commission with the lists submitted by the other member states. The consolidated list will have to be taken into account by the obligated parties when checking the PEP status of business partners and beneficial owners, once it has been finally released.
In addition, all obligated parties must mandatorily register themselves at the Central Financial Transaction Investigation Unit (FIU). Previously, this registration requirement was only mandatory in case suspicious transactions were reported to the FIU. In particular, the registration requirements are intended to lower the inhibition threshold for reporting suspicious transaction to the FIU. The compulsory registration will apply as soon as the FIU information network, which is yet to be developed, is put into operation, but no later than 2024.
Outlook and Summary
In particular, the newly included groups of obligated parties, but also those that have been previously considered as obligated parties under the AMLA, should comprehensively examine their individual risk exposure related to money laundering and immediately initiate risk-adequate mitigation measures. Privileged good traders must expand their internal guidelines and processes with regard to possible cash payments by third parties. The examination of the extent to which the AMLA Amendment requires adaption and implementation should be preceded by a designated risk analysis. This risk analysis should also help goods traders to determine whether they can invoke priviliged treatment. We will be happy to assist you with this complex challenge.
We will, of course, follow further developments, particularly with regard to the publication of updated interpretation and application notes on the AMLA by the Federal Financial Supervisory Authority and inform you accordingly.