The final text of the Fourth Anti-Money Laundering Directive was agreed by the Council of Ministers and EU Parliamentary committee on 27 January 2015. It is anticipated that the full Parliament will adopt it into law within the next few months. Member States will then have two years to transpose the Directive into domestic legislation.
But for one unexpected amendment introduced into the draft Directive by the EU Parliament in 2014, the finance industry might have regarded its adoption with the limited interest afforded to many a fourth sequel.
In most respects the anti-money laundering measures that 4MLD will require EU Member States to implement will be entirely familiar to anyone involved in financial services locally.
It introduces the concept of a “risk-based” approach, an obligation on businesses to maintain comprehensive due diligence on their clients / customers, and make that available to competent government authorities and investigatory bodies. Jersey’s AML regime has of course mandated equivalent measures for a number of years.
However, the EU Parliament’s amendment called for the implementation of a pan-European central register of companies, trusts and similar legal arrangements detailing their beneficial ownership, which would be freely accessible to the public at large.
Concerns were voiced internationally as to the disproportionate effect on legitimate privacy and confidentiality of financial structures. The Council of Ministers itself did not favour public registers.
Inevitably, the Directive’s final text reflects a compromise reached by the EU’s Council, Commission and Parliament.
Each Member State will be obliged to create a central register of companies, other legal entities and trusts. However, only trusts that “generate tax consequences” need to be registered.
These registers will not be open to the public at large. They will be accessible to the Member State’s competent authorities and investigatory bodies, as well as “obliged entities” (e.g. banks) in the context of fulfilling client due diligence. Company (but not trusts) registers will also be accessible to persons that can demonstrate “a legitimate interest”, but in a manner consistent with data protection rules.
Who exactly can demonstrate a “legitimate interest” remains undefined. EU press releases suggest this would include investigative journalists and NGOs. In what circumstances a trust will “generate tax consequences” is also unclear. So, even now, some ambiguity remains with this controversial aspect of 4MLD.
Locally, the Chief Minister’s Department pointed out that Jersey is not bound to adopt 4MLD. However, it seems likely that both the UK and EU will place pressure on Jersey to conform. David Cameron’s open letter last year encouraging the Crown Dependencies to implement company registers of the type proposed by separate UK legislation is a case in point.
The stance taken by the Chief Minister’s Department is that Jersey’s existing AML regime already conforms to the spirit of 4MLD in any event. The JFSC maintains central register of company beneficial ownership, (though this may need to be supplemented by an ongoing duty on service providers to ensure information held by the JFSC on their client companies remains up to date). Local service providers are also obliged to maintain comprehensive records on persons connected to the trusts they administer.
So will it be business as usual for Jersey’s AML regime? That probably depends on those remaining ambiguities inherent to 4MLD. If the scope of persons who can demonstrate “a legitimate interest” is narrowly defined and balanced with data protection rights, and (as the Chief Minister’s Department assumes will be the case), the register of trusts need only include trusts which generate tax consequences domestic to the jurisdiction, then complying with 4MLD should have little material impact.
The nature and extent of the central registers contemplated by the Directive may well evolve further over time. 4MLD tasks the Commission with preparing a report on achieving interconnection of each Member State’s registers. So, ultimately, it appears that automatic pan-European access remains the EU’s longer-term goal.
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