Money laundering – an endless story

Published on 29 Jul, 2018

The approach introduced by the 3rd Directive of 2005 was to better identify the different cases, understand the circumstances and mitigate the risks of money laundering and terrorist financing. Although the aim seemed clear, the transposition of these provisions by Member States was problematic, although they sometimes gave divergent national interpretations. In the past, these disparities have made it difficult to exchange and monitor procedures at supranational level, although this is necessary, while money laundering is also organised at international level.

Adopted on 20 May 2015, Directive (EU) 2015/849, known as the 4th Anti-Money Laundering Directive, continues towards a risk-based approach and provides for stricter rules on money laundering in order to further combat tax evasion and terrorist financing. In doing so, it takes into account the recommendations made by the FATF (International Financial Action Task Force) in 2012.

At the express request of the European Parliament, it provides in particular that the final “effective” properties of companies and other legal entities must be recorded in a central register managed at national level by each Member State. This register will be accessible to the authorities and their financial intelligence services to all those who have a “legitimate interest” such as investigative journalists.

The text of the Directive also clarifies the provisions concerning “politically exposed” persons where, because of their political mandate, there is a higher risk of corruption than usual.

The Directive provided for a period of 2 years for its transposition. In the light of the attacks of 13 November 2015 in Paris and 22 March 2016 in Brussels, the European Commission, in its action plan against terrorist financing, called on the Member States to bring forward the date of effective transposition of the Directive to the end of 2016.

On 26 April 2017, the Ministry of Finance introduced Bill 7128 to transpose the provisions of the 4th Directive (EU) 2015/849. An in-depth analysis of this text will appear in a future edition.
Crafts and money laundering

But when we say “terrorist financing”, how is the craft sector affected?

There are precisely two situations where a professional is concerned by the fight against money laundering:

  • The acceptance of cash provided for in the 2004 law which provides that “Other natural or legal persons trading in goods, only to the extent that payments are made in cash for an amount of at least 15,000 euros, whether the transaction is carried out in a single transaction or in the form of split transactions that appear linked”.

The new draft law tabled provides for a reduction of this ceiling to 10,000 Euro, which will undoubtedly increase the transactions targeted and thus the obligations of professionals with regard to its vigilance.

  • The loan proposal

This includes transactions, made on a commercial basis and in the name or on behalf of their customers, in consumer credit, mortgage credit, factoring with or without recourse, and the financing of commercial transactions

This results in the following 6 professional obligations:

1.  The obligation of identification

The obligation to verify the identity of customers (the “know your customers”) must be done before establishing a business relationship or executing the transaction. It includes the obligation to identify the customer and the beneficial owner.

2.  The obligation to keep data

This period is at least 5 years after the end of the business relationship, without prejudice to longer retention periods prescribed by other laws.

3.  The obligation of vigilance

The professional must obtain information on the purpose and intended nature of the transaction and business relationship. He must do everything possible to know the origin of the goods and assets involved in the transaction. In case of doubt, the trader shall take all appropriate measures to remove the doubt, otherwise he shall refrain from executing the transaction.

There are 4 situations where the professional must be particularly vigilant:

  • at the beginning of the business relationship: from the first contact.
  • when concluding, on an occasional basis, a transaction for an amount of at least 15,000 euros, whether the transaction is carried out in a single transaction or in several transactions between which a link seems to exist.
  • where there is a suspicion of money laundering or terrorist financing, regardless of any applicable thresholds, exemptions or derogations.
  • when there are doubts about the veracity or relevance of data previously obtained for the purpose of identifying a customer.

 

However, the scope of vigilance may be adjusted according to the risk associated with the type of customer, business relationship, product or transaction concerned.

Thus, due diligence obligations can be simplified when there is a low risk of bleaching or reinforced if not.

This risk analysis of the company’s activity must be documented in writing.

For the execution of due diligence measures, the professional may use the services of a third party. However, it should be noted that the ultimate responsibility for the fulfilment of these obligations remains with professionals who use third parties.

4.  The obligation to have an adequate internal organisation

Professionals are required to put in place adequate and appropriate measures and procedures for customer due diligence, to raise awareness and train their relevant employees and to appoint a manager who ensures that the provisions are properly complied with.

5.  The obligation to cooperate with the authorities

Professionals, their managers and employees are required to cooperate fully with the Luxembourg authorities responsible for combating money laundering and terrorist financing.

Professional secrecy shall not apply to the financial intelligence unit.

6.  The obligation of secrecy towards the client

Finally, the law prohibits professionals from disclosing to the client concerned or to third parties that information is communicated or provided to the authorities.

As far as sanctions are concerned, the texts provide for a fine of 1,250 to 1,250,000 euros for those who have knowingly violated their professional obligations. The simple negligence of non-compliance with their money laundering obligations, or the obstacle to the exercise of the powers of the Registration and Domain Administration, could give rise to a fine of around 250 to 250,000 euros. This fine may be imposed by the Director of the Registration and Domain Administration or his delegate, hence the importance once again of showing open collaboration with the administration’s services.

In order to raise awareness among companies and advise them in their efforts, the Federation of Craftsmen in collaboration with the Registration Administration has developed a “Guide to legal obligations in the fight against money laundering” which can be consulted in the member section of our website.