Mon, Jul 3, 2017

Anti-Money Laundering (AML) Global Regulatory Developments

Duff & Phelps' Compliance and Regulatory team summarize global AML developments.


In the UK, AML continues to be high on the FCA’s agenda. On 26 June 2017, new Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 came into force, which transposed the 4th Money Laundering Directive (“MLD4”) into UK law. The overall objective is to ensure that the UK’s AML and counter terrorist financing regime is timely, effective and proportionate. Firms now face even greater challenges ensuring they meet tougher regulatory requirements. Notable changes include: the requirement to register all trust and company services providers with HMRC who are not registered with the FCA; new fit and proper test to agents of Money Services Bureaus will also be carried out by HMRC and; new regulations emphasizing that PEPs must be assessed on a case by case basis.

Following release of the Panama papers and terrorist attacks in Europe, governments have been discussing amendments to the MLD4 which is referred in the market as 5th EU Money Laundering Directive (“MLD5”). It is anticipated that MLD5 will come into force three days after publication in the Official Journal of the European Union and member states would need to transpose into national law within six months; it is anticipated that amendments will be published in Q3 2017. The MLD5 will introduce key new requirements namely; extending the scope of the directive to virtual currencies, anonymous prepaid cards and other digital currencies; requirement to identify prepaid card customers where remote transactions exceed 50 Euros; enhanced powers of FIUs to request information from firms and; requirement to apply specific EDD measures for transactions involving entities on the list of “high-risk” third countries.

In its Business Plan 2016/2017, the FCA stated that it was in the process of implementing a Financial Crime Return (REP-CRIM), which will enable the FCA to focus its supervision on the right firms. This is now in place and reporting obligations took effect from 31 December 2016, requiring affected firms to submit a REP-CRIM within 60 business days of accounting year end. All firms subject to the Money Laundering Regulations 2007 will be required to submit, except for P2P platform operators, credit unions, authorized professional firms, firms with limited permissions and other firms with reported total revenue of less than £5 million.

In April 2017, the UK Government announced that the Criminal Finances Bill received Royal Assent, becoming an Act. The Act is a key element of the UK Government’s Action Plan for AML and CTF and will introduce significant changes to the current legislation, namely: SARs moratorium period will be extended to 7 months and will increase in the information sharing within the private sector; enhance asset and account freezing powers and; will make lack of procedures to prevent facilitation of tax evasion a criminal office.

FATF is scheduled to perform a mutual evaluation of the UK in 2017/2018. In preparation for this event, HM Treasury published its first UK National Risk Assessment (NRA) of money laundering and terrorist financing risks faced by the UK in October 2015. The government is currently in the process of producing an Action Plan to address risks identified. In April 2016, HM Treasury issued a consultation paper examining options to improve the supervisory regime and address inconsistencies identified in the NRA, hence changes to the current regime should be anticipated.


AML, sanctions imposed by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), and the Foreign Corrupt Practices Act (“FCPA”) remain at the forefront of U.S. regulatory and enforcement priorities. Although the new administration initially engendered some uncertainty regarding enforcement focus, it now appears that attention to these areas will continue. Moreover, financial institutions that operate in New York face growing scrutiny from the New York Department of Financial Services (“DFS”). 

At the state level, in New York, the DFS has maintained a strong stance on the regulatory and enforcement fronts, finalizing regulation requiring extensive transaction monitoring and sanctions screening programs as well as annual senior-level compliance certifications regarding the adequacy and effectiveness of such programs.

DFS took several significant consent orders against non-U.S. banks and their New York branches.  In three of these, penalties of $180 million or higher were based on findings of general program deficiencies, rather than specific transactions in violation. Notably a fourth action cited AML deficiencies at a non-U.S. branch, with little mention of activity in the New York offices.  FCPA enforcement continues to make headlines, with convictions of companies and individuals accompanied by large fines.

While certain sanctions programs were eased towards the end of the Obama Administration (including sanctions on Iran, Cuba, Burma and Sudan), cyber sanctions were imposed for the first time against Russian targets alleged to have interfered with U.S. election processes. Also of note is a $1.9 billion settlement by OFAC, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), and the Department of Justice on an overseas corporation for sanctions and export control violations.  It appears that sanctions actions against corporations are on the rise.

There are many lessons to be learned, including that financial institutions must continue to emphasize the importance of a strong compliance culture.  Moreover, they must institute rigorous procedures for due diligence regarding companies and individuals with whom they do business, and for identifying anomalous transactions. The age of strong enforcement in the international financial crime arena is not over. 

Hong Kong

Hong Kong’s Financial Action Task Force (FATF) is preparing for its fourth round of mutual assessment, expected to be conducted in 2018. Since the last FATF review, Hong Kong financial regulators have placed an increased focus on AML and CTF, continually developing and enhancing the framework in place. Increased resources have been introduced to ensure effective supervision and that procedures are implemented across all financial institutions (“FIs”) within the city to prevent financial crime. The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) continue to engage international standards of AML and CFT procedures. Compliance will continue to be a priority in 2017.

In February 2016, the HKMA gave notice to all FIs to ensure they were aware of the revised “General guide to account opening”, an annex the Basel paper on “Sound management of risks related to money laundering and financing of terrorism”. There are expectations to consider the revised guide and FIs will again need to review and enhance their existing AML/CFT controls.
Throughout 2016, the SFC conducted in-depth reviews of internal AML/CFT policies and procedures through thematic inspections in more than 290 firms. More than 200 incidents of non-compliance were identified regarding relevant provisions of the AML Guidelines, the Code of Conduct and/or the Internal Control Guidelines. In January 2017, the SFC highlighted the importance of appropriate AML/CFT systems that regulated entities should have in place to mitigate risks and shared key inspection findings through case examples of deficiencies or inadequacies.

The SFC and the HKMA have recently taken disciplinary actions against various regulated entities which they considered to have failures relating to, and deficiencies in, their internal control frameworks. Examples include where licensed corporations failed to conduct appropriate enquiries, or keep proper documentation, prior to processing third party transactions, establishing or continuing business relationships.

The SFC also set up a temporary specialized team within its Enforcement Division to address know-your-client and AML/CFT control failings, implying that the SFC and the HKMA are undoubtedly prepared to impose tough sanctions on failure to comply with related regulations.

In May 2016, the Hong Kong Institute of Chartered Secretaries (HKICS) issued a ‘Guideline’ to set standards converging to those for FIs which all corporate service providers (CSPs) may adopt in their AML/CFT fight. HKICS has also established a 3-member HKICS AML/CFT Charter Advisory Board to provide advice on the standards and accreditation process for CSPs and recommendations in dealing with disciplinary matters for accredited HKICS AML/CFT organizations and their responsible persons.
In April 2017, the Financial Service and the Treasury Bureau (FTSB) published conclusions of consultation papers to enhance transparency of beneficial ownership of Hong Kong companies and AML regulation of Designated Non-Financial Business and Professions (DNFBP) to address gaps identified in the AML/CTF regime.


In 2012, the FATF made new recommendations on improved transparency requirements, the need for a risk-based AML and CFT approach and including tax crimes as money laundering predicate offences. In 2014 the government of Singapore assessed the level of AML and CTF risk in fourteen financial sub-sectors, eight non-financial sectors in Singapore and asked the private sector to consider these risk assessments in their own assessment of their enterprise-wide AML/CTF risks. In April 2015, Singapore’s financial regulator, the Monetary Authority of Singapore (MAS) revised the AML/KYC standards for FIs, which included: a more comprehensive enterprise-wide AML/CTF risk assessment to complement risk assessment of individual customers; clearer measures to identify and verify beneficial ownership of companies, LLPs and trusts and; additional requirements for cross-border wire transfers exceeding S$1,500.

In 2015 Singapore underwent its 4th mutual FATF evaluation. This validated Singapore’s areas of strength in combating AML/CTF and identified areas where there is scope to strengthen the regime further. Following the FATF’s recommendations, Singapore authorities in September 2016 pledged to follow-up in various areas including:

  • Enhancing the accessibility of information on beneficial ownership of legal persons and arrangements to law enforcement agencies and supervisors;

  • Strengthening FIs’ risk understanding and control;

  • Pursuing more cases of complex transnational ML offenses; and

  • More proactively targeting and pursuing confiscations of criminal proceeds.

The scandal surrounding the state development fund 1MDB, which is the subject of money-laundering investigations in at least six countries, has seen MAS revoke the regulatory permissions of two banks given their serious breaches of AML requirements and poor management oversight, and gross misconduct by some of the bank’s staff. As of April 2017, the MAS also imposed financial penalties amounting to US $10 million on 4 other banks for breaches of MAS’ AML requirements and prohibited 3 individuals from performing regulated activities under the Securities & Futures Act in Singapore for 15 years up to lifetime bans.

The MAS established 2 new departments in August 2016: the AML Department to consolidate and enhance its AML/CFT supervisory resources and; the Enforcement Department to consolidate resources and expertise within MAS devoted to the investigation of breaches in the rules and regulations administered by MAS.

Channel Islands

Both Jersey and Guernsey have robust AML/CFT legislation and regulations in place, issued by the respective regulators. In 2014 and 2015, Guernsey and Jersey were assessed by MONEYVAL (a body for the Council of Europe) in respect of the Islands’ compliance with international AML/CTF standards set by the FATF. MONEYVAL’s reports have been published with comparatively favorable results relative to European peer countries and also other offshore financial centers.

Both the Jersey Financial Services Commission (“JFSC”) and the Guernsey Financial Services Commission (“GFSC”) are likely to maintain their focus on AML/CFT arrangements, the effectiveness of MLROs, SAR handling practices, the quality of policies and procedures and governance of these aspects, particularly considering global pressures on offshore financial centers and even more so following the “Panama Papers”. The JFSC is working on enhancements to the AML/CFT Handbook and Money Laundering Order 2008 (Jersey) to reflect MONEYVAL's findings. The JFSC has also issued a consultation paper on proposals to provide additional guidance on the application of AML/CFT requirements to funds and fund operators. The GFSC’s potential updates will likely focus on sanctions for breaches and this may translate into legal amendments to strengthen the penalty system, leading to more proactive prosecution of alleged cases of non-reporting of suspicious activity.


AML enforcement in Luxembourg has been and is still a key concern, emphasized by the Luxembourg Leaks and the Panama papers.

Luxembourg is still in the process of transposing the 4th European Union Anti-Money Laundering Directive to local law. In the meantime, most of the reinforcement of the AML framework has been performed via CSSF Regulations and Circulars, especially Regulation 12-02 on the risk based approach to be adopted with respect of AML controls and CSSF Circular 17/650 including the concept of tax offense as an instance of money laundering. Although this has not materialized within legislative framework, it is applicable to all entities regulated by the CSSF.

Even if the CSSF does not publicly disclose the disciplinary actions linked to weaknesses in the AML control framework, the outcome of several regulatory onsite inspections has revealed that AML risk and control framework are thoroughly tested. The regulator expects remediation plans to be put in place to remedy any deficiencies identified with regular follow-up on the actions undertaken.


The Department of Justice and Equality has recently published the General Scheme of the Criminal Justice (Money Laundering and Terrorist Financing) (Amendment) Bill.  This Bill transposes the MLD4 into Irish law and amends the existing Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (CJA).  It also implements the Financial Action Task Force recommendations.
The FATF regularly monitors the progress of its members in implementing their recommendations through the Mutual Evaluation process. This process consists of a peer review of each member, which provides a detailed description and analysis of their AML and CFT framework present in their legislative, regulatory and supervisory apparatus.  The findings of the examiners are then discussed at the next plenary and adopted in a Mutual Evaluation report (MER).  

AML remains a key focus of the Central Bank of Ireland (CBI) and there has been a notable increase in fines relating to AML breaches. The CBI has recently fined 4financial services firms € 5.823 million for breaches of the CJA.

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