Money Laundering Will Not Take You As Far As Prison

Money Laundering Will Not Take You As Far As Prison

  • 6th AMLD shortcomings will lead to regulation 
  • EC to table a legislative proposal next year
  • Despite harmonisation, member states’ approach will differ 

The deadline to implement the 6th Anti-Money Laundering Directive (6th AMLD) comes in two weeks. It may be the last time a directive is used to upgrade EU AML rules before the European Commission opts for regulation. 

Member states will not be identical in the actions that they take but minimum harmonisation across the EU is often the start of further legal developments, said Stefaan Loosveld, partner with Linklaters in Brussels. However, “the power of an EU directive should not be underestimated,” he pointed out.

“If it isn’t a success, and scandals persist, the EU may even consider going further through a regulation,” Loosveld suggested.

“The aim is to work towards tabling a legislative proposal in the course of 2021,” a spokesperson for the European Commission told VIXIO, referencing the AML action plan that the commission outlined in May 2020.

However, they could not confirm whether they intend to pursue regulation.

“The action plan speaks about more harmonisation because of the different ways that the member states currently implement the directives,” they added.

“The EU needs to be equally determined in ensuring that they do not benefit from the proceeds of these crimes,” the spokesperson explained, acknowledging that money laundering is a difficult crime to detect.

The 6th AMLD came into force in December 2018 and member states, with the exception of the UK and Ireland, have until December 2 this year to implement its provisions. The directive introduces a means of quicker cooperation and coordination between member states, harmonised definitions for criminal activity, including the addition of cybercrime, and extends the scope of criminality to include “legal persons”.

However, it remains unlikely that this will result in a rise in the number of criminal convictions, or custodial sentences, despite the directive calling for of a maximum term of imprisonment of at least four years,

“AML offences generally do not result in custodial sentences. Instead, there is a focus on deterrence,” pointed out Ian Hargreaves, a partner at Covington & Burling in London. The Financial Conduct Authority, for example, has failed to bring any criminal prosecutions under the 2017 AML regulations, although investigations are ongoing.

A similar picture is painted throughout Europe.

“The courts have sentenced imprisonments ranging from one year to four years and ten months. Generally, the imprisonments are probationary,” Markko Künnapu, a legal advisor to the Estonian Ministry of Justice, told VIXIO, referring to 2019 court decisions in the country.

This can become a common practice that a person who does not have a previous criminal record is sentenced to only probationary imprisonment when trialled for the first time, he said. “However, this always depends on the circumstances and gravity of the offence.”

What is significant is an increase in awareness, and with that, more suspicious transactions being reported. For example, in 2014, Germany’s financial intelligence unit (FIU) received a total of 24,054 suspicious transaction reports. By 2018, it was 77,000, which then increased significantly to 114,914 in 2019, commented Ann-Kristin Cahnbley, a Dusseldorf-based partner at Dentons.

“What we see on the other hand are about a thousand convictions for money laundering per year, which is very low considering the reports,” she said.

“One of the reasons for this is that money laundering is very difficult to prove, in particular, that the asset comes from a certain predicate offence,” she reasoned, pointing out that the majority of the convictions are fines and not imprisonment.

The four-year maximum sentence demonstrates that the EU is looking to ramp up the deterrent effect and the consequences of getting it wrong, argued Hargreaves.

“Money laundering occurs due to the sophistication of criminals, failings in systems and controls, and basic human error,” he continued.

Considering the volume and, at times, the complexity of transactions, it is a horrendous task being a money laundering reporting officer, he said.

“Mistakes can easily be made. Criminals are very good at using the financial markets to affect and launder the proceeds of crime no matter how much money and investment is thrown at trying to prevent it,” Hargreaves explained.

Suspicious transaction reports are not processed in good time by authorities due to a lack of staff, as happened with the Wirecard scandal, said Cahnbley, who added that transparency registers have serious gaps and the exchange with other transparency registers in Europe remains difficult.

On the other hand, preventive measures from the previous directives are not undertaken effectively by all companies so not all can carry out know your customer (KYC) checks and they do not report all cases or they report cases which actually should not have been reported. This results in unnecessary work, Cahnbley further explained.

“Authorities are increasingly being reinforced with more staff, but even now, there is not enough to be as effective as strived for,” she said.

There will not be the same conviction rates due to this directive, across the member states, Cahnbley added. “Even if the member states have harmonised criminal law regulations, they will certainly continue to be differently committed,” she said, adding that there will also be differing success in combating money laundering — be it in prosecuting or in exhausting the range of penalties.

For example, not all member states are financially able to staff their authorities in a way that would be necessary to effectively combat money laundering, she pointed out.

“It is not just necessary to harmonise the offence but also to really ensure that all the preventive measures prescribed in the previous directives are taken effectively,” Cahnbley said.

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