Financial Crime Highlight – Money Laundering Directive and Predicate Offences

An Financial Crime Highlight by Complyport’s Financial Crime and Forensics Unit.

The European Union’s (EU) 6th Money Laundering Directive (AMLD6) came into effect almost a year ago for its member states. Part of the drive behind the directive was the harmonisation of various elements of member state legislation, such as the extension of criminal liability to include corporate entities, mandating a minimum sentence for money laundering, and the introduction of what the EU considers to be the 22 predicate offences to money laundering.

The UK elected not to adopt the 6th Directive not only because it is now outside of the EU, but it also believes existing laws such as the Proceeds of Crime Act 2002 (as amended), already surpasses the requirements of the AMLD6. For example, the AMLD6 requires a minimum sentence of up to 4 years for money laundering, compared to a penalty of up to 14 years in the UK.

Additionally, while the 6th Money Laundering Directive lists 22 predicate offences to money laundering, the UK follows an all-crimes approach – when any crime is committed, if it generates a profit for the perpetrator, that profit is automatically classified as proceeds of crime, and thus the underlying offence will be considered a predicate offence to money laundering.

6th Money Laundering Directive VS Proceeds of Crime Act 2002

But which way works best? The UK’s general “all crimes approach” rather like the “risk-based approach” to financial crime prevention, versus the defined list of 22 predicate offences, which is not unlike previous the regulatory regime of rulebooks and handbooks; prescribing the actions firms should take.

With one, firms have the ability to think for themselves, and the obligation to consider all criminal activity as a backdrop to their customer relationships, yet with the other, the firm can eliminate activities if they are not on the list… or can they? Whilst the temptation here is to say that the 22 predicate offences under the AMLD6 creates the risk of an automated tick box approach, it is questionable as to whether firms would be able to use the fact that money laundering occurred as a result of an offence not listed on the EU 22 as an adequate defence in court.

Firms need to be careful not to become reliant on the EU AMLD6 list of 22, and instead remember that the list is detailed within a directive, not a law or regulation. Therefore, it should be taken as guidance for what the EU expects its member states to implement, not the law by which each firm within each member state will be judged.

If harmonisation is to truly work, we must also examine how each of the EU 22 offences are identified, classified and criminalised. For example, the predicate offence of Fraud. The UK has a specific Fraud Act, with clear definitions of fraud, but if there are no parallel acts in each country, the lack of comparable definitions may lead to different classifications of fraud, and predicate offence indicators may not be triggered.

With this in mind, if every country treats predicate offences in a different way, can there truly be effective harmonisation?

Harmonisation or not, the MLRO still needs to discharge their legal and regulatory obligations effectively and manage the risk of their firm becoming a criminal target to facilitate criminal asset laundering, no matter from which underlying offence they originated.

All firms should ensure sufficient compliance programmes are in place to detect and prevent money laundering as part of their AML response. Being aware of the predicate offences, carrying out risk based due diligence and applying it in an intelligent manner are the first steps in combating the risk of money laundering and financing of terrorism.

How can Complyport help?

Our experienced Financial Crime and Forensics team led by Martin Schofield – one of the world’s leading specialist in the field, brings a wealth of experience to every project we are engaged in. Our highly experienced financial crime professionals and forensic experts, in subjects such as anti-money laundering, counter terrorist financing, anti-bribery and corruption and fraud and regularly help our clients navigate the complexities of the financial crime and money laundering environment.

  • Financial crime health checks and audits,
  • Implementation of financial crime, AML, CTF, ABC, Fraud and market abuse controls and frameworks,
  • Ongoing advice on financial crime, AML, CTF, market abuse and fraud prevention,
  • Authoring/reviewing financial crime policies,
  • Outsourced MLRO support
  • Outsourced KYC and CDD support,
  • Assistance in identifying Politically Exposed Persons (PEPs),
  • Assistance in navigating international sanctions,
  • Support with preventing market abuse and insider dealing,
  • Expert Witness in Financial Crime cases
  • Forensics and Investigations
  • Design and/or delivery of online or face to face financial crime training

If this article has raised any questions or you think your firm may require assistance, please contact either Martin Schofield via martin.schofield@complyport.co.uk or Jonathan Greenstein via jonathan.greenstein@complyport.com, and book in a free consultation.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.