Directive (EU) 2018/1673 (6AMLD) has maintained a lower profile than its more widely-covered counterpart, 5AMLD. In part, this is because 5AMLD imposes a host of new compliance obligations on firms whereas 6AMLD focuses on the definition of crimes and their sanctions. 5AMLD is also just around the corner (Jan 10, 2020) whereas 6AMLD is still over a year away (Dec 3, 2020). Nevertheless, 6AMLD is an important and impactful development and is the subject of this second article on the new EU AML/CFT regime.
The current anti-money laundering (AML) criminal framework within the EU can best be described as a patchwork of regimes that left exploitable gaps that permit regulatory arbitrage by offenders who can forum-shop for more lenient legal systems. This patchwork system has also led to a lack of legal clarity over jurisdiction in individual cases and lack of recognition on predicate offenses between member states, compromising the efficacy of the wider system. 6AMLD seeks to address these problems by harmonizing the definitions of predicate offenses, money laundering offenses and sanctions across the Union, and by mandating police and judicial co-operation in cross-border matters so that cases do not fall between the cracks. This article focuses on 6AMLD’s definitional subject matter, which includes the evolution of corporate liability in the context of pan-European financial crime.
To establish an offense of money laundering, 6AMLD requires the following 3 elements to be present:
1) a predicate offense (criminal activity)
2) the unlawful acquisition of property obtained through that predicate offense
3) the laundering of that unlawfully obtained property
Article 2 of 6AMLD defines predicate criminal activity as any offense punishable under member state national law with a custodial sentence of a maximum of more than one year or a minimum of more than six months. To the extent not captured by these criteria, Section 2 enumerates specific offenses that must be classified as criminal activity. The new list of predicate offenses covers almost every conceivable type of serious crime including cyber crime, tax crimes, and environmental crime.
Article 2 defines property as “assets of any kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments in any form, including electronic or digital, evidencing title to, or an interest in, such assets.” In short, money laundering is not just laundering of money but laundering of any form of property.
The directive does not apply to money laundering of property derived from criminal activity that affects the “Union’s financial interests,” which is subject to its own set of rules in Directive (EU) 2017/1371.
Money Laundering Offenses
Article 3(1) of 6AMLD states that the following, when intentionally committed, must be categorized as criminal offenses:
the conversion or transfer of property, knowing that such property is derived from criminal activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an activity to evade the legal consequences of that person’s action
the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property knowing that such property is derived from criminal activity
the acquisition, possession, or use of property, knowing at the time of receipt, that such property was derived from criminal activity
Article 3 (5) states that it is a criminal offense to launder property derived from one’s predicate criminal activity (self-laundering). Whereas, Article 4 extends the above offenses to inchoate offenses as well as inciting, aiding, and abetting.
Article 3(2) permits member states to impose criminal liability for the above conduct where an offender suspected or ought to have known that the property was derived from criminal activity, thereby also introducing willful blindness and gross negligence as potential heads of criminal liability.
Article 7 states that legal persons must be held liable for intentional laundering offenses committed for their benefit by any person, acting individually or as part of an organ of that legal person, where they have a leading position within the legal person, based on either:
(a) a power of representation of the legal person;
(b) an authority to make decisions on behalf of the legal person; or
(c) an authority to exercise control within the legal person.
Article 7 also explicitly specifies that legal persons must be held liable where a “lack of supervision or control” by a person with a “leading position” within the legal person has made possible the commission of intentional laundering offenses for the benefit of that legal person by a person under its authority.
Article 5 of 6AMLD states that where offenses are committed by natural persons, effective, proportionate, and dissuasive criminal penalties must be imposed and where necessary, additional sanctions or measures. Article 5 further specifies that intentional laundering offenses must be punishable by a maximum custodial sentence of at least four years.
The sanctions for legal persons, as specified in Article 8, must also be effective, proportionate, and dissuasive, which includes criminal or non-criminal fines and which may also include other sanctions such as:
exclusion from entitlement to public benefits or aid
temporary or permanent exclusion from access to public funding; including tender procedures, grants, and concessions
temporary or permanent disqualification from the practice of commercial activities
placing under judicial supervision
a judicial winding-up order
temporary or permanent closure of establishments used for committing the offense
Significantly, the liability of legal persons must not preclude criminal proceedings being brought against natural persons who are perpetrators, inciters, or accessories in any such offenses.
Application & Jurisdiction
To overcome several of the obstacles identified in relation to current arrangements, including those in relation to cross-border cases, Article 3(3) eases the standards for establishing the first of the three required elements of money laundering, stating:
a prior or simultaneous conviction for the criminal activity from which the property was derived is not a prerequisite for a money laundering conviction
a money laundering conviction is possible where it is established that the property was derived from criminal activity, without it being necessary to establish all the factual elements or circumstances relating to that criminal activity—including the perpetrator’s identity
Article 3(1) and (2) offenses must extend to property derived from conduct occurring in another jurisdiction, where that conduct would constitute a criminal activity had it occurred domestically.
Member States may also require that the relevant conduct must constitute a criminal offense under the national law of the other member state or third country where that conduct was committed (the so-called “Spanish Bullfighting” test). However, where the conduct constitutes participation in an organized criminal group, terrorism, racketeering, human trafficking, migrant smuggling, sexual exploitation, drug trafficking, or corruption, the conduct must be classified as an operative predicate offense regardless of the law in that other country.
Article 10(1) reduces grey areas related to jurisdictional issues where laundering is committed in whole or in part on its territory or the offender is one of its nationals. Article 10(2) provides that a Member State must also inform the commission where it decides to extend its jurisdiction to laundering offenses committed outside of its territory where:
(a) the offender is a habitual resident on its territory
(b) the offense is committed for the benefit of a legal person established in its territory
Finally, Article 10 (3) states that where an Article 3 or 4 offense falls within the jurisdiction of more than one member state, it must cooperate in order to decide which of them will take jurisdiction so that proceedings can be centralized. Where appropriate, the matter should be referred to Eurojust in accordance with Article 12 of Framework Decision 2009/948/JHA.
Exempt Member States
Under Protocols appended to the framework EU constitutional treaties, 6AMLD will not apply to Denmark, nor the UK, or Ireland unless the latter two Member States decided to opt-in. While Ireland has indicated that it will opt-in, the UK government has decided not to on the basis that it considers existing UK laws to be already compliant.
Part 7 of the UK Proceeds of Crime Act 2002 (POCA) provides broadly the same criminal liability as per Articles 3 to 5 of 6AMLD. However, there are significant differences between the 6AMLD corporate offenses under Article 7(1) and their counterparts under English law. In the former, the conduct of someone in a “leading position” can give rise to liability. In the UK however, corporate liability arises under the “identification principle,” which requires the offender to be a “directing mind and will” (DMW) of the legal entity or such a person that was aware of criminal activity undertaken by an employee or associated person.
In relation to the 6AMLD “lack of supervision” offense by a person in a leading position, the UK has a strict liability “failure to prevent” offense for bribery under Article 7 of the Bribery Act 2010 and an equivalent offense in relation to tax avoidance under Part three of the Criminal Finances Act 2017. However, for all other economic crimes, the UK law is silent. This has prompted recent calls for a “failure to prevent economic crime” offense to be enacted within the UK by both the Serious Fraud Office and the UK Parliament’s Treasury Select Committee, (as published March 8, 2019). The UK government’s formal response to these calls has been to point out that following the closure of its “Corporate Liability for Economic Crime: Call for Evidence” on March 31, 2017, the matter has been under consideration but that Brexit had stalled progress in the matter.
Despite these differences, from a compliance perspective, the necessary systems and controls and oversight of senior management are likely to be broadly the same and firms that undertake business across the EU will, in any event, need to comply with EU standards.
While 6AMLD does not add a great deal to the existing corpus of AML compliance requirements, the “failure to supervise” offense and the breadth of sanctions for criminal liability should prod senior management into ensuring existing arrangements are foolproof, that their AML technology infrastructure is up to date and fit-for-purpose, and that their policies and procedures are sufficiently robust such that any AML concerns are promptly detected and effectively addressed.