The Fourth Money Laundering Directive has significantly increased the focus on identifying and verifying potential Beneficial Owners. New terms have been introduced which you must be aware of to demonstrate compliance with new legal requirements.
All Member States are required to ensure that corporate and other legal entities incorporated within their territory hold current and accurate information on their beneficial ownership. This information should be held on a central register and this has been implemented within the United Kingdom by Companies House introducing Confirmation Statements in place of Annual Returns.
Confirmation Statements require relevant entities to provide details of all Person if Significant Control (PSC) which covers all classifications of Beneficial Owners. Regulated businesses should therefore review and verify information contained within relevant entities Confirmation Statements as part of their process of identifying and verifying Beneficial Owners.
A key part of verifying Beneficial Owners under the Money Laundering Regulations has been to identify any individual's who could be considered to be a Politically Exposed Person (PEP) or that features on a Sanctions list. Under the Fourth Money Laundering Directive the definition of PEP's has been widened to include domestic individuals in addition to those abroad.
This means that individual's who have previously been assessed as not qualifying as a PEP now may fall under this classification if their are a domestic PEP. It is therefore crucial that all affected businesses review details of all relevant individuals they trade with to apply further enhanced due diligence checks in to any newly identified PEPs. As part of the need for ongoing due diligence checks it will also be necessary to verify individuals to identify those which may now appear on Sanctions list. This task may be onerous and time consuming so businesses will need to assess how this can be applied on a risk based and proportionate approach.
When reviewing and verifying individuals against PEP databases and Sanctions lists it will also be necessary for regulated entities to consider the following two classifications:
Where individuals are identified to fall under either of the two classifications above it would be necessary to conduct further enhanced due diligence checks to mitigate any relevant risks or not to proceed with any further trade, if necessary.
The key issue that businesses must understand is the scope of relevant individuals has been significantly widened under the Fourth Money Laundering Directive. This means that a higher percentage of individuals the business currently deals with and/or may deal with in the future would be considered relevant for the need to apply further enhanced due diligence checks or take other necessary mitigating actions.
Failure to demonstrate that compliance controls have sufficiently accounted for these new considerations could result in significant civil penalties and in the worst cases potential criminal prosecution.