Now that the EU’s deadline for 4AMLD has passed, and member states have (for the most part) passed legislation, enforcement is a real possibility.
One country that has communicated strong enforcement of 4AMLD is Germany. Germany has created a Transparency Register, which requires registration of beneficial ownership: “Legal representatives of legal persons under private law and incorporated partnerships, trustees and custodians are obligated to immediately disclose their beneficial owners in the Transparency Register, unless such beneficial owners are already evident via other public registers (e.g. commercial register).”
The penalties for non-compliance? “The Obligor may have to pay a fine of up to €100,000 if it fails deliberately or recklessly to comply with its obligations to timely collect, store, update, and file the information correctly and completely with the Beneficial Ownership Register (BOR). In case of a serious, repetitive, or systematic violation, the fine might be increased up to €1 million or the double amount of the commercial advantage gained by means of the violation.”
In France, individuals themselves will be targeted for non-compliance. That is, people who need to file ultimate beneficial ownership (UBO) information (such as mangers, directors, and majority shareholders) but fail to do so or file inaccurate information may face criminal sanctions. While the financial fines are not as severe as in Germany — up to €7,500 — there is also a penalty up to six months in jail. The legal entity can also face criminal liability.
Besides actual penalties, there are other factors of non-compliance to consider. There’s reputational loss; with all the news regarding terrorism and money laundering, being singled out for not taking steps to prevent those actions can’t be good for business.
It’s also possible institutions will refuse to do business with you. As they must comply with 4AMLD and other similar laws, as well as protect their reputations, the trend toward de-risking is increasing. As stated by Andrew Simpson, Chief Operating Officer at CaseWare Analytics, “While an unfortunate reality, de-risking is a practice that is only gaining momentum.”
De-risking is the process of institutions closing accounts in an effort to lessen exposure to risk and fines. The reality is, larger banks are severing ties with smaller institutions, many times indiscriminately, just based on a broad risk factor.
In the end, de-risking doesn’t serve the purpose of 4AMLD; it merely transfers risk, rather than decreasing risk. It also leads to a drop in revenue and profits. As opposed to de-risking, it’s better to follow proper due diligence procedures and determine risk on a case-by-case situation.
Having said that, if a company or individual is not filing proper ownership information, that is a risk that requires full and careful consideration. Since the new directive only took effect in June, organisations may be experiencing challenges getting proper compliance and due diligence workflows in order. With the threat of fines and other negative consequences, compliance and fraud prevention teams should be working together to ensure accurate filing of UBO information in order to safeguard the company’s reputation and balance sheet.
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