With the rapidly approaching deadline for 6AMLD, Marius Galdikas, CEO at ConnectPay, has taken the opportunity to overview how the regulatory framework has changed over the years.
April 23, 2021. In 1990, the European Union passed the first regulatory directive (1AMLD) to combat increasing money laundering. The deadline for the latest—the 6th Anti-Money Laundering Directive (6AMLD)—is set for June 3rd, 2021.
Marius Galdikas, CEO at ConnectPay, has outlined key changes that have shaped the AML framework since it was first introduced, as well as shared his thoughts on what regulators should be focusing on going further.
More parties subject to liability
The 1AMLD directive set focus and accountability mainly on financial institutions. Although over the years other directives have widened the scope to, e.g. investment firms, none have provided such detailed descriptions of liable parties as are included in the 6AMLD.
“6AMLD takes a major step forward in defining criminal liability, compared to its predecessors,” said Galdikas. “The accountability is extended beyond physical persons, meaning legal entities, such as companies or partnerships, will also become subject to criminal penalties. This will put all internal procedures under a microscope, to avoid any violations and prevent possible abuse of power while making decisions on behalf of the legal person.”
Widening scope of threats
1AMLD outlined only drug trafficking, whereas 2AMLD, passed in 2001, also introduced corruption as a source of illegal funds, along with the precedent to freeze assets arising from criminal activity.
While the following directives outlined a few areas to focus on, 6AMLD tops them all with the list of 22 predicate offenses, including the latest addition of cybercrime.
“It was impossible to predict how intricate financial illicit activities will become,” Galdikas explained. “Over the last decade, along with the rapid technology boom, the scope of threats has widened drastically, yet, so far, not all have been criminalized.”
“6AMLD clarifies regulatory details like none of the preceding directives, which will help to better define the current risk environment. That said, it also calls to extend upon in-house AML policies, as companies now have to refine their safeguards to detect suspicious activities linked to newly-outlined offenses as well.”
Heightened KYC controls
Following the unprecedented terrorist attacks at the beginning of the 21st century, such as the September 11 attacks, the 3AMLD, passed in 2006, included Counter-Terrorism Financing rules as one of the key aspects of focus. The directive also extended to include parties outside the scope of finance, e.g. lawyers, notaries, and others, when high-value payments were made in cash.
This had an immense impact on the Know Your Customer (KYC) processes—on which 6AMLD has retained a strong focus—as it emphasized the importance of customer due diligence, or, in layman’s terms, knowing the true identity behind all parties making high-value payments.
“Over the years, KYC controls have been becoming stricter due to impersonation, but at the same time fraud methods, in general, have evolved as well,” said Galdikas. “Now we are seeing trends like creating deepfakes emerging, which is bound to influence further KYC safeguards. Regulators will definitely need to include more layers of security to sift identity fraudsters out and enhance due diligence.”
Future AMLDs—focus on AI?
According to Galdikas, the near future will present challenges that regulators have yet to outline as possible threats, for instance, artificial intelligence (AI). That said, the situation surrounding AI appears to be two-fold.
“As we move further into the age of high tech, it is likely the next AML directive is going to delve deeper into the use of AI and similar technology,” Galdikas explained, adding that the aforementioned deepfakes are also a form of AI.
“On the other hand, AI could prove to be a crucial part of strengthening the AML framework to withstand the rapidly shifting threat landscape, helping to distinguish fraudulent transactions, suspicious activities, and false alarms with much greater precision,” he concluded.
As the risk environment is becoming more complex, the AML directives will continue to play an important role in the finance sector security framework.
