Up until Tuesday the 24th of September, it was just over a month to some potential Brexit horrors looming large on all hallows eve, what would have lied in wait for Britain’s anti-money laundering campaign post that potentially fateful night if the UK did leave the EU with no deal? Could money have started moving in the metaphorical shadows like Michael Myers in the forests of Haddonfield; Or would Britain have been able to shine a new light on money laundering and eradicate it for good, mirroring opening a curtain at dawn on the count himself.
As it currently stands the UK follows the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which was transposed by HM treasury from the EU Fourth Money Laundering Directive (EU) 2015/849 (MLD4). However, in July 2018 the Fifth Money Laundering Directive (MLD5) came into action with all EU member states having to implement national law in line with the directive by the 20th January 2020, likewise the Sixth Money Directive (MLD6) must be made national law by 3 December 2020. These dates are both post the current Brexit deadline of the end of October 2019, meaning that should Britain choose to leave the EU on the 31st then they will not be mandated to implement these new regulations.
The main objective of MLD5 is a movement towards making transactions more transparent and a stronger fight against terrorist financing. There will be a set of minimum Enhanced Due Diligence requirements so that there exists a standardised treatment of business relationships or transactions involving a defined list of high-risk third countries. MLD6 on the other hand provides a consistent definition of money laundering offences, extension of criminal liability and tougher punishments for money laundering offences. Fortunately for the UK, it’s Laws already comply with a significant proportion of MLD6.
In the now unlikely event of a no deal Brexit, there would have be no transition period and therefor no theoretical requirement for the UK to implement the requirements within MLD5 and MLD6. The decision would have, in theory at least, laid solely with Britain as to whether to implement the regulations and to what extent if Britain left the EU with no deal.
One of Britain’s biggest fears post Brexit within the fight against money laundering and terrorist financing is almost certain exclusion from the Europol Information System (EIS). The EIS enables member states to easily trace the movement of money across borders and creates a medium for intelligence agencies across Europe to share information. It is most likely that the UK will have to strike some form of deal to carry on using the EIS in a bid to maintain an effective fight against AML, in the UK and Europe. Without such agreements being made the UK could be significantly weaker to fit financial crime, this apparent vulnerability could cause Britain to be a prime target for money laundering.
With the potential terrors of Brexit still (at the moment at least!) fast approaching on Halloween, the UK needs to be prepared to arm itself with more than just silver bullets and crosses in the upcoming battle against money laundering. The destination of the U.K. is unknown, but it is evident that the fight against financial crime will only grow harder.
One point to note is that despite the hysterics on both sides of the BREXIT divide, the UK and all other G20 countries, as well as members of the Financial Action Task Force (FATF), all share a common goal in the fight against money laundering and terrorist financing so BREXIT or Remain – the UK will still be a leader in the fight against financial crime.
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Editorial Note: This article was initially produced prior to the historical ruling of the UK Supreme Court on the 24th September 2019.
By Bailey Goodman, Consultant at Lysis Group