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Anti-money laundering after Brexit
This guidance sets out the impact of Brexit in the field of anti-money laundering (AML) compliance.
It’s relevant for UK law firms and lawyers responsible for ensuring AML compliance.
The post-2020 outlook
The UK left the EU on 31 January 2020 and the transition period ended on 31 December 2020.
On 24 December 2020, the EU and UK concluded the Trade and Cooperation Agreement (TCA), which regulates the future EU-UK relationship. The Withdrawal Agreement 2019 continues to apply.
Under the Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019, the definition of a “third country” becomes a country outside the UK, as opposed to outside the European Economic Area (EEA).
EU nationals/clients have consequently become third-country entities for the purposes of AML compliance.
Transactions and business relationships involving EU nationals/clients should be subject to third country considerations and criteria.
For example, an EU customer seeking residence rights or citizenship in exchange for transfers of capital, purchase of a property, governments bonds or investment in corporate entities, is a “customer risk factor” to be considered in respect of compliance with regulation 33 (obligations to apply enhanced due diligence).
High-risk third countries
You must apply enhanced due diligence measures in any business relationship with a person established in a high-risk third country, or where you're undertaking an occasional transaction (within the meanings of regulation 27(1)(b) and (2) of the Money Laundering Regulations 2017) where either party is established in a high-risk third country.
As amended under the Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021,"high-risk third country" means a country which is specified under section 3ZA.
Changes to the AML framework
There have been no immediate changes to the AML framework for the UK after 31 December 2020.
The UK transposed the 5th Anti-Money Laundering Directive into UK law and the government has not announced any proposals to deviate from those requirements.
Further, while the UK has opted out of transposing the 6th Anti-Money Laundering Directive (which was due by 13 December 2020), this is primarily due to the fact that many of its requirements are already covered by existing UK law.
One exception is the proposed new offence of corporate liability, where the UK government has announced a secondary review to be taken forward by the Law Commission.
Financial Action Taskforce
The UK continues to be a member of the Financial Action Taskforce (FATF) and is expected to continue to follow, if not exceed, its guidelines and recommendations on global standards.
The UK became a member of the FATF in 1990.
AML provisions in the EU-UK TCA
The TCA includes provisions on AML under law enforcement and judicial cooperation in criminal matters. These:
- commit both sides to a number of AML standards and procedures
- facilitate information sharing between the two parties
The cooperation provisions oblige both sides to share information on beneficial ownership “to the competent authorities of the other party in a timely and effective manner and free of charge”.
Both sides will also be able to propose new methods for sharing information. These provisions build upon the wider criminal judicial cooperation mechanisms outlined within the agreement, in particular around confiscation and recovery.
The agreement does, however, reflect existing practice: as with the primary obligation to maintain central registers of beneficial ownership, which are publicly available and which are shared with relevant authorities and supervisory bodies for the purpose of money laundering prevention.
These registers had been established in the UK before the end of the transition period and the UK government made it clear that it would not reverse these developments.
Both sides also commit to continuing to adhere to international efforts to tackle money laundering.
In the longer term, we’ll continue to monitor any upcoming regulatory developments brought forward by the government and work with members on ensuring AML best practice.