The third EU money laundering directive and its impact on the accountancy profession

Abstract

The creation of the Single Market and the breaking down of barriers not only aided legitimate business, but also provided increased opportunities for money laundering and financial crime. Organized crime groups have been evolving and becoming more international, and the damage that they cause to business and civil society demanded a clear strategic response. This initiated the need for anti-money laundering legislation. This body of legislation has been recently reinforced by new regulations implementing the Third EU Directive on Anti-Money Laundering. This directive, Directive 2005/60/EC, was intended to repeal and replace the existing 1991 Directive, as amended in 2001, by extending its scope to the financing of terrorism and to persons and institutions not covered at present. It was formally adopted on 20 September 2005 and published in the Official Journal L 309 of 25 November 2005. The Directive entered into force on the 15th December 2005 and Member states have two years to adopt and bring into force appropriate implementing measures. The objective of this study was to analyse the Third EU Money Laundering Directive and consider the manner in which the present role of the accounting profession with regards to money laundering in Malta would have to change. The study included an evaluation of the new obligations imposed on the accountancy profession with regards to customer identification and customer due diligence requirements set out in the F ATF Revised Forty Recommendations, and the cost implications. These varied according to the nature and scope of the operations of the supervised entity, the type of services offered and the risks involved in the customer relationship. The discussion has given a clear indication on what the main impacts will be and the likely changes that will need to be taken into account. It was concluded that as the Directive 2005/60/EC on the Prevention of the use of the financial system for the purpose of money laundering and terrorist financing is still being implemented by the local accountancy and audit firms, the final impact could not yet be known precisely. However, it could already be observed that the Big 4 audit firms, being members of international firms, have already systems in place which are in line with the Third Directive. Other local small firms, which are not well-informed about this Directive, still need to make some changes to be in full compliance with the latest regulations on money laundering. With regards to costs being incurred by the accountancy and audit firms to implement the changes appearing in the Third Directive, it could be concluded that no big costs will be suffered if reliable Know Your Customer procedures are in place; the reason being that the Directive mainly focuses on knowing well whom you are dealing with. One last comment that should be made is that the type of approach that one takes to give effect to the changes is critical. The most successful approach is to keep up to date and implement the changes step by step, so that costs will be distributed throughout the two years allowable for implementation.