The Fifth EU Money Laundering Directive - an open letter to the Chancellor of the Exchequer

The Chancellor of the Exchequer

HM Treasury

1 Horse Guards Road

London

SW1A 2HQ

10 December 2019

Dear Chancellor,

I am today calling on you to take action as soon as possible to ensure new regulations relating to money laundering are published without further delay.

The Fifth EU Money Laundering Directive (5MLD) entered into force in July 2018 and Member States are required to transpose the provisions into domestic law by 10 January 2020. Today therefore marks exactly one month until the new regulations are due to take effect.

The Treasury published its consultation on the transposition of the Directive in April but since then the political situation, and the uncertainty as to the UK’s status in relation to the EU, have regrettably served to prevent this important issue commanding the attention it deserves. As a result, the necessary regulations have yet to be laid before Parliament.

It is not just big banks that are affected by the regulations: law firms, accountancy practices, estate agents and firms dealing in high-value goods are all directly affected, regardless of their size. The new provisions under 5MLD bring art dealerships into scope, as well as letting agents dealing with rental property over €10,000 pcm. These businesses all need to act now to ensure they can be fully compliant.

The Directive explicitly refers to electronic verification (EV) of identity in relation to firms’ Know Your Customer (KYC) and Customer Due Diligence (CDD) obligations. EV has been proven to be more effective than manual checks, where criminals have become increasingly adept at producing forged or altered documents that are difficult even for experts to detect.

The Directive calls for EV to be used where available but we believe this does not go far enough. We would urge the UK government to go one step further and make the use of EV mandatory.

This would not constitute an increased regulatory burden or ‘gold-plating’ of the Directive: as well as being more secure than manual checks, electronic verification and screening is generally quicker and more cost-effective for firms to implement. Digital solutions can also enable more effective Sanctions and Politically Exposed Persons (PEP) screening, and provide ongoing monitoring.

Money laundering is responsible for financing some of the most serious criminal activity, from drug cartels through to people-trafficking and terrorism. It is rightly a high priority not just for EU Member States but for governments across the world, with the Financial Action Task Force increasingly co-ordinating global efforts to tackle the problem.

The UK has been a powerful voice in these efforts and it is vital for our economic success now and in the future that we continue to show global leadership. To attract legitimate investment, we need to provide reassurance that our markets are as free as possible from the taint of financial crime.

With very best wishes for success in your important role,

Yours sincerely,

John Dobson

Chief Executive

SmartSearch