Klaus Burkart, co-founder and COO of Cargodian GmbH, talks about the European Anti-Money Laundering Directive (AMLD), its impact on EU enterprises, why firms should implement AMLD compliance, and the distinctions between KYB and KYC in this Q&A session.
Can you explain the European Anti-Money Laundering Directive in simple terms?
The European Anti-Money Laundering Directive, or AMLD, is a set of regulations developed, adopted, and enforced by the European Union (EU) in an effort to combat money laundering and the funneling of money to terrorist organizations.
How does the AMLD impact companies and financial institutions operating within the EU?
The adoption of the AMLD creates an obligation that requires companies and financial institutions operating within the EU to establish concrete measures to detect and prevent money laundering activity. For example, companies and financial institutions will need to show that they have policies in place for conducting adequate customer due diligence research, like verifying the identity of their customers, and the legitimacy of transactions. Companies and institutions will also need to establish a reliable and effective system for reporting suspicious persons and activities to the relevant authorities.
How does the most recent version of the AMLD (AMLD 6) differ from earlier versions?
The sixth and most recent version of the AMLD continues to hone in on the best methods to remove the loopholes that exist within the domestic legislation of EU member states which act to allow bad actors to conduct money laundering activity. In furtherance of this goal, the AMLD 6 attempts to further clarify the various elements of money laundering to ensure that all member states across the EU are instituting policies based on one single agreed-upon definition of money laundering.
The sixth iteration of the AMLD introduces cybercrime as a new predicate offense category. By broadening the offense categories, and building in more granular levels of detail, the AMLD seeks to clarify and harden the definitions of both offenses and penalties to help ensure that cases do not slip through loopholes and go unsolved. These enhanced definitions also aim to further the evolution of corporate responsibility for negligent practices and policies that facilitate money laundering activity.
Why should a company incorporate AMLD compliance and sanction checks on individuals and companies?
Companies and institutions are strongly advised to voluntarily incorporate AMLD compliance policies and practices into their transactions in order to help shield themselves from the legal ramifications, fines, and penalties associated with non-compliance.
It is important to remember that the AMLD was created to act as a useful and effective tool to help companies and institutions protect themselves from being used to facilitate money laundering and other illegal activities.
What is a KYB check?
KYB, or Know Your Business, refers to the process of understanding and verifying the nature of a company’s business and its shareholders, often referred to as Ultimate Beneficial Owners (UBOs). KYB policies and practices may include conducting due diligence research on the company’s ownership and management to identify and evaluate any potential reputational risks, or the presence and degree of any politically exposed individuals within the organization.
What is a KYC check?
KYC, or Know Your Customer, refers to the process of verifying the identity of an individual client or customer. A company’s or institution’s KYC process may include policies and practices related to the collection verification of data proving the customer or client’s identity such as the individual’s legal name, address of residence, and date of birth.
KYB and KYC are very similar, how do these checks differ from one another?
Many of the procedures associated with KYC and KYB processes are similar in nature and purpose. Both processes share the common objective of properly incorporating AMLD regulations with the aim of making financial transactions safer and preventing money laundering activities.
To that end, both KYC and KYB processes require companies and institutions to review and monitor all financial transactions for indicators of suspicious activity. However, each process focuses on a specific aspect of the larger financial transaction.
KYC focuses on the identity and activity of the individual customer or client, while KYB analyzes the practices and inner workings of the client’s business operations. Each process plays an important role in protecting the company or institution from sanctions and embargoes related to non-compliance and allowing the company to play an active role in the prevention of money laundering activity.
Key Takeaway
- The European Anti-Money Laundering Directive (AMLD) is a set of regulations developed, adopted, and enforced by the European Union.
- AMLD requires companies and financial institutions operating within the EU to establish concrete measures to detect and prevent money laundering activity.
- The sixth iteration of the AMLD introduces cybercrime as a new predicate offense category.
- The AMLD was created to act as a useful and effective tool to help companies and institutions protect themselves from being used to facilitate money laundering.
- KYB and KYC processes are similar in nature and purpose but differ in scope and purpose.