Anti-Money Laundering Act’s key obligations and upcoming amendments

September 24, 2018

Anti-Money Laundering Act’s key obligations and upcoming amendments - Lexia

 

The Act on Detecting and Preventing Money Laundering and Terrorist Financing, the so-called new Anti-Money Laundering Act, took effect in July 2017. The goal is to prevent money-laundering and the financing of terrorism, to promote the exposure and investigation of such activities, and to improve the tracing and recovery of the criminal proceeds.

 

The new regulation came with new obligations for not only the traditional financial sector players, like the entities with authorizations supervised by the Finnish Financial Supervisory Authority, credit institutions and payment institutions, but also, e.g., insurance intermediaries, real-estate companies and accountants. The obligations also target parties engaged in the trading of goods when a cash payment is made as a single installment or interrelated installments of at least 10,000 euros; this group includes car dealers, for instance. The entities listed above are among those with a reporting obligation based on the Anti-Money Laundering Act, and they must comply with the obligations of the Anti-Money Laundering Act.

Main obligations imposed by the Anti-Money Laundering Act

Customer identification and risk assessment

Customer identification and due diligence are the Anti-Money Laundering Act’s main obligations imposed for the entity subject to the reporting obligation. The Anti-Money Laundering Act requires that the subject to the reporting obligation identifies their customer and the customers’ business so that it can detect possible changes in the customer’s business and exceptional business activities. The subject to the reporting obligation must not establish a business relationship, conduct business, or maintain a business relationship unless it is able to implement the customer identification measures prescribed in the Anti-Money Laundering Act.

 

The customer identification and due diligence obligation is based on the own risk assessment of the subject to the reporting obligation. The subject to the reporting obligation must have a risk assessment compiled to identify and assess the risks of money laundering and terrorist financing. The risk assessment must include the money laundering and terrorist financing risks related to the operations and the customers. Additionally, the risk assessment must take into consideration risk factors that are related to customers, countries or geographical areas, products, services, transactions or delivery channels. The subject to the reporting obligation also must have sufficient operating policies, procedures and controls to ensure effective management and mitigation of identified risks.

Reporting suspicious transactions to the Financial Intelligence Unit (FIU) and an internal whistle-blowing system

The subject to the reporting obligation is obliged to report suspicious transactions and suspected terrorism financing to the Financial Intelligence Unit. The report must be submitted regardless of whether a customer relationship has been established or has been refused, or whether the business transaction has taken place, been interrupted, or refused.

 

It may be necessary to compile a report if, e.g., a customer is not providing the requested clarifications needed to fulfill the obligation to obtain information, the provided clarifications are unreliable based on the assessment of the subject to the reporting obligation, or if the basis for the transaction and the origin of funds is not adequately clear.

 

The subject to the reporting obligation must also have in place an internal whistle-blowing channel through which employees can report suspected breaches of the Anti-Money Laundering Act.

Personnel training and an appointed responsible person

The subject to the reporting obligation must see to it that its employees receive training to ensure compliance with the Anti-Money Laundering Act and the provisions prescribed under it.

 

The subject to the reporting obligation must appoint a responsible person who is responsible for internal oversight of the Anti-Money Laundering Act and the provisions prescribed under it, if it is warranted in light of the obliged subject’s size and nature.

All entities are obligated to keep information on beneficial owners

The majority of the Anti-Money Laundering Act’s obligations target only the subject to the reporting obligation. An exception to this, however, is the obligation to keep information on the entity’s  beneficial owners. The Anti-Money Laundering Act requires all other legal persons, excluding listed companies, to keep information on the beneficial owners, effective 1.1.2019.

 

According to the Anti-Money Laundering Act, among those considered an entity’s beneficial owner are, e.g., a natural person who ultimately:

  • holds directly or indirectly more than 25 % of the legal person’s shares, or otherwise owns a corresponding share of the legal person
  • exercises directly or indirectly more than 25 % of the legal person’s voting rights, and these voting rights are based on ownership, membership, articles of association, a partnership agreement or corresponding rules, or
  • exercises in other ways the actual control within the legal person.

Additionally, effective 1.1.2019, a legal person must report its  beneficial owner to the registers maintained by the Finnish Patent and Registration Office.

The scope of the Anti-Money Laundering Act is expanding and other amendments are effective 1.1.2019

Amendments are coming to the Anti-Money Laundering Act when the so-called 5th Anti-Money Laundering Directive (European Parliament and Council Directive (EU) 2018/843) takes effect nationally. The aim is for the Government proposal on the issue to be reviewed by the Parliament in autumn and for the amendments to take effect on 1.1.2019.

The draft law includes, e.g., the following amendments to the Anti-Money Laundering Act:

 

  • The scope of the Anti-Money Laundering Act will be expanded. The Anti-Money Laundering Act would be applied to a foreign entity similar to an entity with authorization supervised by the authorities, if the foreign entity offers services in Finland through a representative agent without establishing a subsidiary. In addition to tax advisors, the scope would be expanded to cover other individuals who offer as their primary profession, directly or indirectly, tax-related support and consultation. In addition to the previous, those with a reporting obligation would also include providers of virtual currencies, those trading or acting as intermediaries in the trade of works of art, or those storing, trading or acting as an intermediaries in the trade of works of art when this is carried out by free ports, where the value of the transaction or series of linked transactions amounts to 10,000 euros or more.
  • The government decree would specify responsibilities that are politically influential. The decree would cover, e.g., nationally significant public responsibilities as well as the significant public responsibilities of international organizations.
  • It is proposed that the regulations related to the customer due diligence are to be clarified with regard to the derogation of electronic money. The maximum amount of euros stored in an electronic device would be lowered from 250 euros and 500 euros to 150 euros, and the amount of cash redemption from an electronic medium would be lowered from 100 euros to 50 euros.
  • The enhanced customer due diligence procedure related to a country outside the European Economic Area will be clarified.
  • The right of the Finnish Financial Supervisory Authority to use in its duties confidential information it has obtained under the Anti-Money Laundering Act would be limited. Information could be used only in supervising credit and financial institutions, in court cases, or in an administrative proceeding in which an amendment or correction is sought to a decision made by the Finnish Financial Supervisory Authority or the Regional State Administrative Agencies, and in pending judicial proceedings under the legislation applicable to a credit or financial institution.

 

Further information:

Riikka Simola, Associate, tel. +358 40 576 1302, riikka.simola@lexia.fi

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