The implications of Brexit for UK anti-money laundering regulations. Will the fourth AML directive be implemented or be binned?

Author:Norman Mugarura
Position:Department of Research, Global Action Research and Development Initiative Limited, Barking, UK
Pages:5-21
SUMMARY

Purpose The purpose of this paper is to explore the law relating to European Union (EU) Anti-Money Laundering (AML) Directives and the effect of Brexit on money laundering regulation in the UK and the EU. The first part of the paper involves a review of AML Directives and how they are transposed into the UK. The question whether the fourth AML directive or other directives due to become law in the UK will be implemented or culled will largely depend on the relationship between the UK and the EU going forward. The UK will have the full autonomy in terms of making decisions as to which laws to implement or which laws to scrap or to cull, as it sees fit. The UK having relinquished its membership of the EU notwithstanding could still be bound by EU anti-money directives particularly if it chooses to remain in the EU single market. The UK could also forge alliances with EU member states and in which case it will be expected to apply the same EU market rules as its other EU counterparts. The fourth AML directive that was due to become law in all EU member countries in June 2017. This directive was introduced to ... (see full summary)

 
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The implications of Brexit for UK
anti-money laundering regulations
Will the fourth AML directive be implemented
or be binned?
Norman Mugarura
Department of Research,
Global Action Research and Development Initiative Limited, Barking, UK
Abstract
Purpose The purpose of this paper is to explore thelaw relating to European Union (EU) Anti-Money
Laundering (AML) Directivesand the effect of Brexit on money laundering regulation in the UK and the EU.
The rst part of thepaper involves a review of AML Directives and how they are transposedinto the UK. The
question whether the fourth AML directive or other directives due to become law in the UK will be
implementedor culled will largely depend on the relationshipbetween the UK and the EU going forward. The
UK will have thefull autonomy in terms of making decisions as to whichlaws to implement or which laws to
scrap or to cull, as it sees t. The UK having relinquishedits membership of the EU notwithstanding could
still be bound by EU anti-money directivesparticularly if it chooses to remain in the EU single market. The
UK could also forge allianceswith EU member states and in which case it will be expected to apply the same
EU market rulesas its other EU counterparts. The fourth AML directivethat was due to become law in all EU
member countriesin June 2017. This directive was introduced to streamlinethe third AML directive (2005/60/
EC) largely with regard to benecialownership of nominee accounts and politically exposed persons (PEPs).
The paper scoped current EU AML directives, and how they have been used in the ght against money
laundering both in the UK and beyond. Brexit is likely to have far-reachingimplications on many regulatory
areas, including in prevention of money laundering and its predicate offences in the UK and the EU. The
fourth AML directivewas due to become law in the UK on 26 June 2017, andwhether the UK Government will
go ahead and implementit or bin remains to be seen.
Design/methodology/approach The paper has evaluated the potentialeffect of BREXIT on EU AML
Directives in the UK, drawing examplesin non-EU countries. It articulates the raft of EU AML Directives to
assess whether the fourthAML directive (which was due to become law in June 2017)will become law in the
UK or be culled. It draws on experiencesof non-EU countrieslike Switzerland and Norway, which despite not
being members of the EU, have full access to the EU single market. The rst part of the paper provides a
review of AML Directives in Europe and how they are internalised into member countries. Data were
evaluated often alluding to existing mechanisms for harnessing EU AML Directives in member countries.
The last part of the paper proposesthe measures that are ought to be done to minimise or forestall the threat
of money launderingand its predicate offences in the post-Brexit regulatory environment.
Findings The BREXIT has already unravelled marketsboth in the UK and in the EU with far-reaching
implicationson money laundering regulation in multiple ways. The paper has articulatedthe mechanisms for
internalisationof EU AML directives in all Member countries and countriesthat want to exit the EU. It is now
clear that, as the UK voted to relinquish its membership of the EU, it will not be under any obligations to
apply EU AML regimes or any otherEU laws for that matter. The ndings of the paper were not conclusive,
as the UK government has not yet triggered Article50 of Treaty of Lisbon on the functioning of the EU. The
fourth AMLdirective, which was due to become law in the UK on 26June 2016, could still be adopted or culled
depending on the model the UK decides to adopt in its relationshipwith the EU going forward. There is a
possibilityfor the UK to remain a member of the EU single market and to retain some of the regulatoryrules it
has operated in relationto money laundering regulation and its predicateoffences. It could adopt the Norway,
Switzerland or the Canadian model, each of whichwill have different implications for the UK and the EU in
terms of their varied AMLobligations. It will be in the commercial interests of the UK Government to not cull
the fourthAML directive (which was due to become law in June 2017)but to transpose it into law.
Anti-money
laundering
regulations
5
Journalof Money Laundering
Control
Vol.21 No. 1, 2018
pp. 5-21
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-07-2016-0032
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
Research limitations/implications There were not so many papers written on the issue of Brexit
in the context of this top ic. It was therefore not possible to carry out a comparat ive review of Brexit and its
effect on money laundering regulation in the UK, drawing on experiences of other countries that have
exited.
Practical implications Brexit is likely to have far-reaching implications on many regulatory areas,
includingprevention of money laundering and its predicate offences in the UK and the EU.
Social implications The Brexit has elicited debatesand policy discussions on many regulatory issues
and not the least money laundering counter-measures in the post-Brexit environment. Brexit will have far-
reaching implications for markets, people and national governments both in the EU and beyond. It has
already unravelled socialand economic life both in the UK and in the EU. The signicance of paper is that it
could enhance future research studies on money laundering regulation within countries delinking from
regionalmarket initiatives to address attendant changes.
Originality/value This paper proffers insightsinto the Brexit and its implication on AML regulation in
the UK and the EU during and post-Brexit era. To curtail the social-economic effect of Brexit on nancial
markets regulation,the UK should remain a member of the European single marketnot only to minimise the
potential of losing more groundand leverage as a nancial capital of the world but also to protect nancial
marketstumbling downhill!
Keywords Regulatory changes, Brexit, AML Directives, Non-EU member countries,
vImplications of Brexit, EU Directives, Fourth AML Directive Regulatory Changes
Paper type Research paper
1. Introduction
The question of whether the European Unions (EUs)fourth anti-money laundering (AML)
Directive, or other directivesdue to become law in the UK, will be implemented or culled will
largely depend on the relationship betweenthe UK and the EU going forward. The UK will
have full autonomy to make decisions as to which laws it implements or which laws it
scraps or culls as it sees t once it has withdrawn from the EU. The UK, notwithstanding
having relinquished its membershipof the EU, could still be bound by EU AML Directives,
particularly if it chooses to remain in the EUs single market. The UK could also forge
alliances with EU member states, in which case it will be expected to apply the same EU
market rules as its otherEU counterparts. The fourth AML directive was due to becomelaw
in all EU member countries in June 2017. This Directive was introduced to streamline the
third AML directive(2005/60/EC) largely with regard to the benecial ownershipof nominee
accounts and politically exposed persons (PEPs). This paper scopes current EU AML
Directives and how they have been used in the ght against money laundering both in the
UK and beyond.
The paper has evaluated the potential effect of Brexit on EU AML Directives in the
UK, drawing examples from the UK and the EU. It also details the raft of EU AML
Directives as a backdrop for assessing whether the fourth AML directive (which was due
to become law in June 2017) will become UK law or be culled. It also alludes to the
experiences of non-EU countries like Switzerland and Norway, which, despite them not
being members of the EU, have full access to the EUssinglemarket.Therstpartofthe
paper provides a review of AML Directives in Europe and how they have been
internalised by the EUs member countries. Data were evaluated that often alluded to the
existing mechanisms for the harnessing of EU AML Directives by member countries. The
last part of the paper proposes measures that ought to be taken to minimize or forestall
the threat of money laundering and its predicate offences in the post-Brexit UK
regulatory environment.
Brexit has had far-reaching implications for markets both in the UK and in the EU in
multiple ways. It is now clear that as the UK has voted to relinquish its membership of
JMLC
21,1
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