Financial Crime World

France Doubles Down on Financial Crimes Fight with New AML-CFT Legislation

The Autorité des Marchés Financiers (AMF), France’s financial markets regulator, intensifies its efforts to combat money laundering and terrorist financing (AML-CFT) following the implementation of the Fifth Money-Laundering Directive (5MLD).

Mandatory Obligations from the Fourth Directive

Before diving into the new legislation, let’s review the obligations outlined in the Fourth Money-Laundering Directive (4MLD), which took effect in France in 2016:

  • Risk assessment and evaluation of clients’ and beneficial owners’ identities: Financial institutions and professionals must assess the risk level of their clients and beneficial owners, in accordance with the FATF Recommendations.
  • Due diligence measures at the onset and duration of business relationships: Know your customer (KYC) procedures must be put in place, aiming to verify the identity of clients and beneficial owners.
  • Reporting suspicious transactions to TRACFIN: Financial institutions are required to report any transaction that is suspected to be linked to money laundering or terrorist financing.
  • Internal audits and reporting to the AMF: This obligation refers to the periodic review of the institution’s anti-money laundering (AML) and counter-terrorist financing (CTF) policies, procedures and internal controls.
  • Implementation of asset freezing measures: The freezing of assets is an important part of the AML-CFT framework which may involve the cooperation with other law enforcement agencies or foreign authorities.

Salient Features of the 5MLD

With the transposition of the 5MLD into French law in early 2020, key provisions include:

Increased Transparency and Beneficial Owner Registers

  • Increased transparency: The 5MLD focuses on enhancing transparency in financial transactions and improving the identification of parties involved, with a view to making it harder to misuse the financial system.
  • Access to beneficial owner registers: The 5MLD aims to increase transparency by requiring Member States to set up beneficial ownership registers which can be accessed by relevant authorities and financial institutions.

Uniform enhanced due diligence measures for high-risk third countries

  • Procedures for high-risk third countries: To mitigate the risks associated with high-risk third countries, enhanced due diligence measures should be applied.

Procedures for remote business relationships

  • Remote business relationships: The 5MLD includes provisions concerning the identification and ongoing monitoring of clients in remote business relationships, such as the use of technology for customer identification and video conferencing for interviews.

Regulation of virtual asset service providers (VASPs)

  • Regulation of virtual assets and VASPs: The 5MLD expands the scope of the regulatory framework to virtual currencies and related service providers, addressing the specific risks and issues associated with their use. VASPs will be subject to the same Customer Due Diligence (CDD) requirements as traditional financial institutions.

Additional References

  • FATF Recommendations: The Financial Action Task Force (FATF) sets standards and promotes implementation of legal, regulatory, and operational measures for effective international cooperation in combating money laundering, terrorist financing, and other related threats.
  • Risk-based Approach Guidance for the Securities Sector: This guidance aims to support financial institutions and professionals to better understand the necessary steps in implementing a risk-based approach to AML-CFT and to mitigate the potential threats to the securities sector.
  • Risk-based Approach Guidance for Virtual Assets and Virtual Asset Service Providers: The guidance is designed to provide an overview of a risk-based approach for VASPs in the context of the prevention of money laundering and terrorist financing.
  • EU Directive (EU) 2015/849: The Anti-Money Laundering Directive (AMLD) IV, which replaced the 4MLD, sets out the minimum measures that member states are required to put in place to ensure the effectiveness of measures to prevent money laundering and terrorist financing.
  • EU Directive (EU) 2018/843: The fourth EU Anti-Money Laundering Directive (AMLD 4) focuses on measures to prevent the use of the financial system for money laundering and terrorist financing, such as the application of customer due diligence principles to beneficial owners.
  • Commission Delegated Regulation (EU) 2016/1675: This regulation sets out measures for ensuring the protection of the Union’s financial interest by preventing and detecting money laundering, terrorist financing, and other forms of financial crime.

Staying Informed

To stay informed and mitigate risks, financial institutions and professionals can tap into the following resources: