The EU’s AML Fourth Directive Places Responsibility for Due Diligence on You!

Never mind the $440,000 fine or the reputational damage that has resulted in the firm closing down, it is embarrassing to have to complete due diligence checks retroactively. In the words of a Mossack Fonseca employee: 

The EU Fourth Directive and Avoiding Embarrassment

A key blindspot in much of what has become publicly known about Mossack Fonseca seems to have been its reliance on other firms’ green-lighting of clients for its own (lacking) due diligence procedures. As part of its last-minute scramble for information from its intermediaries about ultimate beneficiaries, the firm received responses along the lines of: 

So let’s go back to what the EU AML Fourth Directive actually requires obliged entities to do (you can also read further on due diligence in a previous article of ours): 

This ensures that appropriate independent checks are in place to prevent any proceeds from crime entering the legitimate flow of money.

To this end, a private joke among our trainers is that the Know Your Customer (KYC) principle should really be ‘KaDYC’ = Know and Document Your Customer! Without properly filed paperwork that demonstrates you have done your due diligence and are in possession of evidence of who your client is, you risk serious embarrassment!

No Excuses

AML measures across the world are moving along the lines set out by the EU Fourth Directive, and the key theme is a risk-based approach to the matter. The Panama Papers show exactly how such a risk-based approach is so crucial to the success of your firm. 

As we have outlined in a previous article, sticking to the basic principles of KYC (or KaDYC as we call it) goes a long way towards ensuring integrity in your operations, which is important to you, your firm, your clients as well as your society!