Anti-money laundering and – terrorist financing obligations are based on international standards.
The aim of the regulation is global compliance with common customer due diligence procedures. An important role is played by the intergovernmental Financial Action Task Force on Money Laundering (FATF) operating under the auspices of the OECD. The 40 anti-money laundering recommendations provided by the task force are largely complied with around the world. The newly enacted EU Anti-Money Laundering Directives are based on the FATF recommendations.
Fighting money laundering becomes more problematic when companies are operating in risky areas and countries and when the laws do not necessarily impose express preventive obligations. As a thumb rule express anti-money laundering obligations apply only to supervised entities, such as banks, insurers, investment advisors, tax advisors, attorneys etc. Supervised entities are obliged to identify their business partners and stakeholders based on company specific risk management tools and practices.
A European company which is not a supervised entity, like most exporting companies are, should be extremely careful while preparing themselves to fight money laundering. EU level anti/money laundering regulations obliges supervised entities to identify the ultimate beneficiaries, however non-supervised entities have to act in uncertainty by abiding by GDPR rules, which do not provide any support. A recent case of the Swedish Kammarrätten, based on EU level GDPR, expressly prohibits GE’s Swedish subsidiary to abide by US based identification obligations.
The China economy has not been saved from money laundering accusations. The Chinese government has put in place new measures in order to ensure compliance with international standards. Recent measures greatly increase the level of reporting on overseas transactions by Chinese bank customers in order to collect data for analysis. Most of the investigated cases relate to banks having violated foreign exchange transaction laws. Some banks have helped companies to falsify trade documents or have failed to carry exercise sufficient control over money transactions.
Not only are formal banks involved, but shadow banks are as well. The amount of shadow bank transactions exceeded 135 billion USD in 2016. Underground banks provide another avenue for money laundering as they are unregulated, allowing criminals to easily transfer money across borders though bank accounts established on both ends.
Based on the aforesaid European companies should apply due attention to their business operations vulnerabilities in the light of money laundering. This provides for a clear understanding of the sources of money, client identity and beneficiaries, avoidance of complex financial arrangements and common sense.