Insight

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Government Proposal to implement EU's Fifth Anti-Money Laundering Directive in Finland
4 Oct 2018 The Finnish Government proposal implementing the provisions of EU's Fifth Anti-Money Laundering Directive (the "Fifth AML Directive") was submitted to the Parliament on 4 October 2018. The proposal includes, inter alia, amendments to the Anti-Money Laundering Act (the "AML Act") and enactment of two new acts. The objective is that the proposed legislation would enter into force on 1 January 2019. Only approximately one year after the AML Act entered into force in Finland, it will be amended due to the latest amendments to European anti-money laundering legislation. The amendments form part of the EU Commission's action plan on strengthening the fight against terrorist financing and must be implemented by the Member States by 10 January 2020. Our observations of the proposed key amendments to the current legislation are set out below. In summary, the Fifth AML Directive significantly limits anonymity in the financial sector and tackles money laundering and terrorist financing in new ways. Continuous compliance efforts are therefore needed from both current and new reporting entities under the AML Act. Key Observations 1. Extension of the Scope of the AML Act to Crypto Market Crypto currencies or virtual currencies are currently not explicitly regulated by Finnish law and they are not considered to be payment instruments under the payment service legislation. The proposed amendments will both define virtual currencies for the first time under Finnish law and also set specific requirements for those providing services related them. The scope of the AML Act would be extended to cover custodian wallet providers and providers engaged in exchange services between virtual currencies and fiat currencies. This means that, in the future, all crypto exchanges and all providers of electronic wallets for virtual currencies such as bitcoin would be covered by the AML Act. These platforms and providers would be required to register with the Finnish Financial Supervisory Authority and they would have to meet the requirements of the AML Act including the same responsibilities as other reporting entities, such as monitoring transactions and implementing customer due diligence. Additionally, a new Act on the Providers of Virtual Currencies (FI: Laki virtuaalivaluuttojen tarjoajista) is being proposed. The scope of the Act would cover also issuers of virtual currencies, although in many occasions the identity of such is not known. The scope of the AML Act would further be extended to cover e.g. art dealers (with respect to transactions where the value amounts to 10,000 euros or more) and all forms of tax advisory services. 2. Beneficial Ownership Information Registers of beneficial ownership information required under the current AML Act will come into effect as planned. Accordingly, all legal persons, excluding listed companies, are required to keep information on their beneficial owners as of 1 January 2019 and enter beneficial owners to the registers maintained by the Finnish Patent and Registration Office by 1 July 2020. In addition, reporting entities and competent authorities would have to notify the holder of the registers of discrepancies found between the beneficial ownership information on the registers and the beneficial ownership information they hold otherwise. Furthermore, beneficial owners would have an obligation to provide the respective companies with their beneficial ownership information required for the registers. 3. Politically Exposed Persons Politically exposed persons (PEPs) continue to be high risk for the purposes of the Know Your Customer (KYC) procedures and require enhanced due diligence. In order to enable reporting entities to better identify PEPs, offices and functions that qualify as politically exposed on national level including also nationally registered international organizations would be specified in a separate Government Decree. 4. High-Risk Third Countries According to the proposed amendments to the AML Act, reporting entities would be required to implement enhanced due diligence measures to monitor suspicious transactions involving high-risk countries more strictly. This includes, inter alia, obtaining information on details regarding the nature of the relationship, the origin of the transferred funds and the business partner’s motivation to liaise. Additionally, the reporting entity’s higher management would be required to give consent to the business relationship. Also existing business relationships would be strictly monitored. According to the proposal, the Finnish Financial Supervisory Authority would be given further authority in the subject matter, after which it may for example refuse reporting entities from high-risk third countries to establish themselves in Finland or prevent reporting entities from Finland to establish themselves in high-risk third countries. 5. Monitoring of Bank and Payment Accounts According to the Fifth AML Directive, Member States shall establish centralized automated mechanisms, such as central national registries or central electronic data retrieval systems, for bank and payment accounts to ensure the quick identification of all accounts of any individual by the financial intelligence units and competent authorities. In Finland, a new Act on the Bank and Payment Accounts Monitoring System (Fi: Laki pankki- ja maksutilien valvontajärjestelmästä) is being proposed to enable direct access to relevant account information by competent authorities. The centralized monitoring system would include both automated interfaces for information searches and a register maintained by the Finnish Customs. Credit institutions and their Finnish branches must establish an electronic data retrieval system that enables providing the information to the competent authorities without delay. Payment institutions, electronic money issuers, custodian wallet providers, providers engaged in exchange services between virtual currencies and fiat currencies and issuers of virtual currencies as well as their Finnish branches must provide information to the bank and payment accounts register. 6. Electronic Money Products Under the current AML Act, reporting entities may apply simplified due diligence measures with respect to e-money which meets certain conditions, including threshold amounts. The threshold for identifying holders of non-rechargeable prepaid cards would now be lowered from EUR 250 to EUR 150 per month. E-money online transactions with prepaid cards would be limited to EUR 50. 7. Going Forward As a main rule, the proposed amendments are intended to enter into force on 1 January 2019. The Government’s proposal (HE 167/2018 vp) is available here (only in Finnish). Developments on the European Union stage continue: the lawmaking procedure concerning proposal for a directive which would facilitate the use of financial and other information for the prevention, detection, investigation or prosecution of money laundering, associate predicate offences and terrorist financing is under way. Also further regulations relating to anti-money laundering are projected in the future. We are happy to discuss the implications of the proposed legislation as well as keep you updated on the legislative process. For more information and guidance, please contact the Head of our Corporate Advisory, Compliance & CSR practice group, Hanna-Mari Manninen.
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In Search of the New Normal
18 Jun 2018 Despite market actors' and central banks' valiant efforts to divine the future trends of interest rates, the only key discovery still remains that past rules governing their behaviour no longer apply. With new rules still unwritten and the future legal and economic environment shrouded in uncertainty, businesses deciding upon their financing structures have been presented with an extraordinary conundrum. These are the key takeaways from the seminar on the future of interest rates organised by D&I on 14 February 2018. With an aim to presenting an audience of industry and business figures with a concise view of present macroeconomic trends, insight was provided by Mr Olli Rehn, former European Commissioner for Economic and Monetary Affairs and current member of the Board of the Bank of Finland, as well as by Mr Risto Murto, President and Chief Executive Officer of Varma Mutual Pension Insurance Company. A primer on the future deductibility of interest expenses was also provided by Mr Kai Holkeri, Partner and Head of Tax & Structuring at D&I. Economizing the Economy With inflation in the Eurozone having remained conspicuously low for several years even after the peak of the financial crisis, the ECB has continued to pursue a policy of record-low interest rates and quantitative easing in the form of asset purchases. While the central bank's active role is to be credited in the recent recovery of the financial system and the overall economic uptick, it is still all but clear whether – and if, when – the economy at large can be trusted to keep inflation at target levels without the ECB's intervention. None of this, however, is to say that the economy has not recovered on a sound basis. Given that the recent Finnish recovery – current estimates indicate growth of three per cent in the year 2017 – is largely based on reliable investment expenditures and export demand while Eurozone lending to both households and businesses has seen a healthy acceleration without reaching pre-crisis levels, it can be said with confidence that the market has finally begun to find its feet again. Nevertheless, until such time that European business and finance have hit their stride without need for the crutch of cut-rate money from the central bank, market participants will need to continue paying close attention to the ECB's monthly intentions. Deducted Interest in Interest Deductions Presented with this scenario of both cheap cash abound and potential economic boom in the horizon, one would assume that businesses would be quick to join the growing ranks of borrowers hungry to finance their investments. European regulation, however, has found itself a sizeable spanner in these future works, as the European Union's Anti-Tax Avoidance Directive (ATAD) is to obligate the Union's Member States to limit the deductibility of interest expenses. Provisions in the ATAD extend far beyond the initial goal of curbing tax base erosion and profit shifting (BEPS) in multinational corporations, mandating Member States to also reduce the deductibility of interest expenses even to third parties. "The winning formula may just be to make the very best of the abnormal." The rationale of regulating such external debt without any tax planning aims has been called into question, and rightly so. Alas, businesses navigating the present uncharted economic waters amid simultaneous legislative turmoil have no choice but to get used to perpetually rethinking their financing conventions and business models. With signs of the new normal still awaiting discovery, the winning formula may just be to make the very best of the abnormal.  

Dittmar & Indrenius