Insight

Welcome to our platform for insight into all the latest in law and business. We hope to inspire and share big ideas that make the difference driving your business forward.

insight
Legal developments at the end of the parliamentary term: Focus on effective legal monitoring
18 Oct 2018 As the current parliamentary term approaches its end, the workload of the Finnish Parliament keeps on increasing. There is a multitude of government proposals with high interest to our clients in parliamentary review at the moment, and it is unclear how the time limits relating to e.g. implementing EU directives will hold, and whether there is enough time to complete all relevant proceedings in due course. Transactions and legal solutions concerning our clients' business may be affected by the uncertainty, but we strive to keep our clients informed every step of the way. Everybody knows that it is essential for attorneys to keep up with constantly changing legislation. Insights on anticipated legislative reforms and amendments are something that our clients may specifically request from us. Naturally all our legal advice must be based on up-to-date legislation – taking into account any eventual changes in the near future. Our profession is a knowledge profession, and it is central for our lawyers to keep up with legal developments. In the course of this autumn, legislative processes and reforms have kept us busier than usual. This will continue until next spring, since the Finnish parliamentary elections will be held in mid-April 2019. All proposals submitted to the Parliament by the current Government must be approved during this electoral term, or else they will lapse. Unfortunately, it seems likely that a number of government proposals are destined to lapse, as the parliamentary committees' workload is enormous – and has been since last spring. There are currently several substantial – and also politically controversial – reforms under parliamentary review, such as the introduction of regional government, health and social services reform and government proposals for legislation on civil and military intelligence and on the oversight of intelligence gathering. Parliamentary review of these major reforms takes up a great deal of certain committees' time. The Social Affairs and Health Committee and the Constitutional Law Committee have been particularly burdened. Parliamentary review of approximately 170 government proposals is underway in mid-October 2018. According to the Government's plans, a further 120 government bills will be submitted to the Parliament during this electoral term, in the course of which they must also be approved. Small and technical amendments form a part of the aforementioned nearly 300 bills, but there is a multitude of government proposals with high interest to our corporate clients, such as the already delayed implementation of GDPR into Finnish legislation and all the amendments relating thereto. As the implementation of the EU's fifth money-laundering directive requires review by the Constitutional Law Committee, the aim to have it in force in the beginning of 2019 is also challenging. It is also worth to mention some other government proposals of significance, which have been recently submitted to the Parliament: proposal regarding amendments to energy taxation, which include stipulations on large-scale energy storages, and the reform of trademark legislation including amendments required in the EU trademark directive, which must be implemented already in January 2019. Even though legal information retrieval is a part of the basic skillset of every lawyer, the core duties of associates and attorneys working in a law firm do not include monitoring legislative processes. It is the expertise and focus on legal research that enables us legal knowledge management professionals to be of true value to our colleagues, who may then concentrate on their own legal expertise – and also on the business of our clients. Indeed, many of my colleagues have expressly shown their appreciation to our KM team's devotion on proactive follow-up of status and current contents of anticipated legislative amendments in the course of the past few months. It is fundamental for our clients to be aware of the forthcoming legislation in order to adjust their business accordingly, to ensure their continuing compliance and to stay on top of their game. Strategic legal advice is not only about the present, but also about the future. And although predicting the future seems to be harder than usual today, our continuous monitoring of legal developments and following-up on specific parliamentary proceedings in detail provides our lawyers the possibility to keep up with the anticipated amendments to legislation in their field of expertise. Effective legal knowledge management also makes it possible for both our lawyers and our clients to focus on what they do best: their core business.
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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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Update on the Reform of Anti-Money Laundering Legislation
23 May 2017 - Expected to Enter into Force in July 2017 The legislative process regarding new Finnish Anti-Money Laundering Legislation ("AML Legislation") has been ongoing for months. A proposal for the AML Legislation was submitted to Parliament in November 2016. The six-month committee proceedings in Parliament were concluded on 19 May 2017 when a report of the Administration Committee was issued. The new AML Legislation is expected to enter into force in July 2017 at the latest. The AML Legislation is based on the Fourth Anti-Money Laundering Directive. The AML Legislation applies mainly to the so-called reporting parties such as credit institutions, investment firms, management companies and insurance companies. The reporting parties are exhaustively listed in the Act on Detecting and Preventing Money Laundering and Terrorist Financing. Key Changes 1. Registration of Beneficial Owners The proposed legislation sets a new requirement for companies to maintain a register of beneficial owners. The obligation would enter into force after a transition period, which will be specified in connection with ratification. When preparing the register, a company needs to identify owners with a stake of over 25% (through ownership or otherwise). A beneficial owner is always an individual. If a corporate entity owns over 25%, the beneficial owner is the individual that controls that entity (by over 50% ownership or otherwise). If no beneficial owners can be identified for a company, its directors may be considered as beneficial owners. The beneficial owners would also need to be filed to a central register, which will be kept by the Finnish Trade Register. According to the proposal (as amended by the Administration Committee), companies would need to file their beneficial owners by 1 July 2020. The committee report also suggests that Parliament should require the Government to assess whether there will be a need to change the registration threshold (from 25% to 10% ownership) in connection with the implementation of amendments to the Fourth Anti-Money Laundering Directive. 2. Risk Evaluation For reporting parties, there are several new aspects to consider. Reporting parties would be required to ensure that their Know Your Customer (KYC) procedures correspond to the new, risk-based approach set by the new legislation. Risk factors need to be considered in more detail than previously. Risk assessment policies and related procedures would need to be recorded in writing and approved by the relevant decision-making body no later than 31 December 2017. In the course of the parliamentary proceedings it has been discussed whether damage insurances could be considered as low-risk activity from the perspective of money laundering and thus be excluded from the scope of the AML Legislation. According to the report of the Administration Committee, it would be problematic to exclude them entirely from the AML Legislation, but simplified KYC procedures based on risk assessment would be possible also for insurance companies. 3. Politically Exposed Persons Reporting parties should take note of the new definition of politically exposed individuals (PEP), which covers both foreign and also domestic individuals and their family members and close associates. In the Finnish environment, it is important to bear in mind that the definition of politically exposed individuals also includes directors of government-owned companies. 4. Severe Sanctions The proposed changes include a new two-tier administrative sanctions regime, which may lead to considerable penalty payments to reporting parties in case of violations. A lower scale with maximum at EUR 100,000 would apply to breaches in general and higher penalties up to EUR 1,000,000 (or twice the gain from the non-compliance whichever is higher) to severe, repeated, systematic or wilful violations. 5. Entry into Force Parliament will decide in plenary sessions on the detailed contents of the proposed bill and its final approval, after which the President of the Republic ratifies the amendments. The effective dates will be confirmed in connection with ratification. According to current estimate, the new AML Legislation would enter into force in July 2017 at the latest.

Dittmar & Indrenius