– 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.
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.