Strengthened measures to combat money laundering
MLCA proposed amendment to the Danish Act on Measures to Prevent Money Laundering will make the requirements more rigorous in terms of members of management's knowledge of money laundering legislation and money laundering risks as well as the personal consequences for members of management in case of breach of such provisions. Also, a possibility of financial undertakings losing their licenses in case of gross breach of the money laundering legislation will be introduced.
On 8 November 2017, the Danish Financial Supervisory Authority (the "Danish FSA") sent a draft bill out for consultation that will entail amendments to the Danish Financial Business Act and the Danish Act on Measures to Prevent Money Laundering, among others. The bill is part of the implementation of a broad political agreement entered into on 21 June 2017 in the wake of Panama Papers leak.
More stringent fit and proper requirements
MEMBERS OF MANAGEMENT
It is proposed that the existing fit and proper provision in section 64 of the Danish Financial Business Act that applies to members of managements be rewritten in general. In that connection no significant amendments will be made to the text of the provision but the comments on the fit and proper requirement in the new section 64(1)(ii) reflect the new, more prominent position of money laundering legislation in connection with the assessment. It is stated that:
- It will in particular be difficult for executive managers to comply with the requirement if the undertaking in question "has received repeated orders for the same breach of financial regulation or the provisions on money laundering." In addition to money laundering legislation, the comment also applies to breaches of the EU sanction regime.
- When assessing maintenance of confidence in the financial sector "importance is attached to the member's understanding of the financial sector's special social responsibility in terms of prevention of money laundering and financing of terrorism." In that context, it is noted as an example that an assessment is to take into account the relevant member's conduct in a previous executive position as a compliance officer or an anti-money laundering officer in an undertaking that has breached money laundering legislation.
If the draft bill is passed in its present form, future fit and proper assessments must thus be expected to attach more importance than today to the previous performance of members of management in terms of compliance with money laundering legislation in undertakings with which they were previously associated, and thus that in future problems in previous undertakings may to a greater extent "haunt" potential members of boards of management.
ANTI-MONEY LAUNDERING OFFICERS
It is proposed that a specific fit and proper requirement for the anti-money laundering officer be included in section 7(2) of the Danish Act on Measures to Prevent Money Laundering, in line with the requirement that already applies to the members of managements of financial undertakings under section 64 of the Danish Financial Business Act (and to eg payment institutions and electronic money institutions under the Danish Payment Services and Electronic Money Act). However, there will be the difference that the undertaking itself will have to make the fit and proper assessment, not the Danish Financial Supervisory Authority. A genuine fit and proper procedure is thus not introduced in respect of anti-money laundering officers.
It appears from the comments on the new provision that the fit and proper requirement cannot be deemed to be fulfilled eg when the person or an undertaking in which the person was previously a member of the management or employed as a compliance officer has been the subject of serious supervisory reactions as regards the money laundering legislation.
Removing anti-money laundering officers
As part of the draft bill, section 51a of the Danish Act on Measures to Prevent Money Laundering will introduce a possibility for the Danish FSA to order that an undertaking comprised by the Danish Act on Measures to Prevent Money Laundering remove the anti-money laundering officer, if such person no longer meets the fit and proper requirement. If the undertaking ignores the order, the Danish FSA may impose fines on the undertaking, potentially remove the relevant executive manager or ultimately withdraw the undertaking's license (see more below).
Withdrawal of license
It is proposed to introduce, in section 224(1)(i), a new possibility for the Danish FSA to withdraw a financial undertaking's license due to breach of the money laundering legislation. It has not been possible to do so previously, and the legal position of undertakings holding a license under the Danish Financial Business Act (eg financial institutions, mortgage credit institutions and investment services companies) will thus be in line with the applicable legal position of payment institutions, e-money institutions and foreign exchange businesses.
Not surprisingly, it appears from the comments on the provision that a "high degree of materiality" is required in order for the withdrawal of a license to be considered, just as it is presupposed that less radical sanctions have already been applied to no avail. In that connection it expressly appears that it is presupposed that the Danish FSA has previously issued an order that the undertaking's anti-money laundering officer or a member of the management or the board of directors be removed.
Failure to comply with an order to remove the anti-money laundering officer "will as a starting point be considered gross breach of the money laundering legislation that may result in withdrawal of the license.
Coming into force and future amendments
According to the draft bill, the mentioned provisions are to come into force on 1 July 2018. However, it is important to note that as the fit and proper requirement applying to both members of management and anti-money laundering officers is a permanent requirement that must always be fulfilled, it will probably also be possible for the Danish FSA after 1 July 2018 to order that a current member of the management or an anti-money laundering officer be removed with reference to circumstances prior to 1 July 2018.
It is also worth noting that the political agreement of 21 June 2017 contains several other measures that are not covered by the Danish FSA's draft bill, including a significantly increased level of fines for breach of money laundering legislation and separate criminalisation of money laundering in the Danish Penal Code. Several initiatives come within the sphere of the Danish Minister of Justice, and at the moment the necessary regulation is expected to be introduced during the first six months of 2018.