5th Money Laundering Directive

It has come to our attention, over the past few weeks, that there has been some suggestion, from some misinformed individuals in the fintech sector, about the ongoing compliance of electronic ID verification systems in light of the 5th Money Laundering directive (5MLD).

We want to assure all of our users that SanctionsSearch.com and ValidiD.co.uk remains fully compliant with all current and anticipated legislation.

Contrary to the propaganda that is being pushed out by some in the electronic identity verification (EIDV) community, the 5th MLD does not mandate the use of EIDV systems, it merely sets the standard of compliance if you choose to take that route.

Here at SanctionsSearch.com and ValidiD.co.uk we do not push the use of our system in this manner. In fact we encourage our clients to always, where possible, see clients in person see and touch live documents and get copies, which is one of the reasons we have an “App for that”. There is currently no better alternative to this method, in our professional opinion EIDV serves as an excellent complement to this activity not, unless unavoidable, a replacement.

The key points that the 5MLD affirms which effect financial advisers along with the tools within our system that aid you are:

Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) – You will already be familiar with this, if not the terminology. It is “Know Your Customer” (KYC), by way of identifying the client and where they live. This can still be done by seeing the client in person visiting their residence, getting access to their identity and address verification documents and taking copies for your file. You also have the opportunity within ValidiD to additionally verify all this information against various independent data sources such as the voters roll, credit files, Equifax and Experian along with watch lists such as sanctions and politically exposed persons database (PEPs).

CDD and EDD also extends to corporate clients, meaning when you deal with a business the obligation to establish the business is who it purports to be and also you know who all the beneficial owners of that business are. Within SanctionsSearch.com and ValidiD.co.uk there is a tool called CompanyLookup and CompanyLookup Enhanced, these allow you to pull in all the live directors and shareholders from Company’s House as well as a full financial breakdown of the company, its structure and its history.

Within EDD there is also an obligation in some circumstances to focus on source of funds and source of wealth where it may not be otherwise obvious. This is of particular relevance when dealing with high risk clients such as PEPs and high-risk business, transactions or jurisdictions.

EDD extends to trusts, complex or otherwise, along with beneficiaries of life insurance policies. So, in the past you may have obtained evidence of identity from the settlor/s and trustees this is now extended to any nominated beneficiaries.

Politically Exposed Persons (PEPs). Contrary to popular understanding this does not just mean people who hold a political office, this refers to people who hold positions of influence and power along with their close associates and family. To understand this, you need to understand the risk. People who hold positions of influence and power are also at risk of corruption within office, by way of things such as bribery. As any type of corruption is a criminal offence any proceeds that ultimately get spent or enter the financial system would be deemed money laundering. It is for this reason that firms need to be very vigilant of PEPs and if they find they are dealing with a PEP or close associate they need to carry out EDD with particular attention to source or even source of source of funds to satisfy themselves that the money which that they are transacting is legitimate and not ill gotten.

Within the SanctionsSearch.com and ValidiD.co.uk we have multiple PEP tools. A day one PEP check that just checks once if the client is a PEP for a single transaction. We also have a PEP screen and monitor tool that checks the client against live PEP database but also rechecks the client every single day throughout the year to alert the user if the client becomes a PEP. This tool also includes adverse media letting you make a commercial reputational decision as to whether or not you wish to deal with a particular client who may have had a checkered past.

Within the PEP screen and monitor tool you can also check entities. This option establishes if an entity client has political exposure such as state ownership along with adverse media which may further inform you in your commercial relationship.

As a bit of background SanctionsSearch.com and ValidiD.co.uk are products created and managed by Professional Office Ltd. Professional Office is operated by a team of people with various skills and qualifications in Money Laundering Financial Services and software development. Chris Clare the managing director is a retired IFA with 25 years’ experience, has been a firm compliance officer, MLRO, supervisor and qualified IFA. Chris is currently studying for The Certified Anti-Money Laundering Specialist (CAMS) certification.