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AML MIFID CRS a potential triptych (english version)

A traditional way in money laundering is investment in financial markets through a financial intermediary. Why not bring different tax and financial regulations into line with anti-money laundering legislation in the ultimate purpose of preventing the reuse of illicit money and protecting intermediaries and their clients? The answer is in part the second version of the Mifid (Markets in Financial Instruments Directive) law that it extends the fulfillment, with common points with anti-money laundering rules in the proper verification procedure. The second verse of Mifid increases the requirements for investment firms that will also need to inform users about the risks, losses, costs, and consultancy costs. These obligations intersect with those of an adequate audit of anti-money laundering clients, which provide for proportional risk measures. For several years, however, we are seeing a convergence of different norms in a complete sharing of information. No new information is shared between the Customs Agency and the Tax Authority or information sharing between the various European Tax Authorities. The next “jump beyond the fence” was with the slow but gradual adaptation of European and extra European regulations to the CRS (Common Reporting Standard) and/or the bilateral agreements between European countries and the US Administration with Fatca (Foreign Account Tax Compliance Act). These regulations are not just an effect of sharing information, but they are the cornerstones of legislation on the future in consultant profession, too. Directive 2016/2258 concerns administrative cooperation and defines the automatic exchange of information, a fundamental novelty is introduced: the right of access to anti-money laundering information. What it will happen will be a confluence between the Laundering Money Laundering and Administrative Assistance Regulations, now defined in global standards and already in place since 2016 in several European Union member states, but not yet expiring differentiated in 2017 and 2018 for other few countries. An important breakthrough also involves identifying the actual holder. The authorities have the task of going back to the so-called "beneficial owner" if the current accountant is not a natural person. In order to be able to fulfill its obligations, European intermediaries will have to be able to access anti-money laundering information across the EU, including proper customer verification in the various types, for example; from corporate constitutions and creations of trust. All this swirling combination took place in a few years in three major steps.

First step:

Following the approval by the United States Congress of the FATCA in 2010, a policy push for adopting a globally accepted standard of automatic exchange of tax information quite similar to Fatca. Thus the CRS was created, approved by the OECD in 2014, which provides:

  • a model of intergovernmental agreement (bilateral and / or multilateral),

  • a common set of procedural rules for adequate tax audit of financial accounts (due diligence tax);

  • a commentary containing explanatory clarifications,

  • a set of technical rules governing the transmission of information.

Second step:

The next step was the implementation of the Common Reporting Standard. Implementation of the CRS among the EU Member States took place by adopting Directive 2014/107/EU, which amended the 2011/16 EU Directive on administrative cooperation in tax matters. The Directive has the privilege of adopting a single global standard (CRS), minimizing the costs and administrative burden for financial intermediaries called upon to implement it while ensuring compliance with taxpayers' privacy in accordance with European directives . The consequence of the Directive is that from January 1, 2016 the set of fiscal information of a financial nature that is exchanged between the EU countries is far more extensive and detailed than previously provided for by the old legislation (Directive 2003/48/EC on taxation of saving income).

Third Step:

The automatic exchange of information with non-EU countries was based on the 1988 OECD Overseas Administrative Assistance Convention (revised in 2010) and the Multilateral Framework Agreement (MCAA) developed in 2014, OECD.

In Italy, for example, with the publication in the Official Gazette of the Decree of the Minister of Economy and Finance of 28/12/2015, which makes international agreements operational on the mandatory automatic exchange of tax information, introduces in Italian law the standard OCSE of the CRS. As of 2016, the EU and non-EU tax authorities participating in the OECD standard began to exchange information obtained from the community of financial intermediaries, relating to financial accounts and their holders, including the data of the actual holders of entities (trusts, foundations, ...) and beneficiaries of insurance policies of a financial nature. As previously announced in a few years a radical change has taken place. Specifically, the Italian law of 28/12/2015 prescribes what information the Italian financial intermediaries must collect and transmit to the Revenue Agency and what are the procedural rules to be followed. Implementing the 2014/107/EU Directive and Law No. 95/2015, the Decree allows intermediaries to use the same procedures that are already being used by FATCA as well as AML/KYC procedures for proper client verification based on anti-money laundering legislation, allowing to pursue synergies and to reduce compliance costs. The category of CRS financial intermediaries and financial information provided by the CRS are considerably broad in order to limit "tax evasion".

More accurately you can list that:

  • financial information will now be received by the tax authorities of the partner States in electronic format, with regularity, and automatically;

  • financial information relating to any financial account held in a partner jurisdiction and intended for natural persons or entities such as, for example, companies, foundations, trusts, of which one or more natural persons are "effective holders" within the meaning of anti-money laundering provisions, as well as beneficiaries of financial life-assurance contracts;

  • in relation to each financial account will be provided first and foremost all the identification details of the person who is the subject of the communication (name, address, residence, tax code) and the financial account (account number and identification numbers of the financial intermediary);

Financial information that is to be disclosed and traded relates not only to capital gains such as coupons, interest and dividends, but also the balances on account and the fees for sales and redemptions of financial instruments. Following the adoption of the CRS, each country that has signed the agreement will then receive information on financial assets held abroad by resident and mutually resident entities, will transmit the same information to other partner countries in relation to their resident. As a result, each Tax Agency will have all the information needed to identify foreign financial resources and to start auditing, making it increasingly difficult or almost impossible to conceal assets and income abroad.

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