Forewarned is forearmed

What will change with the 5th AML Directive?

The new Fifth Anti-Money Laundering Directive which was adopted by the European Parliament on the 19th of April 2018 and was published in the Official Journal of the European Union on the 19th June 2018 essentially sets out to:

• Extend the access to information contained in the newly established registers of beneficial owners which are currently being set up or have been set up across EU Member States
• Address the money laundering threats posed by virtual currencies and prepaid cards
• Introduce various provisions which aim to strengthen Financial Intelligence Analysis Units and the due diligence procedures which subject persons are required to carry out on individuals and entities from high-risk jurisdictions

Lets’ take a deeper look at the detail.

1. Register of Beneficial Owners

The fourth anti-money laundering directive made it a mandatory requirement for the competent authorities of Member States to establish beneficial ownership registries. Under that directive a request for information was only to be provided to a person demonstrating “legitimate interest” to the competent authorities.

Under the 5th AMLD the “legitimate interest” requirement shall be done away with and access to beneficial ownership information of companies shall be extended to the general public.

Furthermore, the new directive shall ensure that such disclosure requirements applies to trusts and similar arrangements, subject to the “legitimate interests” requirements previously imposed on companies.

The establishment of registers in relation to information on Beneficial Owners of corporate/legal entities is to occur by 10th January 2020 whilst the establishment of those registers in relation to trusts is to occur by the 10th March 2020.

2. Virtual Currencies

The 5th AMLD also addresses virtual currencies in an effort to stay ahead of recent trends and innovations.

The notions of exchange services between virtual and fiat currencies and custodian wallet providers have been introduced. Such notions are addressed through the duty of the Member States, to ensure that the providers of such services are fully registered with the necessary authorities.

It is firmly established that virtual currency platforms and wallet providers shall be considered ‘obliged entities’ and so are deemed to have the same responsibilities as other obliged entities, such as monitoring transactions and effectively implementing customer due diligence.

Arrangements with regard to virtual currencies are to be established to maintain a central database of users’ identities and wallet addresses along with self-declaration forms for virtual currency users and are to be made accessible to FIUs.

3. Prepaid Cards

Prepaid cards were also tackled in the proposed amendments in relation to the limits of monthly payment transactions and the maximum amount stored electronically. Both limits were reduced from €250 to €150. In the case of redemption of the monetary value of electronic money, the amount was of €100 was replaced with €50.

Prepaid cards issued outside the EU are now prohibited unless they were issued in a territory enforcing legislation equivalent to the EU’s AML/CFT and KYC standards. Obliged entities must review the way they handle prepaid card payments, and put mechanisms in place to identify (and refuse) transactions using cards from non-EU sources.

4. Strengthening Financial Intelligence Units or FIUs

The proposed amendments also aim to strengthen the powers of FIUs. In order to achieve this, centralised automated mechanisms such as central registers or central electronic data retrieval systems are to be made available to FIUs and competent authorities.

This is being done by setting up central registers and it implies the ensuing accessibility to Beneficial Owner information for FIU’s. Member States are to ensure that registers collecting and holding information are to be interconnected via the European Central Platform.

The information available in the registers is to be retained for between five to ten years after the corporate or legal entity, or trust, has been struck off from the register.

Member States have the obligation to provide FIUs and competent authorities with access to information contained in registers or electronic data retrieval systems. FIUs shall now be able to ‘request, obtain and use information from any obliged entity’, even if no prior report is filed. They are also entitled to all necessary information provided ‘directly’ and ‘at its request’ by obliged entities. FIUs are able to exchange information regardless of the type of associated predicate offence and even if the offence is not identified at the time of exchange. FIUs responding to requests for information from another Member State’s FIU are obliged to transfer the answers promptly and obtain such information.

The refusal of granting information by a requested FIU is no longer justified in the case of such dissemination being disproportionate to the legitimate interests of a natural or legal person or the Member State of the requested FIU.

The goal of these amendments is to fortify the reach and influence of FIUs and, in doing so, aid in supporting the cause of combating money laundering and terrorist financing.

5. Enhanced due diligence for high-risk third countries

The last major topic of the new Directive’s focus is that of enhanced due diligence for high-risk countries. Previously, such procedures were left in the hands of individual Member States. However, the new amendments attempt to align such procedures with a more consistent standard.

With regard to high risk third countries, the Commission is empowered to adopt delegated acts, taking into account strategic deficiencies in the availability of accurate and timely information of the beneficial ownership of legal persons and arrangements to competent authorities, along with the ‘powers and procedures of the third country’s competent authorities’, including sanctions, cooperation and exchange of information with Member States’ competent authorities.

Member States shall require obliged entities

– to examine the background and purpose of all transactions given that they are either complex, unusually large, conducted in an unusual pattern or do not have an economic or lawful purpose

– to increase the nature and degree of monitoring in determining whether the transactions or activities are suspicious.

Among the list of customer risk factors at potentially higher risk is a customer being a third country national who applies for residence rights or citizenship in the Member State in exchange of capital transfers, purchase of property or government bonds, or investment in corporate entities was added.

Enhanced due diligence measures on behalf of Member States with respect to high-risk third countries include:

• obtaining information on the customer,
• obtaining information on the beneficial owner,
• obtaining information on the intended nature of the business relationship,
• source of funds,
• source of wealth of the customer and beneficial owner and
• obtaining reasons for intended or performed transactions

Further additional mitigating measures have been introduced, including application of additional elements of enhanced due diligence, enhanced relevant reporting mechanisms or systematic reporting of financial transactions and the limitation of such business relationships and transactions with high-risk third countries. Member States are to uphold the responsibility of placing customer due diligence measures on their credit and financial institutions when entering into a business relationship with and involving the execution of payments with a third-country respondent institution.

Amendments to customer due diligence measures with regards to PEP’s (Politically Exposed Persons) have also been introduced. One such amendment included the duty of Member States to request, acquire and issue a list of prominent public functions to the Commission. Member States also have the duty to ensure that competent authorities do not refuse a request for assistance on the grounds that it involves tax matters, or that National law requires secrecy or confidentiality on said matter except in cases of legal privilege, in the presence of an inquiry, investigation or judicial proceedings underway in the Member State.

6. Implementation

Member States are expected to implement the regulations into national law by June 2020.