Business and investors in the European Union will have only just got used to the changes brought about by the 4th Anti-Money Laundering (AML) Directive, which member states were supposed to have aligned their laws with by 26 June 2017. However, additional changes to the EU’s AML framework are already being lined up in the form of the newly effective 5th Anti-Money Laundering Directive.
The 5th AML directive amends and adds to the 4th AML Directive and was first proposed by the in July 2016 following several terrorist attacks and the Panama Papers revelations. Nonetheless, it will bring about important changes in the areas of company and trust beneficial ownership information, pre-payment cards, virtual currencies, transactions with high-risk countries, disclosure of bank account information and the powers of financial authorities.
While the 4th AML Directive introduced the obligation on member states to make available information on the beneficial owners of companies to those with “legitimate interests”, the 5th AML Directive extends this to trusts and requires company beneficial ownership information to be made available for public inspection. A “legitimate interest” will still be required to view information on trust ownership, although this means that access could be provided to journalists and non-governmental organisations.
Member states can also impose a fee for searching a beneficial ownership database, enabling searches to be traced. Access restrictions will be imposed in certain circumstances, mostly when beneficial owners may be in danger of falling victim to crime.
National registers of beneficial ownership would also be linked to facilitate cooperation and exchange of information between member states.
To prevent pre-payment cards from being used to perpetrate crime, the Directive reduces the transaction threshold above which cardholders must be identified from €250 to €150, and to €50 for online transactions. Pre-paid cards issued outside the EU may be prohibited if the issuing country’s AML laws are not equivalent to the EU’s.
Virtual Currencies & Art Traders
The Directive provides a standard definition of virtual currencies and brings virtual currency exchanges and custodian wallet providers into the scope of AML/CFT requirements by classifying them as “obliged entities”. This means that they must identify their customers and carry out customer due diligence requirements. The same goes for tax advisers, lettings agents and art dealers.
The Directive enhances the due diligence requirements for transactions with “high-risk” countries by adding the requirement for information to be obtained on sources of funds and wealth and beneficial ownership information.
The criteria used to define a high-risk country is also more detailed and includes third-countries with low transparency on beneficial ownership information, lax AML/CFT sanctions, and poor information exchange track records. Additionally, the Directive further harmonises national rules in this area.
Centralised Bank Account Registers
The Directive requires member states to establish centralised bank account registers or retrieval systems to identify holders of bank and payment accounts.
FIU Powers and cooperation
The Directive provides financial intelligence units (FIUs) with easier access to financial and beneficial ownership information and facilitates enhanced cooperation between member states’ FIUs.
The 5th AML Directive was adopted on 19 April 2018 and published in the EU’s Official Journal on 19 June. The Directive entered into force on 9 July 2018 and member states have until 10 January 2020 to transpose it into domestic law. However, the deadlines for implementing registries on trust ownership and bank accounts are 10 March and 10 September 2020, respectively.