Europe has strengthened the rules to fight money laundering with its new directive, the 5th Anti-Money Laundering Directive (5AMLD).
The 5th Anti-Money Laundering Directive, (also referred to as AMLD5) updated the latest anti-money laundering (AML) guidelines to help financial entities such as banks and other organizations to apply measures to prevent money laundering and terrorist financing.
For the first time, the changes broaden regulations by including cryptocurrency service providers like virtual-fiat exchanges or custodian wallet providers. The purpose is to see who is making crypto transactions. Overall, the amendments will:
- Enhance transparency by setting up publicly available registers for companies, trusts and other legal arrangements:
- Enhance the powers of EU Financial Intelligence Units, and provide them with access to broad information for the carrying out of their tasks;
- Limit the anonymity related to virtual currencies and wallet providers, but also for pre-paid cards;
- Broaden the criteria for the assessment of high-risk countries and improve the safeguards for financial transactions to and from such countries through enhanced due diligence;
- Set up central bank account registries or retrieval systems in all member states;
- Improve cooperation and enhancement of information between anti-money laundering supervisors, prudential supervisors and the European Central Bank.
Specific changes in 5AMLD
Obligated Entities
The new Directive now applies to the following entities:
- Virtual currency providers and custodian wallet providers (including virtual currency exchange platforms (VCEPs) and custodian wallet providers (CWPs));
- Art traders, when the value of transactions or series of linked transactions amount to EUR10,000 or more;
- Those who provide similar services to auditors, external accountants and tax advisors as a principal business or professional activity; and
- Estate agents who act as intermediaries in the letting of property where the monthly rent is equivalent to EUR10,000 or more.
Electronic Money
With 5AMLD, customer due diligence measures now apply to non-reloadable payment instruments that have a maximum monthly payment transaction limit of EUR150 and where the maximum amount stored electronically exceeds EUR150 (previously EUR250). CDD measures also apply to remote payment transactions that exceed EUR50 (previously EUR100).
Politically Exposed Persons (PEPs)
PEPs are defined as individuals who are or have been entrusted with prominent public functions, including members of legislative bodies, government ministers, judges, high-ranking members of the armed forces and senior officials of state-owned enterprises.
Under 5AMLD, each member state and any international organizations accredited to it will be required to keep an up-to-date list of exact functions which qualify as prominent public functions. A single list of all prominent public functions will be assembled by the Commission and will be made public.
Customer Due Diligence
5AMLD requirements include providing additional identification and verification obligations and must be based on documents, data or information from a reliable and independent source. Where available, this should include electronic identification means that have been approved by national authorities.
Beneficial Ownership Registers
The directive extends the requirements relating to central registries, requiring that they be enhanced to ensure that their information is adequate, accurate and current. Separate ultimate beneficial ownership (UBO) registries for bank accounts must also be created, although these will only be accessible by authorities. Trusts will also have to abide by UBO regulations. In general, members of the general public will be able to access this information, although a ‘legitimate interest’ has been maintained for trusts.
Enhanced Due Diligence
All EU member states now require firms to apply enhanced due diligence to business relationships or transactions involving high-risk third countries. A list of high-risk countries can be found here. 5AMLD has also expanded the triggers for EDD to include transactions relating to oil; precious metals; arms; tobacco products etc. have all become new risk factors to be considered.
Information Sharing
EU member states will now have to comply with the following:
- Designate which competent authorities can have direct and immediate access to bank account information for the prevention, detection, investigation or prosecution of certain criminal offences, and which authorities can request information or analysis from the FIUs;
- Ensure that FIUs are required to cooperate with the competent authorities and are able to reply to requests for financial information or analysis from those authorities in a timely manner;
- Ensure that the designated competent authorities reply to requests for law enforcement information from the national FIU in a timely manner;
- Ensure that FIUs from different Member States are entitled to exchange information in exceptional and urgent cases related to terrorism or organised crime associated with terrorism;
- Ensure that the competent authorities and the FIUs are entitled to reply (either directly or through the Europol national unit) to duly justified requests related to bank accounts and financial information made by Europol.
Legislation Under Constant Review
The European Union has come a long way since it adopted the first anti-money laundering directive back in 1990 in an attempt to prevent the misuse of the banking system for financial crimes.
It obliged financial institutions to apply customer due diligence (CDD) requirements when entering into business relationships. The legislation has been constantly revised, and in 2015 the EU adopted a modernized regulatory framework. The 4th Anti-Money Laundering Directive and regulations governing the transfers of funds made it more transparent to assist law enforcement authorities to track down terrorists and criminals.
The new 5AMLD rules amend the 4th directive and were published in the Official Journal of the European Union on 19 June 2018, giving member states until January 10th of this year to bring them into force.
Looking ahead, the 6th anti-money laundering directive (6AMLD) comes into effect for member states on 3 December 2020 and must be implemented by financial institutions by 3 June 2021. The new set of rules is designed to empower financial institutions and authorities to do more in the fight against money laundering and terrorism financing, clarify certain regulatory details and toughen criminal penalties.
UK to Adopt New AML Rules Despite Brexit
The United Kingdom will no longer be subject to the EU law once the Brexit transition is complete, but the UK is adopting the regulations in stages.
Most of the provisions came into force in the UK on January 10, 2020, with the exception of those governing customer due diligence on anonymous prepaid cards, which will be adopted in July 2020. The rules for requests for information about accounts and safe-deposit boxes will come into effect in September 2020.
Alessa allows organizations operating in multiple jurisdictions to combat money laundering by screening individuals and entities as well as monitoring every financial activity across lines of business. To learn more about how our AML compliance and regulatory reporting software and how we can help comply with 5AMLD, contact us.
