On April 19, 2018, The European Parliament has agreed on its position on the adoption of amendments to the Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (4th Anti-Money Laundering Directive). The new Directive is the fifth revision of the EU anti-money laundering law and is generally referred to as the 5th Anti-Money Laundering Directive (5AMLD).
The position of the Parliament supports the proposal of the European Commission from July 2016 and is the next step in the EU legislative procedure following the political agreement between the European Commission, the Council and the European Parliament reached in December 2017.
The proposed amendments are part of the Commission’s “Action Plan for strengthening the fight against terrorist financing” and are a reaction to a string of terror attacks in Europe since 2015 and the Panama Papers revelations.
The 5AMLD is not a comprehensive overhaul of the existing legislative framework but rather an amendment of the 4th Anti-Money Laundering Directive, which should have been transposed by EU Member States into national law by June 26, 2017. Only 11 EU countries met the deadline and established the necessary legislation: UK, France, Germany, Italy, Spain, Slovenia, Sweden, Austria, Belgium, the Czech Republic and Croatia.
The aim of the amendments is to set out measures to better counter the financing of terrorism and to ensure increased transparency of financial transactions. It will do so by
- preventing risks associated with the anonymous use of virtual currencies for terrorist financing and limiting the use of pre-paid cards;
- increasing transparency on company ownership by improving the accuracy of beneficial ownership registers;
- strengthening the monitoring of financial transactions to and from high-risk third countries;
- enhancing the powers of EU Financial Intelligence Units and their access to information, including centralised bank account registers;
- ensuring centralised national bank and payment account registers or central data retrieval systems in all Member States.
Overview of the main changes introduced by the 5AMLD
- Extension the scope of application of the Directive
The rules will now apply to entities which provide services that are in charge of holding, storing and transferring virtual currencies, to persons who provide similar kinds of services to those provided by auditors, external accountants and tax advisors which are already subject to the 4th Anti-Money Laundering directive and to persons trading in works of art.
For the first time the obligations are to be imposed on exchange platforms for virtual currencies such as Bitcoins and the providers of digital wallets for virtual currencies. The objective of the Directive was to design a definition, which would cover as many tokens as possible and to cover all the potential uses of virtual currencies.
Electronic exchange offices where virtual currencies can be changed into fiat money and the other way round are considered exchange platforms. Custodian wallet provide accounts that are denominated in virtual currencies and via which payments in virtual currencies can be rendered and received. It is questionable whether the 5AMLD can put an end to money laundering or terrorism financing using virtual currencies, because virtual currencies can still be exchanged between private persons without any monitoring. Furthermore, providing only exchange of cryptocurrency to cryptocurrency, will potentially remain out of scope of the 5AMLD.
These new actors will have to identify their customers and report any suspicious activity to the Financial Intelligence Units. In addition, electronic exchange offices and custodian wallet providers will have to be registered with the AML authority of their jurisdiction.
- Combat against the anonymity of electronic money
Customer identification should be carried out in the case of remote payment transactions where the amount paid exceeds € 50.
Member States will have the possibility to allow the anonymous use of electronic money products only in two situations: (i) when customers use their prepaid instrument (such as prepaid cards) directly in the shop for a maximum transaction amount of € 150 (in the 4AMLD this threshold was set at € 250); (ii) when customers carry out an online transaction with a prepaid card below € 50.
- Enhancement of transparency of the beneficial ownership
The beneficial ownership registers for legal entities, such as companies, will be public. The access to the beneficial ownership registers for trusts is limited to competent authorities, professional sectors and persons who can demonstrate legitimate interest. This wider access to part of the beneficial ownership information will enhance public scrutiny and will contribute to preventing the misuse of legal entities for money laundering and terrorist financing purposes.
The national registers on beneficial ownership information will be interconnected directly to facilitate cooperation and exchange of information between Member States. In addition, Member States will have to put in place verification mechanisms of the beneficial ownership information collected by the registers to help improve the accuracy of the information and the reliability of these registers.
- Management of risks associated with high-risk third countries
The Commission has established and regularly updates a list of non-EU countries with deficiencies in their anti-money laundering prevention regimes, which builds on that established at international level by the Financial Action Task Force.
The Commission is currently working towards a new methodology to identify high risk third countries presenting strategic deficiencies in tackling money laundering and financing of terrorism that does not rely only on external information sources. This methodology will clarify the process for carrying out the assessment, the listing criteria and the follow-up procedure – including the involvement of Member States experts and engagement with the European Parliament throughout the process.
The 4AMLD contained a general regulation on the application of enhanced due diligence in case of high risk countries. The aim of the 5AMLD is to develop a consistent EU approach toward high-risk countries by outlining the minimum enhanced due diligence measures in order to reduce the ability of terrorists to exploit the differences in regulatory requirements throughout the EU.
What to do?
The 5AMLD means for obliged entities (banks, financial institutions, insurances etc.) additional efforts to implement the new requirements and adjust the internal prevention measures accordingly.
An operational impact assessment should be completed to create or revise existing procedures, resources, system requirements to meet new obligations.
The amended Directive still needs to be formally endorsed by the Council (expected in May or June) and will enter into force 20 days after being published in the Official Journal of the EU. Member States will have 18 months to transpose the amended Directive into national law which is expected by the end of 2019.
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