The European Union’s Fifth Anti-Money Laundering Directive – a summary of the changes
11 Jan 2017

In June 2015, the European Union’s fourth anti-money laundering directive (“4MLD”) was enacted, with the requirement that all member states transpose the rules into national law within two years. The directive is the EU’s main instrument for preventing the misuse of its financial system by money launderers and supporters of terrorism.

But financial crimes are evolving phenomena, and the terrorist attacks across Europe in late 2015 and throughout 2016, combined with the Panama Papers leak, suggested the need for tougher measures and closer collaboration. A package of amendments to 4MLD has therefore been proposed, before the directive has entered law in most member states. These changes, generally referred to as “5MLD”, will be voted on later in January. European lawmakers will decide at the same time if the amendments should share the transposal date of 4MLD (26th June 2017), or if member states should be able to adopt the original directive before enacting the changes to it.

KYC360 will offer a full analysis of 5MLD subsequent to the vote, but in the meantime we have summarised and categorised the proposed changes. The original EU document is available here.

 

Collaboration between member states

  • The Union will seek an increasingly integrated approach from member states on the compliance of national AML/CFT regimes. ‘Effectiveness assessments’, to ensure the correct transposition of the new rules and their effective implementation, are being considered
  • The functions, competences and powers of Financial Intelligence Units (“FIUs”) in different states should be coordinated
  • FIUs should be able to exchange information relevant to investigations with FIUs in other member states, even if laws about predicate offences differ between states
  • Member states will be required to keep a register of the identity of holders of bank and payment accounts and other relevant details, to allow timely information sharing with and between FIUs

 

Beneficial ownership

  • Member states will be required to ensure accurate and up to date information on the beneficial ownership of companies is kept
  • Within 18 months of the implementation of the Directive, information on the beneficial ownership of trusts and ‘similar legal arrangements’ will be available to anyone with a ‘legitimate interest’. Member states will be left to define this term themselves
  • Member states will be able to create exemptions to the disclosure of and access to beneficial ownership information in the registers in ‘exceptional circumstances, where the information would expose the beneficial owner to the risk of fraud, kidnapping, blackmail, violence or intimidation.’

 

Trusts and similar legal arrangements

  • All trusts and similar legal arrangements should be registered where they are administered. Member states should cooperate on sharing and registering beneficial ownership information about trusts
  • Currently, companies and other legal persons in the Union are required to register beneficial ownership information, but this does not apply to some trusts and other legal arrangements with similar characteristics. Member states will require all legal arrangements under their law which have a structure and function similar to trusts to be treated legally as ‘legal arrangements similar to trusts’. It will be taken into account that these arrangements, ‘such as Treuhand, fiducies or fideicomiso set up in the Union, may have different legal characteristics throughout the Union.’

 

Virtual currencies 

  • The obligation to report suspicious transactions will be extended to providers of virtual currency exchanges (services which exchange virtual money for traditional money) and custodian wallet providers. The Commission holds that currently, the degree of anonymity offered by virtual currency networks may allow terrorist groups easier access to the EU financial system
  • National FIUs will be able to obtain information allowing them to identify the owner of virtual currency

 

Risk assessment and monitoring

  • Members States will require obliged entities to apply enhanced due diligence in high risk cases and when dealing with natural and legal persons from high risk jurisdictions
  • Certain categories of existing customers will be monitored on a regular basis, as well as in accordance with a risk based approach

 

The powers of Financial Intelligence Units

  • FIUs will be able to obtain relevant information from any obliged entity
  • The regulators supervising obliged entities to ensure they comply with the Directive should be able to cooperate and exchange confidential information. To this end, regulators should have an ‘adequate legal basis’ for exchanging confidential information. Collaboration between AML/CFT regulators and ‘prudential supervisors’ should not be hampered by legal uncertainty stemming from a lack of clear provisions

 

Prepaid cards

  • The maximum amount a prepaid card can hold before issuers are required to apply various due diligence measured will be further reduced
  • In remote payment transactions, the customer will have to be identified if the transfer exceeds EUR 50. This figure will be reduced to EUR 0 in due course
  • Anonymous prepaid cards issued outside the Union will be accepted only if they can be considered to comply with requirements equivalent to those in the Union

 

Electronic copies of documents

  • Member states should accept ‘secure electronic copies of original documents as well as electronic assertions, attestations or credentials’ as valid methods of proving identity

 

Amos Wittenberg, Editor, KYC360

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