13 Mar 2019
In recent years the European Union has looked to flex its legislative muscle and come up with an array of laws aimed at cracking down on money laundering and terrorism financing.
Key to its package are its various directives, which impact national laws, banking operations and other industries across the bloc.
The directives have come a bit of a long way, but what may be worth noting is that after the adoption of the Third Anti-money Laundering Directive (3AMLD) on 26 October 2005, the EU went on a seemingly long recess in its legislative efforts against money laundering and terrorist financing.
With the fight against illicit cash and terror funding getting tougher, however, the EU was apparently jerked back into action, and it has been successively aiming to fire salvos at launderers and terrorists since.
After 3AMLD, it launched three directives within the space of two and a half years, which may raise the question about whether the directives build upon one another or if each directive is entirely different?
A close look at the directives, however, reveals that they are complimentary, for example, the fifth directive, amends the fourth, and the latest – the sixth directive – compliments the fifth directive.
This article highlights some key aspects of the EU’s fourth and successive directives, which are an important part of Europe’s response to financial crime.
The Fourth Anti-Money Laundering Directive (4AMLD)
4AMLD was adopted on 20 May 2015 and preserved the same tone set out in 3AMLD regarding combating the illicit transfer of money and terrorist financing.
What stood out about 4AMLD when it was launched was that it required member states to keep a central register of the beneficial or true owners of firms within their respective jurisdictions. Likewise for trusts, the directive required trustees to keep updated information of the beneficial ownership of their trust.
A beneficial owner is a natural person who ultimately owns or controls substantial shareholding (25 per cent or more) of a legal person. 4AMLD, however, allows member states to lower this percentage as a determinant of substantial shareholding or significant control.
Another key feature of 4AMLD was that it broadened the definition of politically exposed persons (PEPs) to include domestic PEPs, meaning not just the details of foreign, also but locally-based individuals with key public functions would need to be carefully checked.
And, unlike 3AMLD, it placed huge emphasis on the need for firms to conduct a risk-based approach at various levels, and set out a requirement for member states to commission national risk assessments.
Sanctions include naming and shaming entities and individuals (senior management). There are also monetary penalties of up to 10 per cent of the annual gross turnover of the defaulting obliged entities and fines for individuals (senior management) up to EUR 5,000,000:00 or its equivalent in countries outside the eurozone.
Some member states were slow to implement 4AMLD, which was meant to be transposed into their national law by 26 June 2017. By that date, however, only 11 member states had given effect to 4AMLD within the deadline.
Consequently, an extension was granted to the affected member states within which to implement the directive.
Fifth Anti-Money Laundering Directive (5AMLD)
The Fifth Anti-Money Laundering Directive (5AMLD), which was adopted on 30 May 2018, was built upon 4AMLD.
In fact, it was created to address apparent weaknesses in the EU’s anti-money laundering (AML) and counter terror funding (CFT) regime, especially following the terror attacks in France and Belgium.
On the issue of beneficial ownership, for example, 5AMLD introduced measures aimed at strengthening 4AMLD provisions on beneficial ownership. This included making the beneficial ownership register public.
The issue of publicising the register of benecial ownership stirred up controversy – some backed it as an important transparency tool to crackdown on corporate secrecy linked to dirty money, while critics said it would compromise peoples’ privacy and personal security.
Regarding PEPs, 5AMLD requires member states to issue a list indicating the specific functions, which in accordance with their respective laws, are performed by PEPs.
Of interest was 5AMLD’ stance on cryptocurrencies. Under 5AMLD, cryptocurrency exchanges are now considered “obliged persons” and therefore required to comply with the AML/CFT requirements of 4AMLD, which includse the filing of suspicious activity reports and carrying out customer due diligence (CDD).
The EU Sixth Anti-Money Directive (6AMLD)
6AMLD was published in the Official Journal of the EU on 12 November 2018, with a transposition date of 3 December 2020.
6AMLD complements the criminal law aspects of 5AMLD. A key features is that is introduces a maximum jail term of at least four years for money laundering activities.
Courts may also impose more measures such as fines, exclusion from access to public funding or judicial winding-up.
Other sanctions include a permanent ban from practicing commercial activities and and states can also excersize confiscation of proceeds.
6AMLD also emphasises improved enforcement cooperation in cross-border cases.
About the writer: Dr. Sirajo Yakubu is a researcher and consultant in the areas of Economic Crime, and International and Commercial Law (World Trade Specialist).
This article is expressing personal opinions and is meant for information purposes only. The article does not intend to replace professional or legal advice. It is recommended that readers seek independent professional or legal advice, or speak to authorised persons/organisations.
Count this content towards your CPD minutes, by signing up to our CPD WalletFREE CPD Wallet