The Fifth Anti-Money Laundering Directive of The European Union
by Vladimír Moroz, Slovakia and Jesús Alamo Ascencio, Spain & EU
Last updated Monday, August 27, 2018
On 9 July 2018, the Fifth Anti-Money Laundering Directive of 30 May 2018 (“AMLD5”) entered into force to prevent money laundering and terrorist financing through the financial system of the European Union (“EU”). Member States of the EU (“Member States”) should transpose the AMLD5 by 10 January 2020. The purpose of the AMLD5 is to amend the Directive (EU) 2015/849 referred to as The Fourth Anti-Money Laundering Directive of the EU. The adoption of the AMLD5 was a consequence of the terrorist attacks across the Europe and as a response to offshore business in the Panama Papers.
Especially, the main purpose of the AMLD5 is to diminish the possibilities to misuse the loopholes by criminals and better counter terrorism financing. This should be ensured by (i) increasing the transparency of ownership of trusts and legal entities, (ii) extension the criteria for assessment of high-risk third countries to harmonised criteria for the identification high-risk third countries, (iii) guaranteeing common level of safeguards for transactions from these countries. In addition, the AMLD5 extend its scope on virtual currencies.
The main amendments could be divided into the following:
Public access to the beneficial ownership information
This step should improve the transparency and efficiency of the beneficial ownership register (“Register”). In spite of its accessibility, it will not be an unlimited but it will be subject to the restrictions. The AMLD5 distinguishes between (i) the Register for companies and other legal entities and (ii) the Register for trusts and similar legal arrangements.
The Register for legal entities shall become publicly accessible without any restrictions and requirements to demonstrate a “legitimate interest”.
On the other side, according to Article 31 paragraph 1 of the AMLD5 access to the Register for trusts and similar legal arrangements for any natural or legal person will be limited by a “legitimate interest”.
In both mentioned above cases, it is the role of Member States to establish clear rules for the public accessibility. Although, the public will not access to all beneficial ownership information, but only to necessarily information such as: the name, the month and year of births, the country of residence, nationality of the beneficial owner and nature and extent of beneficial interest held. Nevertheless, Member States may extend the access of additional information in accordance with data protection rules.
Regulation of virtual currencies
The AMLD5 extends the sphere of obliged entities for other subjects, due to virtual currencies will be subject to the AML regime. According to Article 2 point 1 of the AMLD5 new subjects are:
- estate agents including when acting as intermediaries in the letting of immovable property, but only in relation to transactions for which the monthly rent amounts to EUR 10 000 or more,
- providers engaged in exchange services between virtual currencies and fiat currencies,
- custodian wallet providers,
- persons trading or acting as intermediaries in trade of works of art, where the value of the transactions amounts to EUR 10 000 or more,
- any other person that undertakes to provide, directly or by means of other persons to which that other person is related, material aid, assistance or advice on tax matters as principal business or professional activity.
Based on mentioned above obliged entities, it would be possible to the monitor operation with virtual currencies, as nowadays it is an attractive means of payment. Virtual currencies could by use as a various means of investment, exchange, store of value products as well as misuses for criminal purposes.
List of politically exposed persons
Member States should issue the list of politically exposed persons (“PEP”) containing the specific functions which, in accordance with regulations, national laws and administrative provisions, entitle as prominent public functions. Member States should also cooperate with international organisation operated on their territories and therefore should require from them to issue and keep up to date the list of prominent public functions at that organisation.
Reduced thresholds for prepaid cards and electronic money transactions
The main aim is to diminish the amount of anonymous prepaid cards. Current threshold (EUR 250) for identifying holders of prepaid cards is reduced to EUR 150. In the case of remote payment transactions necessity of identifying the customer where the transaction amount exceeds EUR 50.
Increased Due Diligence for transactions involving high-risk third countries
The AMLD5 enhances safeguards related to business relationships or transactions including high-risk third countries. In that case, obliged entities are required to apply enhanced customer due diligence measures to manage and reduce risks. Customers due diligence measures introduced by the AMLD5 are especially:
- obtaining additional information on the customer and the beneficial owner related to the intended nature of business relationship, the source of funds and source of wealth, the reasons for the intended or
- obtaining the approval of senior management for establishing or continuing the business relationship,
- conducting enhanced monitoring of business relationship,
- the application of additional elements of enhanced due diligence,
- the introduction of enhanced relevant reporting mechanism or systematic reporting financial transactions,
- the limitation of business relationships or transactions with natural persons or legal entities from high-risk third countries.
In summary, adoption of the AMLD5 should fill in gaps in law as well as improve legal instrument in the prevention of the use of financial system for the purpose of terrorist financing and money laundering. Now it is up to Member States to transpose requirements and execute them in proper way.
 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directive 2009/138/EC and 2013/36/EU