Due Diligence

The impact of the Fifth Anti-Money Laundering Directive

Barely a year following the implementation of the 4th Anti-Money Laundering Directive, the European Parliament has adopted a new directive which aims to add further layers to the European anti-money laundering framework. The 5th Anti-Money laundering directive has been adopted and entered into force on 9 July 2018 and should be fully implemented into national law by the various Member States into their national legislation by 10 January 2020.

The key points of strengthen set by the 5th AML Directive are:

• Improving transparency on the real owners of companies and trusts to prevent money laundering and terrorist financing via opaque structures;

• Improve the work of Financial Intelligence Units interconnecting the beneficial ownership registers at EU level;

• tackle terrorist financing risks linked to anonymous use of virtual currencies and of pre-paid instruments;

• Improve the cooperation and enhancing cooperation between financial supervisory authorities, anti-money laundering supervisors and with the European Central Bank;

• Broadening the criteria for assessing high-risk third counties and ensure a common high level of safeguards for financial flows improving checks on transactions from such countries. 

With the 5th Anti-Money Laundering Directive, the beneficial ownership registers for legal entities should be public in all Member States. This wider access to part of the beneficial ownership information will be preventing the misuse of legal entities for money laundering and terrorist financing purposes and enhancing public scrutiny.

The national registers on beneficial ownership information will be interconnected directly to facilitate cooperation and exchange of information between Member Countries. 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.

The Directive also extends the scope of the European Union’s Regulatory Authority to Virtual Currency Transactions. In fact, the maximum monthly payment transactions for remote payment transactions for general purpose anonymous prepaid cards, it is being reduced from €250 to €150. Furthermore, the maximum amount of money stored in such cards is not to exceed this threshold.

Granting anonymity on electronic money products will be possible only in two situations:

(i) when customers use their prepaid instrument directly in the shop for a maximum transaction amount of EUR 150;

(ii) when customers carry out an online transaction with a prepaid card below EUR 50.

The rules set by the 5th AML Directive are extended to entities which provide services that are in charge of holding, storing and transferring virtual currencies, tax related services offered by external accountants and tax advisors, and persons trading in in works of art.

These new actors will have to identify their customers and report any suspicious activity to the Financial Intelligence Units.

Member States will be required to set up centralised bank account registers or retrieval systems to identify holders of bank and payment accounts. The Commission will work on the technical aspects to ensure the interconnection of such registers or retrieval systems.

With respect to enhancing cooperation between financial supervisory authorities, the European Commission has already set up a joint working group to support such exchange of information, with the Central Bank, given that risks exposure to money laundering can pose the financial stability of a bank at risk.

Moreover, new criteria have been added under which to assess high-risk third countries, including transparency of beneficial ownership. Member States will have to ensure that the sectors dealing with countries presenting strategic deficiencies in their Anti-Money Laundering and Counter Terrorism financing regimes, apply systematic enhanced controls on the financial transactions from and to countries listed by the European Commission. In addition, the listing of the Commission will include third-countries with no appropriate and dissuasive sanctions, with low transparency on beneficial owner registration or which do not cooperate nor exchange information.