Ran Weissblech: Five Key Points of the Upcoming Fifth Anti Money Laundering Directive
By Ran Weissblech | September 24, 2017
1. Beneficial Ownership Registers
Under 4AMLD, businesses have an obligation to hold beneficial ownership records, with individual Member States having to obtain and hold accurate and current information on corporate and other legal entities. It has been proposed that under 5AMLD, EU citizens will be granted access to these beneficial ownership records, even without having to demonstrate a ‘legitimate interest’. Trusts will also now be required to meet the full transparency obligations which incorporate the beneficial ownership requirements.
It has also been suggested that, in the case of entities that pose a significant money laundering and/or tax evasion risk, the ownership threshold is reduced from 25% to 10%.
2. Virtual Currencies
5AMLD better defines virtual currencies as: ‘A digital representation of value that can be digitally transferred, stored or traded and is accepted by natural or legal persons as a medium of exchange, but does not have legal tender status and which is not funds as defined in points (25) of Article 4 of the Directive 2015/2366/EC nor monetary value stored on instruments exempted as specified in Article 3(k) and 3(l) of that Directive.’ Also included in this is the requirement for all Member States to implement this legal definition into their AML legislation.
5AMLD also brings virtual currency platforms and wallet providers under the scope of the directive and includes them within the definition of ‘obliged entities’. Under 4AMLD, obliged entities are defined as financial institutions, accountants, tax advisors, etc.
This will give these providers the same responsibilities as banks and other financial institutions, which includes verifying customer’s identities and monitoring transactions.
3. Prepaid Cards
In order to help combat terrorist financing, it is proposed under 5AMLD that the thresholds for identifying the customer in remote payment transactions for general purpose anonymous prepaid cards are lowered to €50. It also suggests this should be lowered to zero after a ‘sufficient transitional period’ to allow adaptation to the new regulatory framework. The threshold of maximum monthly payment transactions has been reduced to €150 and the maximum amount of money stored is not to go above this threshold either.
It is also suggested that the use of anonymous prepaid cards which have been issued outside of the EU is prohibited unless they have been issued in jurisdictions that can be considered to comply with regulations equivalent to EU legislation.
4. Information Sharing
Currently, it is difficult for financial intelligence units (FIUs) to gain access to information in a timely manner. Delayed access to information on the holders of bank and payment accounts can hinder the detection of funds transfers connected to money laundering/terrorist financing.
It has been proposed that Member States will have to put centralised automated mechanisms in place, for example, central registries, to allow FIUs access to the information they need in a prompt, searchable and unfiltered way.
The 5AMLD is also increasing the powers of FIUs in that they will be able to acquire any information they need from any obliged entity, even without a previous report being made.
5. Enhanced Due Diligence
Another recommended amendment is that with transactions or business relationships involving high-risk third countries, obliged entities will be required to apply specific enhanced due diligence (EDD) measures. This amendment has come about because at present Member States determine their own type of EDD measures to be taken towards high-risk countries, and this can create weak spots in the management of business relationships involving high-risk countries. This new measure aims to standardise the treatment of those relationships throughout the EU.
At present, there are six suggested EDD measures that obliged entities will have to perform and these include obtaining source of funds and source of wealth of the customer and beneficial owner and obtaining information on the reasons for the intended or performed transactions.
Something that I should also mention are updates to CDD measures. In the original 4AMLD text, it states that CDD measures should identify the customer based on information from a ‘reliable and independent source’, however the proposed 5AMLD updates have added ‘including, where available, electronic identification means’. This implies that not only will the source have to be reliable and independent, it will also have to be electronic. This raises all sorts of questions around what this will involve and how this can be achieved to ensure compliance with the new 5AMLD.