What is the 5th Anti Money Laundering Directive?

On the 19th of June 2018, the European Commission published the 5th Anti Money Laundering Directive (5AMLD) in the Official Journal of the European Union. This directive not only provides important updates and improvements to the 4AMLD but it also makes provisions for businesses that are operating within the cryptocurrency sphere.

When the previous Directive was announced in 2015, Bitcoin and some other currencies existed but no one could yet predict how much they, and the blockchain technology that underpins them, would go on to change the world we lived in. Now, in 2018, even if you are not using cryptocurrencies yourself, the chances are that you are, or are about to come into contact with blockchain. With everyone from shipping lines to central banks has begun to adopt this technology. Significant changes were needed to ensure companies operating both within the sector, and the EU is in full compliance with AML requirements.

The 5AMLD is not a ‘free-standing’ law, but rather it provides amendments to the previous 4AMLD, and it was being created at a time that most member states were still implementing the previous one. This was due to the fact that the industry moved at an incredible rate and the EU found itself in a situation where within a few months, the previous legislation had become outdated.

The most important elements of the 5AMLD pertain to the regulation of virtual currencies, information on beneficial owners, the use of prepaid cards, the powers of financial intelligence units, and due diligence for high-risk jurisdictions.

Virtual Currencies

The 5AMLD increases the scope of the EU regulatory perimeter in terms of AML/CFT controls and it makes specific reference to cryptocurrency exchanges as well as those that provide custodian wallet services. Under the new rules, both service providers are now “obliged entities” and are therefore subject to the requirements of the AMLD legislation.

The 5AMLD also requires all Member States to enforce mandatory registration of such providers and to report any suspicious activity that occurs on their platforms. This is designed to stop organised criminal activity from exploiting the anonymous nature of cryptocurrency and blockchain technology.

Beneficial Owners

The 5AMLD makes some very important changes to the EU regulations on both recording and disclosing the beneficial ownership of entities such as trusts and companies. Now, member states will be expected to impose sanctions and restrictions on any company that breaches the basic obligation of holding adequate and up-to-date information who is the beneficial owner.

The Directive also expands on the ability to access information pertaining to beneficial ownership- in the case of a corporate entity, for example, any member of the public is now entitled to the unrestricted information. In the case of trusts, regulators, FIUs and regular entities, as well as any natural or legal person with a demonstrable and legitimate interest, is able to access such information upon request. The EU stipulates that this access should not be limited to cases of pending litigation, but rather to those who facilitate preventative work in AML/CFT, as well as NGOs and investigative journalists.

All information on beneficial ownership is to be held on a central registry and should be available both locally and on a cross-border basis within the EU. All member state registers will be connected via the ‘European Central Platform’ which will be established under the Company Law Directive.

Financial Intelligence Units

Under the new Directive, FIUs will have total access to information provided by any obliged entity including exchanges and wallet providers. Furthermore, the 5AMLD also provides for a situation where information can be obtained by the FIU without any prior report needing to have been made.

Enhanced Due Diligence for High-Risk Countries

The 5AMLD imposes much tougher due diligence criteria on business relationships and transactions that involve high-risk jurisdictions. These requirements include acquiring additional information on the customer as well as the beneficial owner, the sources of funds and wealth, reasons for executing the transaction, and the necessity to have senior management approval to continue the relationship. The Directive also suggests that member states should impose restrictions on transactions or relationships with institutions from high-risk jurisdictions and it may require EU Banks to terminate correspondent banking relationships with institutions that are deemed as operating in a high-risk jurisdiction.

 

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