Keeping regulations current is an ongoing process; regulations need to keep pace with technology, consumer behavior, and other laws and international standards. To that end, the EU has enacted the Fifth Anti-Money Laundering Directive, 5AMLD.
Dated May 30, 2018, 5AMLD is an update of 4AMLD and previous AML Directives. The intention of these regulations is for the “prevention of the use of the financial system for the purposes of money laundering or terrorist financing”.
EU member states must implement 5AMLD provisions into their national law by January 10, 2020 and close loopholes, consider new technologies and improve transparency while still protecting personal data and adhering to international agreements. It is estimated that between $800 billion - $2 trillion is laundered every year. As stated by Commissioner for the Security Union, Julian King, “We need to hit terrorists and criminals in their pockets – cutting off their access to money is a vital part of preventing their crimes.”
These are the goals of 5AMLD, as stated by the European Commission:
- Enhance the power of EU Financial Intelligence Units and facilitate increasing transparency on who really owns companies and trusts by establishing beneficial ownership registers;
- Prevent risk associated with the use of virtual currencies for terrorist financing and limit the use of pre-paid cards;
- Improve the safeguards for financial transactions to and from high-risk third countries;
- Enhance the access of Financial Intelligence Units to information, including centralised bank account registers.
- Ensure centralised national bank and payment account registers or central data retrieval systems in all Member States.
Electronic identity systems are no longer a work in progress; with eIDAS coming into effect September 29, 2018, electronic identity for the delivery of government services is an EU requirement. Therefore, 5AMLD has a clause that acknowledges the digitalization of ID and the fact that “accurate identification and verification of data of natural and legal persons are essential for fighting money laundering or terrorist financing.” In addition to eIDAS, “other secure remote or electronic identification processes, regulated, recognised, approved or accepted at national level by the national competent authority may be taken into account.”
A major element of 4AMLD was the requirement for obliged entities to collect beneficial ownership information. As the European Commission states in that Directive, “understanding the beneficial ownership of companies is at the heart of the risk mitigation of financial crime and of prevention strategies for regulated firms.”
In 5AMLD, “the monitoring and registration of beneficial ownership information of trusts and similar legal arrangements should be clarified.” As each member state has its own rules and definitions for trusts, clarifications around where to register, coordination between member states, reporting and accessing the beneficial ownership information are necessary.
These entities will also require listing on central registers, which have specific time limits included below:
10 January 2020 — Beneficial ownership registers for corporate and other legal entities
10 March 2020 — Beneficial ownership registers for trusts and similar legal arrangements
10 September 2020 — Centralised automated mechanisms allowing the identification of holders of bank and payment accounts and safe-deposit boxes
10 March 2021 — Central registers interconnected via the European Central Platform
Other reporting requirements for trusts will be similar to requirements under 4AMLD for other obliged entities: “Rules that apply to trusts and similar legal arrangements with respect to access to information relating to their beneficial ownership should be comparable to the corresponding rules that apply to corporate and other legal entities.”
While many aspects of 5AMLD are updates or amendments, coverage of virtual currencies (crypto) is new to EU regulations. What many proponents see as major advantages of crypto — anonymity and seamless cross-border transactions — are two elements that are worrisome to regulators. Without the ability to track money movements, especially internationally, criminals and terrorists are able to launder funds easier.
Under 5AMLD, crypto exchanges and crypto wallet providers will be considered “obliged entities” and face the same requirements as financial institutions. These requirements include AML, customer due diligence, transaction monitoring and suspicious activity reports.
However, 5AMLD goes even farther than these obligations to ensure more oversight over the anonymous nature of crypto: “To combat the risks related to the anonymity, national Financial Intelligence Units (FIUs) should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency.” This clause is in reference to the potential for P2P crypto transactions and would require registration of accounts and connecting crypto addresses to owners.
Flexible Workflows and Technology is Key
There are other elements of 5AMLD not covered in this post. To ensure compliance with this upcoming directive, now is the time to start looking at your obligations. Creating strategies, workflows and systems that are compliant, adaptable and scalable will serve you when 5AMLD comes into effect.