The EU continues to tighten its grip on money laundering.
Hot on the heels of the Fourth Anti-Money Laundering Directive (4MLD), which Member States had to implement by June last year, we now have the next instalment – the Fifth Anti-Money Laundering Directive (5MLD), which came into force on 9 July 2018 and must be implemented by Member States (and the UK probably depending on the terms of any Brexit transition period) by 10 January 2020. The changes will impose additional obligations particularly on those in the financial services sector.
5MLD amends 4MLD, and includes some lessons learnt from the Paris and Brussels terrorist attacks and the Panama Papers, plus technological innovation. Key changes include:
· Catching up with new technologies: Custodian wallet providers and virtual currency exchange platforms will fall within the scope of AML laws, as they have been added as new ‘obliged entities’ (OE). 5MLD also allows the use of electronic identification for customer due diligence.
· Improving enforcement: There will be new national bank account registers in each Member State to enable easy access by law enforcement authorities to bank account information for all bank accounts held in that Member State. The registries will all be interconnected between Member States. In addition, enforcement authorities will be able to request information from an OE even where no Suspicious Activity Report has been filed.
· Clarification of ‘Politically-Exposed Persons’ (PEPs): Each Member State will have to issue a list setting out which functions qualify as “prominent public functions”.
· Tighter controls relating to high risk third countries: 5MLD prescribes enhanced due diligence measures for business relationships or transactions involving high-risk third countries, and also allows Member States to restrict OEs from opening branches/subsidiaries in high-risk third countries, and to restrict the opening of branches in a Member State of an OE based in a high-risk third country.
· Increasing transparency of beneficial ownership of corporates: There will be wider access to each Member State’s central register of beneficial ownership of corporates. Any member of the general public can access basic information without the need to demonstrate a ‘legitimate interest’ (this is already available in the UK). There is also a new ‘discrepancy reporting requirement’ which will require OEs to report any discrepancies they find between the information that they hold and the information on the register.
· Beneficial ownership of trusts: 5MLD extends beneficial ownership reporting requirements to any legal arrangement that is similar to a trust, and also tax-neutral trusts. It also widens access to the central register of beneficial ownership to any person who can show a ‘legitimate interest’. There is no definition of ‘legitimate interest’; this will be up to each Member State to determine although 5MLD states that the definition should not restrict the concept of legitimate interest to cases of pending administrative or legal proceedings, and should take into account the preventive work in the field of anti-money laundering, counter-terrorist financing and associated predicate offences undertaken by non-governmental organisations and investigative journalists.
· No more anonymous safe-deposit boxes: Anonymous safe-deposit boxes will no longer be allowed.
· More prepaid instruments subject to due diligence (eg gift cards, travel cards): The threshold requirement has been reduced from EUR250 to EUR150.
Full text of 5MLD: www://data.consilium.europa.eu/doc/ document/PE-72-2017-INIT/en/pdf
