A Brief Overview
The Fifth European Union Anti Money Laundering Directive (5th EU AML Directive) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing has been adopted by the European Parliament on Tuesday 19th of June 2018, with member states having 18 months from publication to incorporate it in national law. This Directive has come to replace the 4th EU AML Directive, which was one of the most extensive AML/CTF legal documents that had brought forth substantial changes in how obliged entities ought to identify, assess, understand and mitigate AML/CTF risks.
The 5th EU AML Directive while it seems as less extensive than its predecessor, with only a series of amendments focused on transparency and direct access to information nonetheless its impact is far reaching.
Since virtual currency is all the rage for some time now, the EU is trying to regulate these cryptocurrencies and apply checks and control to both virtual currency service providers as well as electronic wallet providers to tackle their inherent risks.
Cryptocurrencies including Bitcoin, Etherium, BitcoinCash and many more have raised problems in regards to the prevention of money laundering and have been shown to be widely exposed to financial crime. The anonymity of virtual currencies enabled criminals to move funds cross border without Suspicious Transaction Reports (STRs) being generated.
In order to better regulate transactions of virtual currencies the 5th EU AML Directive has introduced Cryptocurrency exchanges and custodian wallets as obliged entities and will therefore have to carry out all checks and monitoring that any other obliged entity has carried out in the 4th AML Directive (CDD, Ongoing Monitoring, Report Suspicious activity etc.)
In the 4th EU AML Directive a system of central registers was introduced to store information of beneficial ownership of legal entities within the EU on a national level by each member state.
Arguably the main focus of this directive is greater transparency and direct access to information. Therefore the 5th EU AML Directive aims to allow greater public scrutiny; it has introduced a scheme to allow public access to the information stored within these public registers. This means that the general EU public will be granted access to beneficial ownership information such as name, date of birth, country of residence and nationality.
The 5th EU AML Directive also expands this scope to include trusts and other similar legal arrangements with the additional requirement that the information will be accessible to any “natural or legal person who can demonstrate a legitimate interest”. What is this legitimate interest and how this is demonstrated remains to be seen.
It is expected that public access to these records will help prevent the misuse of legal entities for money laundering and terrorist financing purposes.
Prepaid Cards have been linked with terrorist financing in recent years due to the lack of access in traditional banking. The 4th EU AML Directive first tackled the risks of prepaid cards by setting a 250Euro threshold. To further reduce financial crime the 5th EU AML Directive has now lowered the threshold for transactions on such instruments at 150Euro per month.
Identification and verification of the prepaid card holders will need to be carried for any transaction over 150Euro. Furthermore, anonymous prepaid cards issued outside of EU can be used only where they can be considered compliant to standards set out in the 5th AMLD.
Enhance Due Diligence (EDD)
The 4th EU AML Directive allowed member states to determine their own level of EDD measures towards high risk third countries.
With the introduction of the 5th EU AML Directive a standardized treatment and measures will be implemented on EU level in dealing with high risk third countries. Enhanced due diligence measures to be applied require obligated entities to obtain additional information on the customer and the beneficial owner; on the intended nature of the business relationship; on the source of funds and wealth of both customer and beneficial owner and on the reason for transaction that is about to be performed. Furthermore, senior management’s approval should be obtained in order to establish or continue the business relationship.
The Sixth European Union Anti Money Laundering Directive (6th EU AML Directive) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing has been adopted by the European Parliament on Thursday 11th of October 2018, with member states having 24 months from publication to incorporate it in national law.
The most important modifications made through the adoption of the 6th AML Directive affect the areas of harmonization, regulatory scope, criminal liability, tougher punishment and member state cooperation along with other noteworthy alterations which we try, for your benefit, to outline in more detail below.
The 6th AML has tried to harmonize for all member states of what offenses constitute money laundering. The 6th AML provides a list of 22 predicate offenses including certain tax crimes and cybercrimes (first time addition to the Law)
Expanded Regulatory Scope
The regulatory scope of the AML law has expanded on the definition of money laundering. Past directives target and punished offenders that acted directly in the act of money laundering, this Directive expands to the regulatory scope and encompasses the so called “enablers” of money laundering. This means that “aiding and abetting” has the same status as actual money laundering and is subject to the same criminal penalties.
Extension of Criminal Liability
Money laundering is usually done through a network of companies, trusts and other legal entities. The law however generally targets and punishes individuals in regards to money laundering offenses. For the first time in an AML directive, criminal liability has been extended to allow the punishment of legal entities (including partnerships). This will allow the EU, member states and regulatory bodies to effect responsibility on legal persons hold larger companies that used to elude penalties accountable for the acts of their management and employees.
The minimum prison sentence for money laundering offenses used to be 1 year. The 6th AML has extended the minimum duration of prison sentence for 4 years. This is another step for harmonization as now the law of all member states will state that the minimum sentencing is 4 years.
Member State Co-operation
The 6th AML will create a less strict and more cooperative environment between member states to tackle money laundering. Through the wording of the directive, member states will share information between them freely when the money laundering offense involves dual criminality (instances where the predicate offense occurs in one country and the laundering offense in another). Through the provisions of the 6th AML all member states will need to criminalize all of the following offenses: terrorism, drug trafficking, human trafficking, sexual exploitation, racketeering and corruption.
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