EU: 5th EU Anti-Money Laundering Directive published

On June 19th, 2018, the fifth EU Anti-Money Laundering Directive (AMLD 5) was published in the official journal of the European Union. The AMLD5 modifies the fourth Anti-Money Laundering Directive (AMLD4) released only in 2015. The EU Commission proposed the revised AMLD in July 2016 as part of its Action Plan against terrorism announced in February 2016, after the attacks in Paris and Brussels, and as a reaction to the Panama Papers published in April 2016. The plan to implement the changes by January 2017 resulted overambitious; a final compromise text was reached only in December 2017. The AMLD 5 entered into force on July 9^th, 2018. Member states are obliged to transpose the modified regulations into national law by latest January 20^th, 2020.

in particular, the AMLD5

• extends the scope to virtual currency platforms and wallet providers, tax related services and traders of art
• grants access to the general public to beneficial ownership information of EU based companies
• makes it an obligation to consult the beneficial ownership register when performing AML due diligence
• obliges member states to create a list of national public offices and functions that qualify as politically exposed (PEP)
• introduces strict enhanced due diligence measures for financial flows from high-risk third countries
• ends the anonymity of bank and savings accounts, as well as safe deposit boxes and creates central access mechanisms to bank account and safe deposit boxes holder information throughout the EU
• makes information on real estate holders centrally available to public authorities
• lowers thresholds for identifying purchasers of prepaid cards and for the use of e-money
• further enhances the powers of the FIUs and facilitates cooperation and information exchange among authorities

In more detail:

New service providers in scope

The AMLD5 will apply to virtual currency exchange service providers and electronic wallet providers in order to cover the risks associated with virtual currencies like bitcoins. Persons who provide tax related services but are not obliged auditors, accountants or tax advisors will also be in scope of the AMLD5. Furthermore, traders of art will be obliged parties to the extent they trade at values above 10.000 Euros.

Public access to beneficial ownership information

Registers of beneficial ownership information created under the AMLD4 will be made accessible to the general public. The need to demonstrate a legitimate interest for access will be eliminated except for trusts and similar legal arrangements. In that case access to beneficial ownership information will be granted to any natural or legal person that can demonstrate a legitimate interest as well as to any person filing a request in relation to a trust or similar legal arrangement which holds or controls any corporate or other legal entity. Access will comprise, as a minimum: the beneficial owner’s month and year of birth, country of residence, nationality, and the nature and extent of the beneficial interest held. Member states must implement mechanisms to ensure that information in those registers is accurate and up to date and apply effective sanctions in cases of breach. Obliged entities will have to notify the authorities of discrepancies found while conducting customer due diligence (KYC) between the beneficial ownership information on the registers and the beneficial ownership information they hold otherwise.  Beneficial owners will have an explicit obligation to provide the corresponding entities with their beneficial ownership information required for the register. The EU Commission has been tasked to ensure the interconnection of the many registers at EU level by 10 March 2021. Plans to lower the quorum for the determination of beneficial ownership to 10% for certain passive non-financial entities (PNFE) were not put into practice.

Know Your Customer: Obligation to consult beneficial ownership register

When performing a KYC prior to any new business relationship, obliged parties must in future consult the corresponding beneficial ownership register in the EU. Reasonably, this can only apply once such a register is available and the counterpart is EU based.

PEP-Lists

Member states will be obliged to draft a list of offices and functions that qualify as politically exposed (PEP) on national level and including nationally registered international organizations; the EU will draft a corresponding list on EU level, consolidate the national lists from member states and publish the result. The lists will not name any persons. National as well as EU based PEPs continue to be high risk for the purposes of the KYC, and require enhanced due diligence.

Enhanced Due Diligence in respect of high-risk third countries

Enhanced Due Diligence measures in relation to customers from third countries identified by the EU Commission as presenting an increased risk of money laundering, will be expanded and harmonized. A new section introduces a set of strict enhanced due diligence measures obliged parties will have to perform. Member states will be entitled to require further measures like the use of bank accounts established in countries with EU or equivalent AML standards, for the first transaction in a business relationship. Member States may introduce Additional Enhanced Due Diligence, like reporting obligations for financial transactions with counterparts in high risk third countries or limiting the foundation of companies by individuals from high risk third countries or the creation of companies by their own nationals in such high risk third countries.

Bank account and safe deposit box regulations

Anonymous bank accounts, savings accounts or safe deposit boxes will be abolished with the AMLD5. Member States must create central registries or central electronic data retrieval systems by latest 10 September 2020, which allow the timely identification of any natural or legal person holding or controlling bank or savings accounts and safe deposit boxes. This information will be directly accessible by financial intelligence units (“FIUs”) and national competent authorities.

Access to Information on Holders of Real Estate

Information on real estate ownership by any natural or legal person will be made centrally available for public authorities; this does not require the creation of a central real estate register. Alternatively, electronic data retrieval systems can be used.

Thresholds for Prepaid Cards and E-Money transactions will be lowered

The threshold for identifying holders of prepaid cards will be further lowered from EUR 250 to EUR 150. E-Money Online transactions with prepaid cards will be limited to max. EUR 50. These amounts can be further lowered by member states, but not increased.

Under MLD4, Member States may allow obliged entities to apply simplified due diligence measures with respect to e-money which meets certain conditions, including threshold amounts. MLD5 reduces these amounts and introduces restrictions on anonymous prepaid cards issued in third countries.

Measures to enhance the powers of the FIUs

The rights and competences of national EU Financial Intelligence Units will be extended and the cooperation and exchange of information among FIUs and other relevant institutions further facilitated. For example, FIUs will be allowed access to the centralized bank account information referred to above.

Although the possibility was discussed to lower the threshold for beneficial ownership of certain vehicles (“passive non-financial entities”), it was not made a part of the final AMLD 5 text.