Definition of 5^th AML Directive

The 5^th Anti-Money Laundering (AML) Directive of the European Union (EU) is a legislation that came into force in January 2020 in order to fortify the fight against money laundering and terrorist financing by increasing transparency. The 5^th AML Directive enables public access to the registration of companies, trusts and similar legal arrangements without a need to demonstrate a legitimate interest.

According to the 5^th AML Directive, banks are now entitled to reporting the irregularities between the information stored in the public sources and beneficial ownership information they collected via Customer Due Diligence (CDD) procedures.

Another important improvement introduced with the 5th AML Directive is decrease in the level of anonymity in the payment systems. In terms of the penalties, the 5^th AML Directive did not bring any changes; instead, the scope of the companies and individuals that will be involved within the regulation was extended.

How many AML Directives are there?

The anti-money laundering directives of the EU are issued regularly by the European Parliament to remain relevant with the recent advancements in the industry and to be implemented by member states as part of domestic legislation.

The most recent AML Directive is the 6^th AML Directive which clarifies the emerging money laundering threats for the EU member states and provides a more detailed definition of the regulatory requirements introduced in the 5^th AML Directive.

The predecessor of the 5^th AML Directive is the 4th AML Directive which mainly focuses on adjusting the EU policies and regulations with the AML/CFT guidelines of the Financial Action Task Force (FATF).

Which institutions are obliged to comply with the 5^th AML Directive?

The 4^th AML Directive has evolved the term “designated entity” of the 3^rd AML Directive and introduced  the term “obliged entity” to ensure that the financial institutions which previously escaped from the regulatory landscape are now captured in its AML/CFT scope. The 5^th AML Directive raised the bar higher by involving companies dealing with cryptocurrencies and some other entities as well.

The term “obliged entity” applies to the specific set of financial institutions and companies which are listed as follows:

• Financial institutions and money service businesses (MSBs)
• Credit institutions
• Financial and legal entities: accountants, auditors, tax advisors, notaries, independent legal professionals, trust and company service providers, gambling service providers and individuals who operate cash transactions more than €10,000
• Crypto-companies: Fiat-to-crypto exchanges and custodian wallet providers
• Art dealers and real estate agents acting as the payment transaction intermediaries where the combined value is over €10,000