The 5th Anti-Money Laundering (AML) Directive (Directive (EU) 2018/843), which is the successor of the 4th AML Directive, was published on 19 June 2018 in the Official Journal of the European Union. The due date for the full adoption of the new Directive by the Member States was 10 January 2020.
The European Commission revealed a report on 16 September 2020 that evaluates if the obligations and the legal arrangements of the 5th AML Directive were fully identified, adopted and applied by the Member States. The 5th Anti-Money Laundering Directive focuses on higher transparency in registrations of companies, trusts and similar legal arrangements that expect Member States to recognize and notify trusts or similar entities which are under their legal responsibility.
The amendments proposed with the 5th AML Directive aim to improve the EU’s efforts to fight with money laundering by preventing the misuse of the financial system for the purpose of money laundering and funding terrorist activities.
The improvements introduced are focusing on:
- Higher transparency by creating publicly available registers for companies, trusts and other legal arrangements;
- Increased power and access to broader information for EU Financial Intelligence Units;
- Limited anonymity on virtual currencies, wallet providers and pre-paid cards;
- Extended criteria on the evaluation of high-risk third countries and enhanced safety precautions for the transactions to and from those countries;
- Creating central bank account registries and retrieval systems in all Member States;
- Higher cooperation and sharing of information among AML superiors and the European Central Bank.
Closer look at the improvements promised with the 5th AML Directive
- Higher transparency on the company owners
The 5th AML Directive states that the registrations for the beneficial ownership of the legal entities will become a public information. The aspiration is that when such information will be accessible to public, it will help minimize and prevent the use of companies and other legal entities for the purpose of money laundering and terrorist financing.
- Higher transparency on the trust owners
The information on the beneficial owners of trusts will be obtainable by the authorized establishments, Financial Intelligence Units, related business segments that are liable to AML rules (lawyers, banks etc.) without any limitations or restrictions. In the case of other individuals, they can access this data by demonstrating a legitimate interest. If the beneficial owner of a company is a trust, then a written request will suffice to reach this information.
- Increased connection and communication among the beneficial ownership registers at EU level
In order to promote and ease the collaboration and interaction between the Member States, the 5th AML Directive offers to interconnect the national registers on beneficial ownership information. Additionally, Member States were assigned with the responsibility to operate a verification mechanism for the collection of beneficial ownership information by the registers so that the quality and accuracy of the information are enhanced and reliability of the registers are increased.
- Limitation on the anonymity on the virtual monetary products
According to the 5th AML Directive, Member States will have the authority to permit anonymity on the use of electronic money products only in two specific cases which are:
- When a prepaid card is used directly at the shop and for a transaction value of 150€ maximum.
- When a prepaid card is used for an online transaction value below 50€.
- Enlarging the scope of AML and CTF rules to virtual currencies, services related to taxes, and traders of art
The scope of anti-money laundering and counter-terrorism financing rules and liabilities are extended to the entities that offer services for keeping, storing and transmitting virtual currencies, to the individuals that provide equivalent services to those provided by auditors, external accountants and tax advisors who are already liable to the 4th AML Directive and finally to the collectors who trade works of fine art. The obligation and responsibility are given to these new actors to recognize their customers and to report any kinds of risky or suspicious movement to the Financial Intelligence Units.
- Extension of the criteria for the assessment of high-risk third countries and improvement of safety checks
The evaluation criteria of high-risk third countries were enriched and enlarged with the 5th AML Directive. Increasing transparency on the beneficial ownership of the trusts, companies and other legal entities is one of the new criteria. Another new criterion states that the Member States are entitled to make sure that the industries having affairs with the countries which remain deficient in their AML and CTF related regulations, operate regular and advanced checks on the transactions from and to these countries. There is a list of controls that are reconciled and unified so that to avoid misconduct with the advanced checks. The Commission keeps a list of high-risk countries and they also included the countries with less transparency on beneficial ownership data.
- Establishment of centralized bank account registers or retrieval systems
With the purpose of more transparent identification of the bank account and payment holders, the 5th AML Directive requires Member States to set up centralized bank account registers or retrieval systems. To form a successful interconnection between these registers and retrieval systems, the EU Commission will be working on the technical support system.
- Broadened powers and better cooperation of EU Financial Intelligence Units
The centralized bank account registers and retrieval systems automatically enable the Financial Intelligence Units to access better and more accurate information. This also will increase the cooperation and intercommunication between the different FIUs from different EU countries.
- Increased cooperation between financial administrative authorities
One of the amendments of the 5th AML Directive is to improve the exchange of data and collaboration among the financial administrative authorities related to money laundering such as the European Central Bank. Since the money laundering-related risks can damage the financial steadiness of a bank, The EU Commission created a working group that works as a joint entity to ensure better cooperation and data sharing.