What does the 5th Anti-Money Laundering directive bring?

17 September 2018, Bachir El Nakib (CAMS), Senior Consultant, Compliance Alert (LLC, Lebanon-Qatar)

Background

On 19 June 2018, the new AML/CTF EU directive 2018/843 (AMLD5) has been published in the Official Journal of the European Union and entered into force on 9 July 2018 with effective application from 10 January 2020. It thereby amends and repeals EU Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

This directive had shown its limits in the light of last terrorist attacks and various tax leaks that revealed the widespread use of offshore bank accounts and corporate vehicles in order to hide potentially illegal proceeds, in particular tax evasion.

 In this context, the AMLD5 will aim to reduce the capabilities to exploit identified loopholes by criminals and better counter terrorism financing. This happens notably by increasing transparency about who really owns legal entities and trusts, broadening the criteria for assessing high-risk third countries and ensuring a common high level of safeguards for financial transactions from such countries. The directive tackles terrorist financing risks linked to anonymous use of virtual currencies and pre-paid instruments, by extending the scope of regulated entities and inducing professionals to resort to the latest digital solutions for AML/CTF.

The Commission proposes, among other things:

* Improvement of the transparency on the beneficial owners of legal entities, trusts and similar legal arrangements as well as the setup of a national central register of bank and payment accounts and safe-deposit box holders AMLD5 improves the transparency and efficiency of the Beneficial Owner (BO) registries in various ways: BO registers of legal entities are publicly accessible for specific types of information gathered on the beneficial owner(s).

* BO registries of legal entities are publicly accessible for specific types of information gathered on the beneficial owner(s).

* BO registries of trusts and similar legal arrangements are now accessible to competent authorities, FIUs, obliged entities in the context of their due diligence measures, and to any person who can demonstrate a legitimate interest (although the directive does not define “legitimate interest”).

* The national central register of bank, payment account, and safe-deposit box holders (centralized automated mechanisms: registers or data retrieval systems) will be accessible and limited to national FIUs and to national competent authorities.

* Finally, AMLD5 provides for the interconnection of all national registers (via the European Central Platform) to promote cooperation between EU Member States.

These new requirements implied that the Lxembourg bills of law establishing registry of beneficial ownership of trusts and similar legal arrangements (n° 7216) and of registered entities (n° 7217) have been amended on 10 July 2018 in order to comply with AMLD5.

* Lists of politically exposed persons (PEPs): Member States are required to issue and keep up-to-date a list indicating the exact functions that qualify as prominent public functions according to their national laws, which will give obliged entities more clarity as to who will be considered as a PEP in a given Member State.

* Enhanced Customer Due Diligence measures to be performed in the context of business relationship or financial transactions involving high-risk third countries.

* Inducement to the recourse to digital means in Customer Due Diligence process The eiDAS Regulation (EU Regulation 910/2014) had provided the European Union with a common foundation for secure electronic interaction between citizens, economic, and public authorities.

* AMLD5 now explicitly includes the capability for obliged entities to use eiDAS-compliant technological means for the completion of their Customer Due Diligence duties, paving the way for a real transition to the widespread use of electronic means for AML/CTF purposes.

* Lowering the thresholds for electronic money and prepaid instruments Inclusion in the scope of AML/CTF obliged entities of persons trading or acting as intermediaries in the trade of works of art (when the value of transactions or series of linked transactions amount to €10,000 or more) virtual currency providers and custodian wallet providers those who provide similar services to auditors, external accountants, and tax advisers as a principal business or professional activity estate agents who act as intermediaries in the letting of property (where the monthly rent is equivalent to €10,000)

* Enhanced powers and cooperation between the FIUs and financial supervisory authorities

What’s next?

Most of the new amendments shall be transposed before 10 January 2020—18 months after its publication in the Official Journal of the European Union—while specific new requirements are subject to longer transposition (e.g., interconnection of all national registers expected in 2021, etc.).

Yet, if the new directive requirements improve the existing AML/CTF framework, the European Commission representatives acknowledge that additional efforts will still be needed in order to efficiently fight money laundering and terrorism financing. In that respect, an amendment project of AMLD5 is already under discussion at the EU level, which should mainly be oriented toward the harmonization of the predicate offences and the efficiency of legal prosecution procedures.

With the agreement of the European Parliament and the Council on the Commission’s proposal, the 5th Anti-Money laundering directive will:

• increase transparency about who really owns companies and trusts to prevent money laundering and terrorist financing via opaque structures;

• improve the work of Financial Intelligence Units with better access to information through centralised bank account registers;

• tackle terrorist financing risks linked to anonymous use of virtual currencies and of pre-paid instruments;

• Improve the cooperation and exchange of information between anti-money laundering supervisors and with the European Central Bank;

• Broaden the criteria for assessing high-risk third counties and ensure a common high level of safeguards for financial flows from such countries.

What does the 5th Anti-Money Laundering directive bring?

1) Improving transparency on the real owners of companies

The beneficial ownership registers for legal entities, such as companies, will be public. This wider access to part of the beneficial ownership information will enhance public scrutiny and will contribute to preventing the misuse of legal entities for money laundering and terrorist financing purposes, knowing that the UK with effect from 26th June 2017, has introduced the requirement to maintain a register of "Beneficial Owners and a register of potential beneficiaries of taxable relevant trusts.

‘Taxable relevant trusts’ includes cases where the trustees are both UK resident and non-UK resident, where they are, or become, liable to pay any UK tax. Accordingly, non-UK trustees will be outside the UK registration/reporting requirements unless, and until, they become subject to UK tax liabilities in relation to the trust in which they act as trustee.

HMRC 

In satisfaction of these requirements, HMRC must maintain a register of:

  • beneficial owners and other potential beneficiaries of taxable relevant trusts;
  • ensure that the information on the register may be inspected by any law enforcement authority;
  • make arrangements to ensure that the National Crime Agency is able to use the information on the register to respond promptly to a request about beneficial owners and other potential beneficiaries by relevant overseas (EEA State) authorities.

 The register may be in any form that HMRC considers fit however it must contain the information identifying beneficial owners and other potential beneficiaries in relation to taxable relevant trusts.

 2) Information to be provided about the trust

 The information that the trustees of taxable relevant trusts must provide to HMRC include: 

  • full name of the trust;
  • date on which the trust was settled;
  • statement of accounts for the trust, describing the trust assets and identifying the value of each category of the trust assets at the date on which the information is first provided to HMRC (including the address of any property held by the trust);
  • the country where the trust is considered to be resident for tax purposes;
  • the place where the trust is administered;
  • contact address for the trustee(s);
  • full name of any advisers who are being paid to provide legal, financial or tax advice to the trustees in relation to the trust. 

3) Information to be provided about individual beneficial owners and other potential beneficiaries 

The information that the trustees of taxable relevant trusts must provide to HMRC about individuals who are beneficial owners or other potential beneficiaries of relevant trusts includes, amongst others:   

  • individual’s full name;
  • National Insurance Number or unique taxpayer reference, and if none exist, the individual's usual residential address;
  • (if the usual residential address is not in the UK) the individual's passport number or identification card number, with the country of issue and the expiry date of the passport or identification card; or
  • if the individual does not have a passport or identification card, the number, country of issue and expiry date of any equivalent form of identification;
  • the individual's date of birth;
  • the nature of the individual's role in relation to the trust.  

4) Deadlines for providing trust register information

The trustees of a taxable relevant trust must provide the trust register information on or before:-

  • 31 January 2018; or
  • 31 January after the tax year in which the trustees were first liable to pay UK taxes

5) Civil and criminal sanctions for non compliance 

Civil and criminal sanctions may be applied against those in contravention of these requirements.

Civil sanctions will include penalties and statements of censure and officers of a trustee who are knowingly concerned in a contravention may be subject to the same sanctions as the trustee and may be prohibited from performing related management roles or functions.

6) Improving transparency on the real owners of trusts

The access to data on the beneficial owner of trusts will be accessible without any restrictions to competent authorities, Financial Intelligence Units, the professional sectors subject to Anti-Money laundering rules (banks, lawyers…) and will be accessible to other persons who can demonstrate a legitimate interest. In addition, when a trust is a beneficial owner of a company, access to this information can be requested via a written request.

7) Interconnection of the beneficial ownership registers at EU level

The national registers on beneficial ownership information will be interconnected directly to facilitate cooperation and exchange of information between Member States. In addition, Member States will have to put in place verification mechanisms of the beneficial ownership information collected by the registers to help improve the accuracy of the information and the reliability of these registers.

8) Lifting the anonymity on electronic money products (prepaid cards) in particular when used online

Member States will have the possibility to allow the anonymous use of electronic money products only in two situations:

(i) when customers use their prepaid instrument (such as prepaid cards) directly in the shop for a maximum transaction amount of EUR 150;

(ii) when customers carry out an online transaction with a prepaid card below EUR 50.

9) Extending Anti-Money Laundering and Counter Terrorism financing rules to virtual currencies, tax related services, and traders in works of art

The rules will now apply to entities which provide services that are in charge of holding, storing and transferring virtual currencies, to persons who provide similar kinds of services to those provided by auditors, external accountants and tax advisors which are already subject to the 4th Anti-Money Laundering directive and to persons trading in works of art. These new actors will have to identify their customers and report any suspicious activity to the Financial Intelligence Units.

10) Broadening the criteria for assessing high-risk third countries and improving checks on transactions involving such countries

New criteria have been added under which to assess high-risk third countries, including transparency of beneficial ownership. In addition, Member States will have to ensure that the sectors dealing with countries presenting strategic deficiencies in their Anti-Money Laundering and Counter Terrorism financing regimes listed by the European Commission apply systematic enhanced controls on the financial transactions from and to these countries. The list of checks is now harmonised to ensure there are no loopholes in the EU. In addition, the listing of the Commission will include third-countries with low transparency on beneficial ownership information, no appropriate and dissuasive sanctions or which do not cooperate nor exchange information.

11) Setting up centralised bank account registers or retrieval systems

Member States will be required to set up centralised bank account registers or retrieval systems to identify holders of bank and payment accounts. The Commission will work on the technical aspects to ensure the interconnection of such registers or retrieval systems.

12) Enhancing the powers of EU Financial Intelligence Units and facilitating their cooperation

The Financial Intelligence Units will have access to more information through centralised bank and payment account registers or data retrieval systems. The Financial Intelligence Units from the different EU countries will also be able to cooperate more easily, as well as with other competent authorities.

13) Enhancing cooperation between financial supervisory authorities

The revised Directive will further enhance the exchange of information and cooperation money laundering supervisors and financial super visor y authorities including with the European Central Bank. The European Commission already has set up a joint working group to support such closer cooperation and exchange of information, given that risks of money laundering can also pose a risk to the financial stability of a bank.

When are the new rules in force?

The 5th Anti-Money laundering directive has been adopted and entered into force on 9 July 2018. Member States will have to implement these new rules into their national legislation by 10 January 2020. These rules were upgraded as EU leaders called for a collective European effort following the wave of terrorist attacks. The Commission urges Member States to stick to their commitment to introduce these tightened measures as early as possible.

Sources:

- Deloitte

- European Commission

 https://www2.deloitte.com/lu/en/pages/risk/articles/amld5-has-entered-into-force.html

 https://www.pearse-trust.ie/blog/trust-beneficial-owner-registers-uk

https://www.moneylaunderingwatchblog.com/2018/05/the-fifth-anti-money-laundering-directive-extending-the-scope-of-the-european-unions-regulatory-authority-to-virtual-currency-transactions/

 

 

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