Fifth MLD passed onto statute books

The EU’s Fifth Anti-Money Laundering Directive (5AMLD) came into effect on Friday 10 January 2020. Building on regulations brought in by 4AMLD in June 2017, the new legislation designed to better tackle the threats of money laundering and counter terrorist financing (CTF). Included in its scope are:

  • Stricter conditions for the issuing of e-money and prepaid cards.
  • A clampdown on virtual currency, bringing cryptocurrencies into scope for the first time.
  • Registers of ultimate beneficial ownership to be made publicly accessible.
  • Increased due diligence for individuals and businesses in high-risk countries.
  • New rules around electronic verification and customer due diligence.

Prepaid cards

5AMLD sets a lower limit monthly transaction limit for anonymous prepaid cards of €150 – previously is was €250. This means that firms will be required to carry out identity checks on customers using prepaid cards funded with more than €150. Anonymous remote or online transaction limits are reduced to €50.

Prepaid cards issued outside the EU are now prohibited unless they were issued in a territory enforcing legislation equivalent to the EU’s AML/CFT and ‘know your customer’ (KYC) standards. Obliged entities must review the way they handle prepaid card payments and put mechanisms in place to identify (and refuse) transactions using cards from non-EU sources.

Cryptocurrencies

The new legislation means providers of cryptocurrency exchanges must now register with the relevant financial authorities in their country of origin locations. This means they now face the same AML/CTF regulations as other financial institutions that already have to comply with 4AMLD. This means cryptocurrency exchanges will now have to perform customer due diligence and submit suspicious activity reports (SARS). Financial Intelligence Units now have the authority to obtain the addresses and identities of owners of virtual currency and, in so doing, to tackle the anonymity associated with the use of cryptocurrency

Beneficial ownership

4AMLD introduced a focus on ‘ultimate beneficial ownership’ (UBO) for tackling money laundering. 5AMLD tightens up these rules, and UBO lists must be made public by June 2021. Also, trusts (or any similar arrangement) must observe beneficial ownership regulations, and UBO national registers must be inter-connected at an EU level in order to facilitate the exchange of information between member states.

Increased due diligence

Companies that do business with customers from high-risk countries outside of the EU are, under 5AMLD, required to perform enhanced due diligence measures focusing on addressing the deficiencies in those countries’ AML protections and the money laundering risks they present. This means that firms must report transaction details with high-risk third countries to senior management and obtain approval prior to establishing or continuing those business relationships.

Electronic verification

The rules on the acceptable use of electronic verification methods in confirming a customer’s identity have been relaxed; firms can use this method as their sole basis of client verification, without the need for passports, driving licences and utility bills.

This means all financial services firms, solicitors, accountants, estate agents and now also letting agents not currently using electronic verification need to re-evaluate their you’re your customer procedures.

Nicola Sharp of business crime solicitors Rahman Ravelli said that those working in financial services will have to meet new requirements as 5AMLD targets areas that have so far not felt the force of previous directives.

She said: “Such obligations, it must be said, are not mere bureaucracy. Failing to meet the requirements of 5AMLD can mean fines up to a maximum of €5 million or 10% of annual turnover. When the resulting negative publicity is considered, along with the fact that individuals can be banned from running a regulated business and an organisation can be prevented from trading, the consequences of failing to meet 5AMLD’s requirements cannot be ignored.”

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