How will the 5th Anti Money Laundering Directive affect my organisation?

In the European Commission’s “Action Plan for strengthening the fight against terrorist financing”, published on 02 February 2016, the fight against the financing of terrorism is defined as crucial for the security of European citizens.

The action plan identifies the following two main strands of action towards the Union’s efforts to step up the fight against the financing of terrorism:

• To further detect and prevent terrorist organisations and their backers to move funds and other assets; and to ensure that financial movements can wherever possible help law enforcement to trace terrorists and stop them from committing crimes;
• To further disrupt the sources of revenue of terrorist organisations, by targeting their capacity to raise funds in the first place.

The 5th AML Directive

The 5^th Anti-Money Laundering Directive (5AMLD) of the European Commission was published in the Official Journal of the European Union on the 19^th of June 2018. The directive amends the 4^th Anti-Money Laundering Directive which was enacted into law on the 26^th of June 2017.

The main reasons for the quick amendments between the 4^th and 5^th directive were a series of events including the Panama Papers scandal and the financing of the terrorist groups and individuals involved in the terrorist attacks in Paris and Brussels.

The 5AMLD is seeking to promote transparency for entities of all types involved with financial transactions, and additionally broadens the individuals and organizations that are subject to its rules.

Specific improvements brought by the 5AMLD:

• Transparency on the real owners of companies:

In an effort to enhance public scrutiny and prevent the misuse of registers of beneficial owners for legal entities will be publicly available.

• Transparency on the real owners of trusts:

Competent authorities, Financial Intelligence Units (FIUs) and entities subject to Anti-Money Laundering rules (i.e. banking institutions, legal firms), will have access to the real owners of trusts.

Under the 5AMLD, this can also be utilized by persons who can demonstrate “legitimate interest”.

• Interconnect the beneficial ownership registers across the EU:

National registers on beneficial owners will be interconnected and Member States will be required to improve the accuracy and reliability of their registers.

• Lift the anonymity on e-money products (prepaid cards):

Anonymous use of electronic money products will be limited to the following two instances:

1. Using a prepaid instrument directly in a shop for a maximum amount of €150 and
2. Carrying out an online transaction with a prepaid card below €50.

• Extend Anti-Money Laundering and Counter Terrorism financing rules to virtual currencies, tax related services, and traders in works of art:

In addition to the entities providing similar services to those provided by auditors, external accountants and tax advisors (as defined in the 4^th Anti-Money Laundering directive), the rules will extend to entities providing services in charge of holding, storing and transferring virtual currencies, and persons trading works of art. The above actors will have to identify their customers and report suspicious activities to the FIUs.

Extended scope

One of the most noteworthy amendments in the 5AMLD is the widening of the actors it applies to, extending to basically all actors involved with financial transactions.

The so called “obliged or obligated entities” now includes:

• credit, payment and e-money institutions,
• life insurance companies and insurance agents,
• investment firms and investment funds,
• auditors, accountants and tax advisors,
• notaries and lawyers and service providers for trusts,
• bit coin platforms and providers of electronic wallets,
• art traders,
• real estate agents.

Challenges and opportunities

Member States must transpose this Directive into national law the latest by the 10th of January 2020.

For “obligated entities”, the requirements of the 5AMLD impose added controls and strict reporting requirements, which translate into additional resources and costs. Failure to comply, in addition to the reputational risks and potential regulatory penalties, may have devastating effects.

Complying with the requirements of the directive commands the redesign of policies, procedures and systems, promoting awareness among personnel and a culture of compliance at all stages, from on-boarding new customers to continuously monitoring the status and risk profile of existing customers.

At the same time, compliance with the directive creates an opportunity for organizations who want to exhibit to their regulators, customers, associates and society at large that they take seriously the issues of money laundering and financial crime.

Such projects may prove overwhelming and lead to disrupting normal business operations.

We can help you prepare

LT Synergy (www.ltsynergy.eu), a GRC advisory firm, in collaboration with its global partner AML Partners (www.amlpartners.com), can support you in addressing all challenges related to the requirements of the 5^th Anti-Money Laundering Directive.

Our consulting services combined with the RegTechOne platform, a single platform from which you can implement and run multiple regulatory compliance programs adapted to your policies, processes and risk based approach, can enable end–to–end compliance with the provisions of the 5AMLD and other regulatory requirements.

Contact us to find out how we can help you prepare and comply.

 LT Synergy is the sole representative of AML Partners in Cyprus and Greece and promotes its services in Bulgaria, the Czech Republic, Israel and Malta.