The European Parliament and the Council of European Union reached an agreement last month on amendments to a fifth revision of the Anti-Money Laundering Directive, proposed by the European Commission last year.
First, a bit of background: The fifth revision of the Anti-Money Laundering Directive (AMLD 5) was first proposed by the European Commission in July 2016 with the aim of preventing the financial system from being used for the purposes of money laundering or terrorist financing. In the latest action measure, the European Parliament, the Council, and the European Commission on 20 December 2017 reached an agreement on a compromise text.
Among the proposed changes include enhancing the authority of the national Financial Intelligence Units (FIUs), introducing enhanced safeguards for financial flows from high-risk countries, and widening the scope of the AML Directive to cover virtual currencies and anonymous pre-paid instruments.
Under the latest amendments to AMLD 5, registers of beneficial owners of companies operating within the EU will be made publicly accessible in interconnected national registers, facilitating cooperation between member states. Concerning information on the beneficial owners of trusts and similar legal arrangements, however, access will be granted only if a legitimate interest can be demonstrated. Additionally, access to beneficial ownership information on trusts will be granted upon written request, in cases where the trust owns a company that is not incorporated in the EU.
Member states will retain the right to provide broader access to registers, in accordance with their national law. They may also refuse a written request where there are reasonable grounds to suspect that it’s not in line with the objectives of the Directive.
One of the most significant changes widens the scope of the AML Directive to cover electronic wallet providers, as well as providers engaged in exchange services between virtual currencies and fiat currencies (coins, banknotes and electronic money of a country that is designated as a legal tender and is accepted as a medium of exchange in the issuing country).
“For anti-money laundering and countering the financing of terrorism purposes, competent authorities should be able to monitor through obliged entities the use of virtual currencies,” the Directive states. “This would provide a balanced and proportional approach, safeguarding technical advances and the high degree of transparency attained in the field of alternative finance and social entrepreneurship.”
Furthermore, the revised Directive will lower the threshold for identifying the holders of prepaid cards from EUR 250 to EUR 150.
Moreover, the revised Directive provides for greater facilitated cooperation concerning the exchange of information between bank supervisors and Financial Intelligence Units (FIUs), which collect and analyze information about suspicious transactions related to money laundering or terrorism financing at the national level. Thus, FIUs will have access to information in centralized bank and payment account registers, enabling them to identify account holders.
The Directive further requires member states to require entities to apply enhanced customer due diligence measures when dealing with high-risk third countries and with natural persons or legal entities established in high-risk third countries to help manage and mitigate these risks.
“It is important to improve the effectiveness of the list of high-risk third countries established by the Commission by providing for a harmonised treatment of those countries at Union level,” the Directive states. “This harmonised approach should primarily focus on enhanced customer due diligence measures, when such measures are not already required by the previous customer due diligence measures foreseen in each of the national regimes.”
Furthermore, member states and obliged entities should be allowed to apply additional mitigating measures, where applicable, that complement the enhanced customer due diligence measures, in accordance with a risk-based approach and considering the specific circumstances of each business relationship or transaction, the Directive states.
The Directive further calls on member states to enact and apply additional mitigating measures concerning high-risk third countries identified by the Commission considering calls for countermeasures and recommendations, such as those expressed by the Financial Action Task Force (FATF) and responsibilities resulting from international agreements.
A final compromise text still needs to be formally endorsed and signed by both the Council and the European Parliament, before being published in the Official Journal of the European Union. The amended Directive is expected to enter into force by the end of 2019.