EU Member States know they need to act together to stand a chance of addressing the massive scale of modern money laundering. It takes a joined, Union-level response to disrupt those who for long have profited from sophisticated criminal partnerships.
Recent nationwide risk assessment studies conducted by the European Commission have revealed insight into how criminals apply new technologies to protect their anonymity. Virtual currencies and pre-paid cards are among the most prevalent abuse techniques.
It is no surprise that the 5th AML Directive focuses on putting an end to this trend - amongst many other requirements that go far beyond those expected by the Financial Action Task Force (FATF). Despina Vassilladou, Deputy Head of Unit at the European Commission, stressed during the recent ACAMS conference in Amsterdam that regulators’ level of tolerance of criminal abuse of the financial ecosystem is at an all-time low.
What is the 5th Anti Money laundering Directive?
The latest EU anti money laundering directive aims to improve transparency in identifying the beneficial ownership of trusts and companies, disrupt criminal abuse of the virtual currencies and prepaid cards, apply enhanced due diligence on transactions to and from high-risk countries. Further, it gives Financial Intelligence Units better access to information and facilities cooperation across nations through interconnected registers. The Directive also obliges all EU member states to create maintain central bank and payment account registers or central retrieval systems. For more information, read the European Commission’s Fact Sheet on the 5th Anti Money laundering Directive.
The 5th AML Directive was signed into law on the 30th of May 2018, giving the Member States 18 months to transpose it into their national laws. However, regulators warn the changes do not stop here.
The new Directive extends the focus around Beneficial Owner (BO) transparency by introducing registration of BO of all companies, trusts and legal arrangements. The obliged entities are now required to report any discrepancies they find between the information held on those registries and what they identified during the Customer Due Diligence (CDD) or Know Your Customer (KYC) process. Moreover, the central registers of corporates will be open to the public – who do not need to show the legitimate interest to view them. This step - public access - will further improve the maintenance of accuracy of the information contained in the registries.
The 5th AML Directive: Increased Information Sharing
Another development is the requirement on Member States to create a centralised and automated register of bank and payment account holders easily accessible to national financial intelligence units (FIUs) and competent authorities. FIUs are also required to ensure timely sharing of the information with each other.
The Directive further enhances the power of the FIUs to request information from the obliged entities even in the absence of a previous Suspicious Transaction Report. National FIU can request the information for other FIUs and exchange the information swiftly even by authorising an obliged entity to simply forward the information.
Member States also need to share. Central to the Directive is the requirement for states to cooperate and exchange confidential information between competent authorities and those authorities entrusted with the supervision of the obliged entities so that they can effectively discharge their duties.
Another major blow to the criminal world is subjecting the providers of exchange services between virtual currencies and fiat currencies as well as custodian digital wallets providers to the CDD requirements. The CDD requirement will not by itself eliminate the problem as users can simply skip the providers that are subject to the Directive. However, the measure is a good step forward in disrupting the anonymity they provide.
Anonymous prepaid card providers, often open to abuse by criminals, will have to apply CDD measures for any general purpose anonymous prepaid cards exceeding EUR 150, and for some remote payment transaction in the amount exceeding EUR 50. Any prepaid cards issued outside of the EU can only be used within the Union’s bordered if the issuing country has complied with the AML requirements.
The 5th AML Directive: New Criteria
The Directive also introduces new criteria for high-risk third countries and rule-based countermeasures. These are in addition to what FATF proposed already and include such strategic deficiencies criteria as willingness to cooperate and share information, availability of timely and accurate BO information, and sanctions compliance regime.
Other changes include adding all forms of tax advisory service, letting agents and art dealers to the Directive’s scope. It also gives public authorities access to information on real estate ownership and strengthens protection of whistle-blowers’ identities.
With the 5th AML Directive signed into law, The European Commission is now going to focus on the 4th AML Directive transposition checks to ensure that it was applied correctly. Those assessments are expected to raise concerns; not all EU countries even managed to transpose the fourth Directive to domestic law on time. We can expect, therefore, increased pressure by the European Commission to swiftly address the compliance shortcomings. Financial institutions will feel the impact of this pressure first-hand since they are at the frontline of the fight against money laundering and other forms of financial crime.
How BAE Systems can help:
The NetReveal® Compliance suite from BAE Systems Applied Intelligence enables financial institutions to manage the 4th AML Directive requirements such as the challenging ultimate beneficial ownership (UBO) mandate. Our solutions look at suspicious behaviours across various product lines, departments and channels in order to build a holistic view of an entity. We enable entity centric investigations that reveal evolving crime patterns across the connected parties.
Contact us for more details on how we can help you be more proactive in response to the changing risks and subsequently the regulatory landscape. We can help you evolve your compliance objectives into an intelligence-led practice – merging human intelligence with new technologies that will drive efficiency, prevent more crime and nurture business growth.