Written by Jason Morris on Monday May 7, 2018
A recent vote at the European Parliament has resulted in a fifth update to the EU’s anti money laundering directive. This update is partly a response to the terrorist attacks of 2015 and 2016 in Paris and Brussels, as well as the Panama Papers leaks, and comes less than a year after the fourth anti money laundering directive (4MLD) was embedded into national laws across the EU.
The update is designed to bring more transparency to improve the fight against money laundering and terrorist financing by:
Here’s an insight into some of the changes put forward in this fifth and latest update.
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.
The reforms – giving citizens the right to access information on the beneficial owners of firms which operate in the EU – could help quash the corrupt use of letterbox companies created to launder money, hide wealth and avoid paying taxes, a practice which received widespread attention in the wake of the Panama Papers.
An additional measure would also open up data on beneficial owners of trusts and similar arrangements to those who can demonstrate a ‘legitimate interest’. This would make information on trusts available to investigative journalists and non-governmental organisations (NGOs). Member states will also retain the right to provide broader access to information, in accordance with their national law.
Improving transparency on trusts
The access to data on the beneficial owner of trusts will be accessible without any restrictions to competent authorities, FIUs and the professional sectors subject to anti money laundering rules (banks, lawyers, etc.) 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.
Better connection of the beneficial ownership registers
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.
Lifting the anonymity on electronic money products (pre-paid cards) and virtual currencies
Member states will have the possibility to allow the anonymous use of electronic money products only in two situations:
The new measures also address risks linked to pre-paid cards and virtual currencies. In a bid to end the anonymity associated with virtual currencies, virtual currency exchange platforms and custodian wallet providers will, like banks, have to apply customer due diligence controls, including customer verification requirements.
These platforms and providers will also have to be registered, as will currency exchanges and cheque cashing offices, and trust or company services providers.
Other measures agreed as part of the update include:
Extending anti money laundering and counter financing of terrorism rules to virtual currencies, tax related services, 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 4MLD and to persons trading in works of art. These new actors will have to identify their customers and report any suspicious activity to the FIUs.
Improving checks on transactions involving high-risk third countries
Member states will have to ensure that the sectors dealing with countries presenting strategic deficiencies in their anti money laundering and counter financing of terrorism 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.
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.
Enhancing the powers of EU FIUs and facilitating their cooperation
The FIUs will have access to more information through centralised bank and payment account registers or data retrieval systems. The FIUs from the different EU countries will also be able to cooperate more easily, as well as with other competent authorities.
Enhancing cooperation between financial supervisory authorities
In light of the revelations of the Panama Papers, the revised directive will further enhance the exchange of information and cooperation between financial supervisory authorities in full respect of their confidentiality rules, including with the European Central Bank.
The updated directive will enter into force three days after its publication in the Official Journal of the European Union. The timeline for implementing these changes into national legislation will be around 18 months.
The ICA Certificate in Anti Money Laundering provides an excellent introduction to anti money laundering and is a good basis for further study in the subject.
This course is awarded in association with Alliance Manchester Business School, the University of Manchester.
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