Background of the Anti-Money Laundering Directive

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1 On 19 June 2018 the 5 th Anti-Money Laundering Directive was published in the Official Journal of the EU (Matthäus Schindele already reported for PayTechLaw on the AML5-Update). It entered into force on 9 July 2018 and has to be implemented by the Member States by 10 January This article aims to provide you with a summary of the most important points, who is affected and what needs to be done by them. Background of the Anti-Money Laundering Directive On 5 July 2016, the European Commission presented its proposal for a 5 th Anti-Money Laundering Directive. This was intended to already amend the 4 th Anti-Money Laundering Directive, which had to be transposed into This article was published on paytechlaw.com 1

2 national law by the Member States by 26 June The reason for these amendments in quick succession was the scandal surrounding the Panama Papers and the financing of terrorist groups involved in the terrorist attacks in Paris and Brussels. In light of this, the 5 th Anti-Money Laundering Directive aims to ensure a significant tightening of the European regulations for the prevention of money laundering and terrorism financing. The European Commission, the European Parliament and the Council agreed on the amendment of the 4 th Anti- Money Laundering Directive (the so-called 5 th Anti-Money Laundering Directive) during their trialogue negotiations on 15 December The European Parliament adopted the Directive on 19 April 2018 and the Council followed suit on 14 May The publication in the Official Journal concludes the legislative process at the European level. The Member States are now tasked with implementing the Directive by 10 January The most important changes In summary, the 5 th Anti-Money Laundering Directive contains the following changes: Increased transparency regarding e-money products by reducing the threshold amounts for which no identity information is required and stricter requirements for customer verification Inclusion of exchange platforms for virtual currencies, providers of electronic wallets, rental brokers, freeports and art dealers in the scope of the Anti-Money Laundering Directive Increased due diligence obligations with regard to high-risk third countries Increasing the powers of financial intelligence units (FIUs), promoting their cooperation and providing FIUs with fast access to information on bank and payment account holders via centralised registers and electronic data retrieval systems Greater transparency regarding beneficial owners Who is affected? The 5 th Anti-Money Laundering Directive applies to credit institutions, payment institutions, e-money institutions, life insurers, investment firms, investment funds, insurance brokers, auditors, external accountants and tax advisors, notaries, lawyers, service providers for trusts or companies, real estate agents, traders, to the extent they make or accept payments of EUR 10,000 or more in cash, as well as gambling services providers. New within the realm of obliged entities are exchange platforms for virtual currencies and providers of electronic wallets for virtual currencies (e.g. Bitcoin), rental brokers, freeports and art dealers, provided the value of the transactions exceeds EUR 10,000 (regardless of whether the payment is made in cash or by bank transfer!). This article was published on paytechlaw.com 2

3 E-money products or electronic money The 5 th Anti-Money Laundering Directive (5AMLD) stipulates strict conditions which have to be met for e-money products to be issued anonymously: The limit for non-rechargeable prepaid products has been reduced from EUR 250 to EUR 150. Anonymous issuances of e-money are now only permitted below this. The current possibility for Member States to raise this threshold to EUR 500 if the e-money could only be used domestically has been abolished. The anonymous issuance of e-money products for the use of remote payment transactions is prohibited if the value of the transaction exceeds EUR 50. This applies e.g. to prepaid credit cards and e-money products. Furthermore, acquirers may only use e-money to process payments if the e-money was issued in a third country with a comparable level of anti-money laundering prevention. As you cannot tell with every payment instrument whether it is e-money or not, this can lead to payment cards from certain countries no longer being accepted in the EU. Member States may also decide to not accept any payments by means of anonymous credit balances on their territory. Virtual currencies The 5 th Anti-Money Laundering Directive also extends the scope of AML/CFT rules exchange platforms for virtual currencies most notably Bitcoin as well as providers of electronic wallets and virtual currency accounts in order to help identify virtual currency users more easily. This is intended to ensure that these platforms and wallet providers are subject to the due diligence obligations towards customers and contribute to combating money laundering and terrorism financing. Virtual currency exchange platforms are mainly electronic exchange offices that convert real currencies into virtual currencies (and vice versa). Wallet providers offer customers accounts or wallets that are denominated in a virtual currency and that can be used to make or receive payments in virtual currencies. Harmonisation of increased due diligence obligations regarding high-risk third countries Under the 4 th Anti-Money Laundering Directive, the persons affected were already obliged to exercise greater due diligence when dealing with natural or legal persons established in high-risk third countries. The EU Commission determines which countries are considered risky by means of a delegate regulation. However, Member States were so far under no obligation to determine the precise nature of the increased due diligence obligations of the obliged persons. This article was published on paytechlaw.com 3

4 In order to minimise the risk of forum shopping, the 5 th Anti-Money Laundering Directive now provides a binding list of minimum requirements for customers from high-risk third countries: These measures include the obligation to obtain additional information about the customer and the beneficial owner, the envisaged business relationship and the origin of the funds, the reasons for the planned transactions, the approval of the management prior to the business relationship being established and increased monitoring of the business relationship. Member States may also stipulate that the first payment must be made via a customer s account with a bank subject to similar KYC requirements. In addition, in transactions involving high-risk third countries, obliged parties are required to apply further risk mitigation measures, such as increased due diligence or the introduction of relevant reporting mechanisms. Furthermore, additional security measures must be taken when dealing with high-risk third countries, such as a ban on obliged persons setting up subsidiaries in a high-risk third country or the introduction of more stringent external audits. Better access of FIUs to information The access of FIUs to information is facilitated by the introduction of central registers for bank and payment accounts as well as safety deposit boxes. Centralised national registers or electronic data retrieval systems will enable the identification of all national bank accounts of a natural or legal person. This will make information on the identity of bank and payment account holders quickly available to the relevant authorities. It will also enable FIUs to identify persons who own real estate in a timely manner. In parallel, the Commission is examining the possibility of creating a separate legal instrument to allow access to these centralised bank and payment account registers for other purposes (such as criminal investigations and tax authorities). Greater transparency regarding beneficial owners As a consequence of the Panama Papers, the transparency of the actual beneficial owners of certain legal entities is to be improved. The 4 th Anti-Money Laundering Directive already provides a comprehensive framework for the collection, storage and access to information on the beneficial owners of companies, trusts and other types of companies. The 5 th Anti-Money Laundering Directive now specifies what will be registered, where registration has to take place, who will have access to the information (authorities, FIUs, and, to a limited extent, obliged persons and others), and how national registers should be linked with each other. The Directive also specifies what sanctions are imposed in the event of a breach of the reporting obligations. This article was published on paytechlaw.com 4

5 What do affected companies have to do? The 5 th Anti-Money Laundering Directive means that all companies affected need to further adapt their internal measures to prevent money laundering and terrorism financing. Issuers of electronic money will also have to evaluate their business models as a whole. Bitcoin platforms and corresponding wallet providers also face major challenges as they have to implement the money laundering prevention system. Due to the short timeframe for implementation, it is advisable to consider the new requirements sooner rather than later. About the author and the lawfirm PFR Rechtsanwälte Dr. Bernd Fletzberger is a solicitor and partner at the Vienna business law firm PFR Rechtsanwälte ( For many years, his main practice areas have been banking, payment services, capital markets and insurance law. He has many years of experience in the area of anti-money laundering compliance. He has been advising financial institutions on compliance with anti-money laundering regulations for years. As a former employee of the FMA and after many years of consultancy activities, he also knows what supervisory authorities pay particular attention to. Titelbild / Cover picture: Copyright fotolia This article was published on paytechlaw.com 5