Mervin Zammit

Legal Associate, E&S Group

Changes brought about by the 5th AML Directive

Friday 17th April 2020

The 5th AML Directive (5th AMLD) which came into force on the 10th of January 2020 partly amends EU Directive 2015/849 of the European Parliament and of the Council of 2015 (4th AMLD). The reason behind the new legislation was the ever-increasing fight against terrorist financing and increased transparency to avoid scandals of leaks brought about with the Swiss leaks and Panama Papers.

The 5th AMLD addresses the increase in popularity of technological innovation of virtual currencies which brought about new challenges in the field of money laundering. A legal definition considers cryptocurrency as “a digital representation of value that can be digitally transferred, stored or traded and is accepted…as a medium of exchange”. Consequently, rendering cryptocurrencies and cryptocurrency exchanges as “obliged entities”.

The new Directive also extends the accessibility of company information contained in the registers of beneficial owners. The 4th AMLD stated that request for information was only to be provided to persons demonstrating “legitimate interest”. The 5th AMLD extends the scope to the general public. Trust and similar arrangements are to be made accessible subject to “legitimate interest” and held in a central register where the trustee resides within the Union. At the same time beneficial ownership registers are to be interconnected at an EU level for enhanced cooperation and to facilitate exchange of information between Member States.

EU Member States are to introduce publicly available PEP lists to identify politically exposed prominent public functions. The same will happen at EU level where a list of prominent public functions will be published.

The subject of Prepaid cards is also tackled in the Directive, which has placed limits on monthly payment transactions and maximum amount stored electronically reduced to €150 from €250. The exemptions do not apply in the case of redemption in cash or cash withdrawals of the monetary value stored where the amount redeemed or withdrawn exceeds €50. Moreover, prepaid cards issued outside of the EU are prohibited under the 5th AMLD unless the country of issue has enforcing legislation similar to the EU’s AML/CFT and KYC standards.

In addition, the Directive aims to harmonise the due diligence treatment of High-Risk third countries when dealing with financial transactions. As opposed to the 4th AMLD which left enhanced due diligence (EDD) in the hands of Member States and/or subject persons, the 5th AMLD will ensure EDD measures are harmonised, amongst which, the obligation to request additional client information, limiting business relationship with such countries and requesting increase external audit requirements on branches/subsidiaries.

The 5th AMLD has singled out persons trading or acting as intermediaries in works of art, including when this is carried out by art galleries and auction houses, where the transaction or a series of linked transactions amount to €10,000. Such entities or persons will be also considered as “obliged entities” with reporting obligations under AML/CFT. Moreover, the 5th AMLD has included a range of high value goods which it considers as high risk. These include oil, arms, precious metals and tobacco. Scrutiny over transactions involving cultural and archaeological artifacts should also curb terrorist funding.

In the meantime, the 6th AMLD is on the horizon. Transposition by Member States is expected by December 2020, while entities will have up to June 2021 to adhere with the requirements. We should expect the following: A unified list of predicate offences; Harmonised criminal offences relating to money laundering offences to include aiding and abetting, attempting and inciting; Imposition of tougher punishments; Increased international co-operation for prosecution of money laundering; Extension of criminal liability to legal persons; mitigation of risks and challenges posed by the use of virtual currencies and a requirement for dual criminality for specific offences.