Implications of the Fifth Money Laundering Directive

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By The ID Register’s Legal Manager, Mark Quigley.

On May 14th the Council of Europe adopted a directive strengthening the EU Rules to prevent money laundering and terrorist financing. Dubbed the Fifth Anti-Money Laundering Directive, it will amend directive 2015/849 and aims to further enhance transparency and controls in the wake of a number of terrorist attacks in Europe in 2016.

 

The 5th Anti-Money Laundering Directive entered into force on 9 July 2018 and Member States will have to implement these new rules into their national legislation by 10 January 2020. Some of the key changes to the 4th Anti-Money Laundering Directive are as follows:

 

  1. Transparent access to the beneficial ownership of companies and trusts
  • The beneficial ownership registers for legal entities such as companies will be made public
  • Access to data on the beneficial owner of trusts will be accessible without any restrictions to competent authorities, Financial Intelligence Units, the professional sectors subject to anti-money laundering rules such as banks and lawyers together with other persons who can demonstrate a legitimate interest. When a trust is a beneficial owner of a company, access to this information can be obtained via a written request
  1. Improving checks on transactions involving high risk third countries

 

Member States will have to ensure that firms apply enhanced controls on financial transactions to and from countries that are deemed to have significant deficiencies in their Anti-Money Laundering regimes. These include: Afghanistan, Bosnia and Herzegovina, Guyana, Iran, Iraq, Lao PDR, Syria, Sri Lanka, Trinidad and Tobago, Tunisia, Uganda, Vanuatu and Yemen.

 

When dealing with such cases of high-risk and with such business relationships or transactions, Member States should require obliged entities to apply enhanced customer due diligence measures to manage and mitigate those risks. In reality many firms will already be applying such controls to these countries so the practical impact of this change may be modest.

 

So what does this likely mean for fund managers and investors?

 

This evolution of the EU Anti-Money Laundering Directive is going to lead to more requests to identify and verify the owners of investment vehicles and to provide such information to a variety of third parties, most notably the Member States themselves.

 

Fund managers are also likely to receive more requests from national regulators and Financial Intelligence Units to confirm and evidence the Enhanced Due Diligence they have applied for transactions and relationships relating to High Risk Third Countries.

The Good News

 

While the Fifth Money Laundering Directive does represent a step forward in the EU’s efforts to combat money laundering and the financing of terrorism, it is a reflection of an increasing global tightening of the requirements and transparency of AML and KYC.  The ID Register applies a highest common denominator approach in order to stay ahead of such regulatory developments and has well established risk based procedures to identify the ultimate beneficial owners and controllers of legal persons in line with Financial Action Task Force guidelines, Joint Money Laundering Steering Group publications and international best practice. Therefore, even though you or your investors receive more requests for such information, your ID Register profile should give you all the information you will ever need to share.

 

The ID Register also applies Enhanced Due Diligence to clients associated with the High Risk Third Countries listed above so while these developments will be news to some, you can be comfortable in the knowledge that we continue to have you covered.

 

Links

 

http://data.consilium.europa.eu/doc/document/PE-72-2017-INIT/en/pdf

 

http://europa.eu/rapid/press-release_STATEMENT-18-3429_en.htm

 

High Risk Third Countries

 

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R1675&from=EN

 

http://www.europarl.europa.eu/RegData/docs_autres_institutions/commission
_europeenne/actes_delegues/2017/08320/COM_ADL(2017)08320_EN.pdf

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