What is the 5th Money Laundering Directive?

Posted 5 years ago

The 5th Money Laundering Directive is an amendment to the fourth directive and has been bought into UK law in an attempt to clamp down on terrorist financing. This can now be found in the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

The Fifth Anti-Money Laundering Directive required a wholesale change in how businesses approach money laundering. It stated the need for a risk-based approach to money laundering and the need to remove automatic exemptions from due diligence.

The Fifth Directive is effectively amendments to the structure and text of the fourth directive, with the addition of various provisions. The focus on enhanced powers for direct access to information and high levels of transparency around ownership information and trusts are the main changes, as well as;

The regulation of virtual currencies and pre-paid cards in preventing terrorist financing
Improve safeguards around transactions to and from high-risk countries
Ensure the centralised national bank and payment account registers or central data retrieval systems are accessible in all member states

Important Dates

Beneficial ownership for corporates to be set up by 10 January 2020
Beneficial ownership of trusts to be set up by 10 March 2020
Centralised automated mechanisms to allow identification of those who hold or control payment accounts and bank accounts to be set up by 10 September 2020

Other changes under the 5th Directive

Bitcoin – Virtual currencies will have a legal definition. Virtual wallet and currency providers will become regulated entities. Due diligence and reporting suspicious transactions will also be a legal requirement.
Prepaid cards – A lowered requirement for customer verification from €250-€150 and sometimes €50 for remote transactions. Unless the jurisdiction is considered to have similar legislation to the EU, the use of prepaid cards outside the EU might also be prohibited.
Enhanced Due Diligence – Enhanced due diligence is required when handling transactions from high-risk countries. Evidence of funds, source of wealth, beneficial ownership information and background about the transaction must be recorded. The Directive will also amend the ‘reliable and independent source’ requirement for customer information verification to include ‘where available, electronic identification means’.
Increased reach – Members of the public will be able to request information on owners of firms in the EU to quash letterboxing companies that are laundering money and hide wealth. The Directive will also cover all forms of tax advising services, lettings agents and art dealers.

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