Fifth AML Directive – Amendments to Combat Money Laundering

0
43
Fifth AML Directive - Amendments to Combat Money Laundering

Overview: This is an overview of AMLD 5, which has made compliance quite stringent. It mentions the Fifth EU AML Directive recommendations and what it demands from banks and businesses regarding compliance.  

Fifth EU AML Directive: Demanding Stringent AML Compliance 

European Union (EU) fifth AML directive was enforced in July 2018 and the member states are required to integrate modified regulations into national law by January 2020. Major changes in AML and KYC regulations are introduced for several sectors that were previously not included in the scope of AML regulations. The regulatory authorities are all set for thorough implementation of the fifth AML directive and require the reporting entities to practice vigilant AML compliance. 

The major reasons behind this directive are the increase in financial crime in the EU region and Panama paper leaks. Several financial institutions in the EU were found to be assisting the criminals in hiding their black money intentionally or unintentionally. Also, the EU authorities highlighted the exploitation of the Fintech and other sectors for money laundering. Lack of AML regulations in these sectors was the major reason why it was exploited easily. The regulatory authorities are planning to eliminate money laundering and terrorist financing loopholes in all these sectors and demands thorough AML compliance from the concerned businesses. 

Key Recommendations in Fifth AML Directive

The following are major recommendations in the Fifth AML directive of the EU. 

 

  • The scope of AML regulations

 

The scope of the AML regulations is expanded to virtual currency, real estate, legal, prepaid cards, and art dealers sector. The AML compliance regulations include AML screening, recording, and reporting. These sectors will be under scrutiny regarding their AML practices. 

An effective AML integration plan requires banks and investment companies to adopt and implement control processes that help avoid involvement in money laundering and terror financing. 

 

  • Prepaid card transaction threshold for identity verification

 

Prepaid cards received some of the major changes in AML and KYC regulations. The prepaid cards operating within the EU region will practice identity verification on their customers if the customer will monthly deposit or make a transaction of above EUR 150 on the prepaid card. Previously this threshold was set to EUR 250. The reason behind these regulations is the increase in unidentified prepaid cards used for a huge number of money laundering transactions. 

Also, the identity verification threshold for remote online transactions through prepaid cards is reduced to EUR 50. The prepaid card companies are required to perform digital verification every time a customer makes a transaction above this threshold. The companies will be liable for penalties in the event of non-compliance. 

Prepaid cards issued in some third country are acceptable only if the issuance requirements align with AMLD 5 regulations. 

 

  • Virtual currency and Art Dealers

 

Virtual currency businesses are also required to run KYC and AML screening on their customers. The tremendous growth of this sector is exploited by criminals and the EU authorities plan to eliminate money laundering from this sector before it could make any major damage.

The virtual currency businesses (exchanges, payment solutions, etc) are required to run KYC and AML screening on their customers. Also, the transactions above the set threshold are should be reported to the regulatory bodies.

The same goes for the art dealers. The criminals sell art products and report them with high prices, integrating the black money within the sales proceeds. Hence, the art dealers are required to verify their clients who make huge transactions above the set threshold. If the person is identified as a money launderer the art dealer will be able to eliminate the risk at the very first stage, by either practicing required enhanced due diligence on that customer simply not doing any business with him at all. 

 

  • Legal and real estate sector

 

The legal sector is required to collect and verify the information of their clients. The legal professional that provide legal services like, legal advice, asset management, tax returns, etc. are required to screen their customers as per the requirements of the directive. 

Legal professionals are often exploited by criminals to integrate their black money into legal income.

Real estate is also exploited by criminals to incorporate the black money in real estate deal proceeds. The criminals conduct several deals and manipulate the transactions. 

So, the real estate sector is required to share the information of real-estate holders with the regulatory authorities. 

Publically available UBO information

Member states are required to maintain a beneficial owner register containing basic information of the beneficial owners of businesses. The person who will have a legitimate reason to get access to that information will be provided access. The member states are required to keep the beneficial owner register updated. 

The businesses liable for AMLD5 are required to collect information about the Ultimate Beneficial Owners (UBOs) of their client businesses and screen it against publically available beneficial owner register. 

Leave a reply