Nicola Sharp outlines the main points of the European Union’s (EU) Fifth Anti-Money Laundering Directive and emphasises how important it is that those organisations operating in the business sector comply with its content.
Friday 10 January 2020 is a date that the business world simply cannot afford to ignore. It’s the date that the Fifth Anti-Money Laundering Directive (5AMLD) will become law throughout the EU and it places plenty of responsibility on many of those operational in the business spectrum.
5AMLD is intended to build on the Fourth Anti-Money Laundering Directive’s attack on financial crime by boosting existing transparency rules. As a direct result, those working in financial services will have to meet new requirements as 5AMLD targets areas that have so far not felt the force of previous directives.
Let’s be clear here, too. The new requirements are significant and carry equally significant penalties for those who fail to meet them. The onus, therefore, has to be on compliance.
For the first time, cryptocurrencies will face regulation that was applied to more traditional financial institutions under 4AMLD. Cryptocurrency exchanges will now have to perform customer due diligence and submit suspicious activity reports (SARS) – just like anyone working in the UK’s regulated sector is required to do under Part 7 of the Proceeds of Crime Act 2002 and the Terrorism Act 2000 – if they know, suspect or have reasonable grounds for knowing or suspecting that a person is engaged in, or attempting, money laundering or terrorist financing.
Virtual currencies are also set to lose their anonymity as EU Financial Intelligence Units will have to gain the names, addresses and identities of those who possess such currencies.
5AMLD obliges payment companies to carry out checks on customers using prepaid cards carrying funds of more than €150 –the 4AMLD limit was €250 – and payment service providers will have to make sure the identity of anyone authorising a remote payment of more than €50 is known. In a further three years, validation will be required for all remote payments and prepaid cards issued outside of the EU will be prohibited unless they’re issued by a country that operates anti-money laundering legislation as strong as that in the EU.
Knowing your business
5AMLD boils down to one thing: knowing your business. The EU wants its latest directive to take the fight to the money launderers. This tightening of restrictions and the removal of loopholes is being done by placing greater obligations on those in business – and business cannot afford to ignore it.
Under 5AMLD, EU Member States must establish a national register of beneficial ownership information that covers businesses, trusts and even those possessing safe-deposit boxes. The information on each member’s register should be available to share with other members and the records are required to cover anyone who has a 25% or greater stake in a company. It’s the businesses that have to use this to make all the necessary checks to establish exactly who a company’s beneficial owners are before they have any dealings with it.
5AMLD also requires those in business to carry out what amounts to due diligence on countries. Nations deemed to be high risk because of their lack of effective anti-money regulations and due diligence requirements are placed on an EU list of states that require more intensive checks when money’s moved from them into the EU. There’s an obligation on regulated businesses to view this list and ensure that their due diligence procedures reflect the risk posed by financial movements from such countries.
Such obligations, it must be said, are not mere bureaucracy. Failing to meet the requirements of 5AMLD can mean fines of up to a maximum of €5 million or 10% of annual turnover. When the resulting negative publicity is considered, along with the fact that individuals can be banned from running a regulated business and an organisation can be prevented from trading altogether, the consequences of failing to meet 5AMLD’s requirements are crystal clear.
5AMLD is looking to target crime, but it’s business that has to make sure it’s equipped to carry the burden that the directive brings. Basic due diligence checks may not be adequate for the responsibilities that 5AMLD is placing squarely on the shoulders of business. The right controls, procedures and enhanced levels of staff awareness are going to be essential.
5AMLD is extending what’s expected of businesses. Not meeting those expectations could be very costly. Taking the right legal advice now can ensure compliance with all aspects of 5AMLD.
It’s not being too alarmist to state that any failure to do so could prove to be the biggest mistake many of today’s companies will make in 2020.
Nicola Sharp is Legal Director at Rahman Ravelli
*For more information on money laundering investigations visit the Rahman Ravelli website