Updates to the Anti-Money Laundering Directive - Part II

15 Jan 2020

The following is the second part of an article which provides an overview of the major changes brought forward by the Fifth Anti-Money Laundering Directive.

 

E-money and prepaid cards

There is now increased transparency regarding e-money products by reducing the threshold amounts for which no identity information is required together with the inclusion of stricter requirements for customer verification. The Fifth Anti-Money Laundering Directive (“5AMLD”) stipulates strict conditions which have to be met for e-money products to be issued anonymously:

  1. The limit for non-rechargeable prepaid products has been reduced from Eur 250 to Eur 150. Anonymous issuance of e-money is now only permitted below this threshold. The current possibility for Member States (“MS”) to raise this threshold to Eur 500 if the e-money could only be used domestically has been abolished;

  2. The anonymous issuance of e-money products for the use of remote payment transactions is prohibited if the value of the transaction exceeds Eur 50. This applies for instance to prepaid credit cards and e-money products;

  3. Furthermore, acquirers may only use e-money to process payments if the e-money was issued in a third country with a comparable level of anti-money laundering prevention. As you cannot tell with every payment instrument whether it is e-money or not, this can lead to payment cards from certain countries no longer being accepted in the EU;

  4. MS may also decide to not accept any payments by means of anonymous credit balances on their territory.

General purpose prepaid cards have legitimate uses and constitute an instrument contributing to social and financial inclusion. However, anonymous prepaid cards are easy to use in financing terrorist attacks and logistics. It is therefore essential to deny terrorists this means of financing their operations, by further reducing the limits and maximum amounts under which obliged entities are allowed not to apply certain customer due diligence measures provided for by the Fourth Anti-Money Laundering Directive (“4AMLD”). Therefore, it is essential that the thresholds for general purpose anonymous prepaid cards is lowered, and also that the customer is identified in the case of remote payment transactions where the transaction amount exceeds Eur 50.

 

Ultimate Beneficial Owners

Recital 25 of the 5AMLD states that MS are currently required to ensure that corporate and other legal entities incorporated within their territory obtain and hold, adequate, accurate and current information on their beneficial ownership. The need for accurate and up-to-date information on the beneficial owner is a key factor in tracing criminals who might otherwise be able to hide their identity behind a corporate structure. The recital also points out that due to differences in legal systems of MS, certain trusts and similar legal arrangements are not monitored or registered anywhere in the EU. Therefore, with the 5AMLD, rules that apply to trusts and similar legal arrangements should be comparable to the corresponding rules that apply to corporate and other legal entities.

 

The Ultimate Beneficial Owner (“UBO”) register for companies must become publicly accessible. Trusts and other similar arrangements will now have to obtain and hold information on UBOs, where the previous directive limited such obligation to trusts that generate tax consequences. The register for trusts and similar legal arrangements will only become publicly accessible to persons able to demonstrate a ‘legitimate interest’.

 

In both cases, the set of data made available to the public will be limited to certain essential data. Moreover, the 5AMLD allows MS to provide for an exemption if public access would expose beneficial owners to disproportionate risks, to risks regarding fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or if the beneficial owner is a minor or otherwise legally incapable. MS will also retain the right to provide broader access to information, in accordance with their national law.

 

Additionally, UBO national registers must be inter-connected at an EU level in order to facilitate cooperation and the exchange of information between member-state authorities.

 

Politically Exposed Persons

Member States will be obliged to draft a list of offices and functions that qualify as Politically Exposed Persons (“PEPs”) on national level and including nationally registered international organisations; the EU will draft a corresponding list on EU level, consolidate the national lists from MS and publish the result. The lists will not name any persons. National as well as EU based PEPs continue to be high risk for the purposes of the “Know Your Customer”, and require Enhanced Due Diligence (“EDD”).

 

These lists are designed to make it easier for smaller compliance teams, or those with lower volumes of customers, to identify the PEPs that they should be screening against and monitoring for any changes to risk.

 

High Risk Third Countries

Business relationships or transactions involving high-risk third countries should be limited when significant weaknesses in the AML/CFT regime of the third countries concerned are identified, unless adequate additional mitigating measures or countermeasures are applied. When dealing with such cases, MS should require obliged entities to apply EDD to manage and mitigate those risks. The EU aims to make a necessity the harmonization of the treatment of third countries at EU level.

 

Other Stores of Value

The final point pulls a number of new actors into the obliged entity status. This includes art dealers, who need to start operating more like traditional financial institutions. Article 2(i) of the 5AMLD includes ‘persons trading or acting as intermediaries in the trade of works of art, including when this is carried out by art galleries and auction houses,’ as ‘obliged entities’. Nonetheless, the value of the transaction must amount to Eur10,000 or more.

 

Feel free to contact us if you require any further information on the 5AMLD.

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