High-risk third countries – the EU will produce a list of high risk third countries where obligated entities will have to carry out Enhanced Due Diligence;Other stores of values – traders in art will now have to report suspicious activity and perform checks on customers.
A Review of the EU Directive 2018/843 Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, also commonly known as the Fifth Anti-Money Laundering Directive (“5AMLD”) entered into force on 9 July 2018 and had to be transposed by Member States ("MS") by 10 January 2020. The main changes relate to:
E-Money & Prepaid Cards – more prepaid instruments subject to due diligence;Virtual currencies/cryptocurrency exchanges – exchanges and custodian wallets will now be classified as an obliged entity and will have to perform the same checks as any obliged entity under the 4AMLD;Ultimate Beneficial Owners – registers of company ownership will be made publicly accessible;
Clarification regarding the term Politically Exposed Persons – each European Union (“EU”) MS will have to issue a list setting out which functions qualify as prominent public functions;
The following is the first part of an article which provides an overview of the major changes brought forward by the 5AMLD and delves into matters relating to Cryptocurrencies.
Although the content of the 5AMLD updates Directive 2015/849 of the European Parliament, also known as the Fourth Anti-Money Laundering Directive (“4AMLD”), it also makes a significant new legislative steps in the treatment of virtual currencies. These regulations were much needed to bring legitimacy and clarity to the European cryptocurrency industry as well as to counter the real risks presented by misuse of the technology. The new legislation covers two types of cryptocurrency business:
Providers engaged in exchange services between virtual currencies and fiat currencies – cryptocurrency exchanges;Custodian wallet providers – cryptocurrency wallet services (where the service holds its users’ private keys).
These categories were under no EU obligation to identify suspicious activity. Therefore, terrorist groups may be able to transfer money into the EU financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms. Therefore, it has become a need for competent authorities to monitor the use of virtual currencies and to provide a balanced and proportional approach, whilst safeguarding the technical advances and the high degree of transparency attained in the field of alternative finance and social entrepreneurship.
The anonymity of virtual currencies allows their potential misuse for criminal purposes. To combat the risks related to anonymity, national financial intelligence units should be able to obtain information allowing them to associate the address of the virtual currency to the identity of the owner of virtual currency. In addition, the possibility to allow users to self-declare to designated authorities on a voluntary basis should be further assessed. Therefore, the 5AMLD prohibits anonymous transactions on crypto exchanges. Custodian wallet providers and exchanges are therefore under the obligation to provide the full use identification, similarly to pre-existing requirements of banks and other brokerage service providers.
Article 10 of the 5AMLD now also includes that credit and financial institutions will be prohibited from keeping anonymous bank and savings accounts as well as safe deposit boxes. These categories of business will become ‘obliged entities’ under the 5AMLD, similar to traditional financial institutions such as banks. According to Article 11 of the 5AMLD, they will be obligated to implement measures to counter money laundering and terrorist fundraising such as customer due diligence (including ‘Know Your Customer’) and transaction monitoring. They will also be required to maintain comprehensive records and report suspicious transactions.
The recitals of the 5AMLD also state that local currencies, also known as complementary currencies, that are used in very limited networks such as a city or a region and among a small number of users, should not be considered to be virtual currencies.
Another legislative step in the treatment of virtual currencies includes the following measures:
A new legal definition of cryptocurrency, which may broadly be regarded as ‘a digital representation of value that is not issued or guaranteed by a central bank, or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically’;A new legal definition of ‘custodian wallet providers’ which includes ‘an entity that provides services to safeguard private cryptographic keys on behalf of its customers, to hold, store and transfer virtual currencies;’Cryptocurrencies and crypto exchanges are considered as ‘obliged entities’ and face the same AML regulations applied to financial institutions under the 4MLD. This involves an obligation to perform customer due diligence and submit a Suspicious Transaction Report;Introduction of regulation for providers of crypto exchanges and wallets, which must now be registered with the competent authorities in their domestic locations.
In Article 47 of the 5AMLD, under the section ‘Supervision’, there was an amendment to the 4AMLD, which now states that MS shall ensure that providers of exchange services between virtual currencies and fiat currencies, and custodian wallet providers, are registered, that currency exchange and cheque cashing offices, and trust or company service providers are licensed or registered, and that providers of gambling services are regulated.’ The reference to ‘virtual currencies’ and ‘custodian wallet providers’ was added.
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