5AMLD & 6AMLD: Is AML/CFT A Moving Target?

5AMLD: What’s New?

5AMLD makes amendments to the Fourth Anti-money laundering directive (4AMLD)[ii], and includes, amongst a wide range of updates:

- Provisions designed to apply the lessons learned from terrorist attacks in recent years, including a consideration of the new techniques used by criminals when laundering the proceeds of crime. In this context: 

• A new focus is placed on enhanced due diligence measures in relation to dealings with high-risk third countries, with particular emphasis on transactions that can be considered complex, unusually large, conducted in an unusual pattern or without an apparent economic or lawful purpose. The use of anonymous prepaid cards is also restricted.

• Provision is made for an increase in transparency of reporting and inter-agency / inter-authority cooperation across Member States, removing the bars on information disclosure on the basis of differences in categorisation of predicate offences.

• Increasing reporting to the European Commission by Member States, as well as the availability of accurate and timely information of the beneficial ownership of legal persons and arrangements to competent authorities.

• Refreshing terrorist offences.

- Aiming to ensure uniformity in the classification of Politically Exposed Persons by Member States by asking them to create and maintain lists of the exact functions that qualify as prominent public functions, which will feed into a single list to be published by the European Commission.

- Account is now taken of technological innovation in the areas of electronic identification means, cryptocurrency and distributed ledger technology, as well as addressing data protection issues stemming from General Data Protection Regulation (GDPR).

- The scope of the entities subjected to regulatory requirements has been widened and now includes:

• Persons trading in works of art;

• Estate agents carrying out letting agency work;

• Providers engaged in exchange services between virtual currencies and fiat currencies and custodian wallet providers; and

• A broader definition of tax advisor, to include persons providing aid, assistance or advice on tax matters as a principal business or professional activity.

- Transparency on beneficial ownership for corporate entities, trusts and “similar legal arrangements” has been increased, making the beneficial ownership register established under 4AMLD publicly available in respect of corporate entities. Further mechanisms are also introduced to ensure reporting of discrepancies in registers, and sanctioning those who fail to provide necessary information, with the aim of ensuring that information held on the central registers is adequate, accurate and current.

- 5AMLD also sees the introduction of centralised automated mechanisms, such as central registries or data retrieval systems, that allow identification of persons that control or hold payment accounts, bank accounts and safe-deposit boxes, with immediate and unfiltered access by financial intelligence units (FIUs) to the information held in these centralised mechanisms. Such centralised automated mechanisms are expected to be set up by 10 September 2020.

- FIUs and other competent authorities are to be provided with greater access to information in order to allow them to identify persons owning real estate (also via use of registers or data retrieval systems).

- 5AMLD also provides for the interconnection of the above registers across the EU by 10 March 2021. This is an obligation for the European Commission, who is responsible under 5AMLD to achieve the interconnection, as well to issue reports to the European Parliament by 26 June 2020 and by 31 December 2020; we shall continue to watch this space in this regard.

- A greater emphasis is also placed on cooperation between competent authorities of the Member States, via restriction of the grounds in which they may refuse requests only to very limited cases, such as where legal privilege applies, or where an ongoing investigation or inquiry could be impeded. Further measures such as the use of cooperation agreements between competent authorities are also encouraged.

- Persons working for competent authorities, or auditors or experts acting on behalf of competent authorities, are now also bound by the obligation of professional secrecy, with certain caveats for those competent authorities that supervise credit and financial institutions. This is subject to an overriding obligation on competent authorities, as well as the persons they regulate, to report actual or potential breaches of Anti Money Laundering/Countering Financing of Terrorism (AML/CFT) laws, and in particular reporting suspicions of money laundering or terrorist financing internally and/or to FIUs. 5AMLD also ensures that suitable protection is afforded to persons that make such reports, and that they are legally protected from being exposed to threats, retaliatory or hostile action, or adverse or discriminatory employment sanctions.

The above changes have far-reaching implications for a wider range of financial and non-financial services providers who are commonly referred to as designated non-financial businesses and professions (DNFBPs). By casting a wider net on the types of activity that are to fall within the regulated sector, 5AMLD increases the pressure on existing supervisory authorities/regulators and may require the establishment of new market watchdogs in certain Member States.

As existing financial institutions, FIUs and DNFBPs are expected to adapt their internal processes for this increased transparency; FIUs, banks, and providers of payment accounts, bank accounts and safe-deposit boxes will also need to accommodate the newly established centralised automated mechanisms (that are to be in place as early as 10 September 2020), whether they be central registries or data retrieval systems, allowing identification of persons that control or hold those payment accounts, bank accounts and safe-deposit boxes.   Players who are new to the regulated sector, such as custodian wallet providers, virtual currency exchange service providers, letting agents and art dealers, may, in some instances, need to develop these processes from scratch. At the same time, local Governments and regulators are under pressure not only to regularly revise their legislation, but also to increase cooperation with their EU counterparts across all member States and update national regulatory regimes in line with new and evolving threats.

6AMLD: What’s New?

As lawmakers, regulators and regulated businesses get to grips with the 5AMLD regime, the Sixth Anti-Money Laundering Directive (6AMLD)[iii] looms around the corner and is due to be implemented by no later than 3 December 2020. Whilst the focus of 5AMLD was to update the previous (4AMLD) regime via increased transparency, updated due diligence requirements for high-risk third countries, regulatory cooperation and casting a wider net over the regulated sector, 6AMLD places a focus on the criminal activity itself. 6AMLD defines the criminal offences that are to be considered “predicate offences” with regard to money laundering, and also lays down minimum sanctions and extending criminal liability to legal entities. The Commission considers that the current criminalisation of money laundering in the Member States is not sufficiently coherent, creating obstacles for cooperation between competent authorities in different Member States. The strategy therefore appears to be one of ensuring uniformity by listing 22 predicate offences defined as “criminal activities”, in order that the most serious crimes (e.g. terrorism, human trafficking, migrant smuggling, and illegal arms dealing) are effectively investigated and detected, which should lead to more successful prosecutions. Moreover, in addition to those directly involved in laundering the proceeds of crime, the scope of money laundering now also includes accessory offences such as “aiding and abetting”, “attempting” and “inciting”, in order to capture enablers of financial crime.

6AMLD will not apply to Denmark, nor will it apply to the UK or Ireland unless they opt in. Whilst Ireland has indicated an intention to opt-in, the UK has stated that it considers that its national legislation already complies, suggesting that their opt-in is unlikely.

Moving Target?

Given the increasing pool of DNFBPs and the constant shifting of the regulatory goalposts, it is perhaps unsurprising that Member States are finding it increasingly harder to regulate. However, the rapid evolution of the law is a logical and inevitable response to the rapid evolution of both (1) criminal activity and money laundering practices, and (2)  the increased threat in recent years of terrorist activity and the consequent proliferation of terrorist financing.

Footnotes:

[i] Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU

[ii] Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC

[iii] Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law