Topic:

Money Laundering Directives - MLD 4/5/6
Summary

Following the terrorist attacks in Paris and the leaking of the Panama papers, the European Commission came under pressure to amend the adopted text of MLD4. On 5 July 2016 the Commission adopted a proposal to further reinforce EU rules on anti-money laundering to counter terrorist financing and increase transparency of financial transactions and of corporate entities. On 19 June 2018, Directive 2018/843/EU (MLD5) was published in the Official Journal of the EU.  The Directive which amends the MLD4, intends to complement the existing preventive legal framework in place in the Union.

Directive 2018/843/EU 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

Key points of the Directive are:

• Increased scope - designate virtual currency exchange platforms (and wallet providers) as obliged entities, requiring customer due diligence to be conducted;

• Strengthen transparency measures applicable to prepaid instruments - lowering thresholds for identification from €250 to €150 and widening customer verification requirements;

• Remote payment identification - requirement to identify customers for remote payment transactions exceeding 50 euros and

• Third country issued anonymous cards - MLD5 imposes potentially onerous obligations on card schemes to prevent the use of anonymous pre-paid cards issued in third countries;

• New powers to  Financial Intelligence Units (FIUs) - facilitate their cooperation by further aligning the rules for such Units with the latest international standards

• FIUs and competent authorities to easily identify holders of bank and payment accounts - Member States to set up centralised registers or electronic data retrieval systems so as to swiftly identify holders of bank and payment accounts

• Harmonise EU approach towards high-risk third countries - Apply enhanced and harmonised due diligence measures towards high-risk third countries

• Improved transparency of information on beneficial ownership - including public access  to such information for companies,or trusts engaged in commercial or business-like activities and access to such information on a legitimate-interest basis for family or charitable trusts. Will also include interconnection of Centralised Beneficial Ownership Registers allowing competent authorities, FIUs and obliged entities to identify the beneficial owners in an easy and efficient way

Member States have until 10 January 2020 to implement the Directive including setting up the central registers of beneficial ownership for corporates and until 10 March 2020 to set up the central registers of beneficial ownership for trusts. Member States have until 10 September 2020 to set up the centralised automated mechanisms to allow timely identification of those who hold or control payment accounts and bank accounts.

In the UK the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 transpose these requirements and make amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The MLRs (as amended) apply to banks, building societies and credit unions. They also apply to other firms undertaking certain financial activities (see Schedule 2 of the regulations). These will normally include investment managers and stockbrokers, e-money institutions, payment institutions, consumer credit firms offering lending services, financial advisors, investment firms, asset managers and those providing safety deposit services. These regulations require firms to apply risk-based customer due diligence measures and take other steps to prevent their services from being used for money laundering or terrorist financing. Businesses carrying out certain cryptoasset activities also need to comply with the MLRs in relation to those activities as of 10 January 2020.

On November 12, a further legislative package was published in the Official Journal of the EU. Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law (MLD6) and Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005. The two instruments complement the existing anti-money laundering framework by strengthening the preventive framework to combat money laundering and terrorist financing. Member States will be required to transpose MLD6 by 3 December 2020, while the regulation will apply to Member States from 3 June 2021 onwards.

On 16 April 2019, the European Parliament adopted a legislative resolution on the proposal for a regulation of the European Parliament and of the Council amending several pieces of EU legislation including MLD 4. The proposal aims to strengthen the mandates, governance and financing of the European Supervisory Authorities (ESAs) by giving them greater responsibility for ensuring the convergence of financial market supervision. In particular the proposal strengthens the role of the European Banking Authority (EBA) with regard to the risks posed to the financial sector by money laundering and terrorist financing activities.