With implementation of 4MLD still ongoing, 2018 should see the finalisation of further changes to the EU’s anti-money laundering framework.

In brief

  • Negotiations between EU bodies over the proposed Fifth Money Laundering Directive (5MLD) continue into 2018, but look near to completion.
  • New measures are likely to include more detail on Enhanced Customer Due Diligence (ECDD) requirements and monitoring of virtual currencies.
  • Beneficial ownership registers, introduced by 4MLD, are likely to become publicly accessible.

Despite the European Union’s Fourth Anti-Money Laundering Directive (4MLD) only coming into force on 26 June 2017, it has been in the process of being amended by means of what will become 5MLD. This is part of the European Commission’s action plan to strengthen the fight against terrorist financing in light of the increased frequency of terrorist activity in Europe and the raised global threat level.

The proposals will take the form of a minimum harmonising Directive which means that it will set a threshold which national legislation must meet, though member states can choose to adopt or retain more stringent measures should they choose to.

We set out below the key changes we expect to see following the adoption of 5MLD based on the current proposals:

  • Enhanced Customer Due Diligence measures clarified: In order to improve the effectiveness of EU policy for high-risk third countries, a prescriptive list of ECDD measures to be applied by obliged entities will be included in 5MLD. An illustrative list of countermeasures that could be applied when dealing with high-risk third countries is also expected to be included. It is hoped that harmonisation of these measures will avoid or limit the risk of forum-shopping based on how jurisdictions apply the regulations. The proposed measures are compliant with lists drawn up by the Financial Action Task Force (FATF) and will encompass checks on the customer, the purpose and nature of the business relationship, the source of funds, and the monitoring of transactions.
  • Monitoring of transactions through virtual currencies: The list of obliged entities under 4MLD will be amended to include virtual currency exchange platforms and custodian wallet providers within the scope of the Directive. Virtual currency transfers are currently not monitored in any way by public authorities within the EU. As obliged entities under 4MLD, similar to financial institutions, they will become subject to the obligation to implement preventive measures and report suspicious transactions. This will equip Financial Intelligence Units (FIUs) to collect the necessary information to assess suspicious transaction reports more efficiently and speed up detection of terrorist financing and money laundering activities.
  • Misuse of anonymous prepaid cards: This will be tackled by suppression of anonymity for the online use of reloadable and non-reloadable prepaid cards, and the reduction of the existing €250 threshold for anonymous prepaid cards to €150 when used face-to-face.
  • Information sharing between Financial Intelligence Units to be broadened: The legal obligations on FIUs are to be clarified by aligning the text of 4MLD with the latest international standards on the powers that FIUs should have when requesting additional information from obliged entities. The aim is to put in place an automated central mechanism - such as a central registry or an electronic data retrieval system - at Member State level, allowing for the swift identification of account holders. This mechanism would be directly accessible to national FIUs and potentially other competent authorities active in the field of anti-money laundering or counter-terrorist financing.
  • Enabling FIUs to request information from obliged entities: In order to improve FIU access to, and exchange of, information held by obliged entities, a further clarification of their powers is proposed. This will allow FIUs to request supplementary information from any obliged entity and have direct access to information held by obliged entities without there having been a suspicious transaction report. This should ensure that the legislation in all Member States is aligned with international standards.
  • Beneficial ownership registers: The 4MLD already establishes obligations in respect of the identification of the beneficial owners of legal entities and legal arrangements, the storing of that information and differentiated levels of access to it. 5MLD will go further by granting public access to beneficial ownership information for entities engaged in economic activities. The set of data to be made available to the public will be strictly limited and will only concern beneficial owners in their capacity as economic actors. The Commission also proposes to set up a direct interconnection of member state registers. The interconnection will allow competent authorities, FIUs and obliged entities to identify the beneficial owners in an easy and efficient way, and it will increase the transparency requirements on companies and trusts. It will also allow the public to access EU-wide beneficial ownership information.

Timing

A joint press release from the European Parliament's Committee on Economic and Monetary Affairs and its Committee on Civil Liberties, Justice and Home Affairs was published on 14 November 2017, confirming that a political agreement on 5MLD had failed to materialise. It went on to express concern that the delay in finalising a deal on 5MLD is having a knock-on effect on implementation of 4MLD and, in particular, the transparency around ownership and the need for transparency registers to stamp out the practice of tainted money being concealed.

Despite stating that they expected the Council to be constructive and willing to reach an agreement before the end of the year, this did not in fact materialise. On 28 November 2017 the UK government stated that it expected negotiations on 5MLD to conclude by early 2018 if they were not complete by the end of 2017. It therefore seems likely that the negotiations on 5MLD will conclude in the first quarter of 2018.

Crime, fraud & investigations: What to look out for in 2018