The European Commission last week adopted a proposal to further reinforce EU rules on AML to counter terrorist financing and to increase transparency surrounding beneficial ownership. The proposed Directive amends the Fourth Anti-Money Laundering Directive (MLD4), which was adopted in May 2015, in order to improve the current legislative framework by tackling new means of terrorist financing and is also part of a broader drive to boost tax transparency and tackle tax abuse.
On 2 February 2016, the European Commission presented an Action Plan for strengthening the fight against terrorist financing, which set out a number of targeted operational and legislative measures, including the present proposal, to be put in place rapidly.
Further, on 12 February 2016, the Economic and Financial Affairs Ministers Council also called for action on enhancing the accessibility of beneficial ownership registers to clarify the registration requirements for trusts, to speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership and strengthen customer due diligence rules.
Finally, the transposition date and entry into force of MLD4 is 26 June 2017, but the European Commission has been encouraging Member States to anticipate the transposition date. Recent terrorist attacks and the Panama Papers revelations have highlighted the need for the EU to step up its fight against money laundering and terrorist financing and the new proposal brings forward the transposition date to 1 January 2017.
The proposed Directive introduces the following amendments to MLD4 in relation to beneficial ownership in order to target tax avoidance and money laundering:
- full public access to beneficial ownership registers – Member States will be required to make public information relating to the beneficial ownership of certain business-related trusts and other types of legal arrangements having a similar structure or function. Access to such information in relation to trusts not carrying on business will only be available to persons and organisations that can demonstrate a legitimate interest. Further, the definition of beneficial owner is amended to provide that those beneficial owners who have a 10% ownership in certain companies that are at risk of being used for money laundering and tax evasion must be included in the registers. The threshold remains at 25% for all other companies;
- interconnection of the registers – the proposal provides for the direct interconnection of the registers to facilitate co-operation between Member States. It will also allow the public to access the beneficial ownership information across the EU; and
- extending the information available to authorities – the European Commission has proposed that existing, as well as new, accounts should be subject to due diligence controls. This will prevent accounts that are potentially used for illicit activities from escaping detection. Passive companies and trusts, such as those highlighted in the Panama Papers, will also be subject to greater scrutiny and tighter rules.
The information must remain publicly available through the national central registers and through the system of interconnection of registers for 10 years after the company has been struck off from the register.
The proposed Directive introduces the following amendments to MLD4 to target terrorist financing:
- harmonise the EU approach for obliged entities, such as banks and financial institutions, to apply enhanced customer due diligence measures towards high risk third countries;
- designate virtual currency exchange platforms as obliged entities, thereby bringing them under the scope of the Directive;
- to strengthen transparency measures applicable to prepaid instruments, such as prepaid cards, by lowering thresholds for identification from €250 to €150 and widening customer verification requirements;
- to enhance the powers of Member States’ Financial Intelligence Units and facilitate their co-operation by further aligning the rules for such Units with the latest international standards; and
- to give such Units swift access to information on the holders of bank and payment accounts through centralised registers or electronic data retrieval systems.
The transposition date of MLD4 is brought forward to 1 January 2017 from 26 June 2017. Member States will also be required to implement this proposed Directive by 1 January 2017.