The Impact of 5AMLD in an Ever-changing Financial Landscape
Author
Michael McNulty
FinTrU Associate
Published
Wednesday 28 October 2020
KYC
As the financial world grapples with the ongoing Coronavirus pandemic, one could be forgiven for forgetting about the anti-money laundering legislation which has come into force in 2020. Over the course of this article I will be discussing some of the key changes that have come into play.
What is the 5th Anti-Money Laundering Directive (5AMLD)?
The 5th Anti-Money Laundering Directive is a European Union Directive which has been designed to prevent the use of the financial system for the purposes of money laundering and terrorist financing. The majority of the heavy lifting, so to speak, was carried out during the implementation of 4AMLD in 2017. This was the latest in a long line of measures to make the financial world more robust when dealing with financial crises such as the one that we saw in 2008.
When was 5AMLD Implemented?
The 5th Anti-Money Laundering Directive came into force across the business world on 10th January 2020. This piece of legislation was subsequently renamed to become known as “The Money Laundering and Terrorist Financing Regulations 2019”.
What led to 5AMLD?
Rapid increase in Terror Attacks across Europe
Over the last number of years, there has been a significant rise in terror attacks across Europe. These attacks have occurred in major European cities such as London, Brussels and Paris. In the aftermath of such deadly and tragic incidents, the focus shifted to preventing such atrocities in the future, and the first area to come under the microscope was the funding of terrorist activities. On top of this, in figures released by the UK Government, it is estimated that over the last number of years a staggering £90 billion has been laundered throughout the UK (1.) After receiving recommendations from the Financial Action Task Force which, in their own words, is a global money laundering and terrorist financing watchdog (2), new legislation was introduced to remove the loopholes that terrorists and money launderers have looked to exploit.
An area of exploitation for criminals was the use of pre-paid cards without any sort of due diligence checks. To counter this, legislation was introduced requiring any individual who spends more than 150 euros on a pre-paid card to face identification and due diligence. Anyone who is looking to make a remote payment of over 50 euros will also be subject to these requirements (3). Additionally, criminals have previously been able to exploit the lack of communication between various agencies, and information that could have been pivotal to one agency was not shared. There has, therefore, been a concerted effort within the corridors of power in Europe to centralise intelligence sharing between countries.
To counter this growing threat, new legislation was implemented regarding the activities of the Financial Intelligence Units, which act as the first line of defence when it comes to money laundering and terrorist financing (4). With the creation of a new central bank account, and the ability to track transactions, it means that intervening authorities will have a much quicker response speed when it comes to dealing with a potential money laundering or terrorist financing case. Although these two particular interventions represent only one part of the battle against preventing terrorism and money laundering, they mark an important stage in the fight against these crimes.
Although company ownership was primarily dealt with in the 4AMLD legislation, it was tightened further within 5AMLD. An example, applicable also to the UK, is that from 10th January 2020, all obliged entities must tell Companies House if there is a discrepancy between the information that they hold about a beneficial owner and the information held on the Companies House Persons of Significant Control register (5). To put it simply, if an authorised entity is carrying out due diligence on a company and the ownership differs from that which is held on Companies House, this will raise an alert. Under 5AMLD, these discrepancies must be reported and investigated, potentially averting money laundering and other serious crimes.
Within the 5AMLD legislation there was the further tightening of controls in relation to what are known as “high-risk third countries”, a term used to classify certain countries with strong links to terrorist activities and other serious financial crimes, acting as sanctuaries in which terrorist organisations may be able to secure their funds. Although this was a measure first introduced in 2017 within 4AMLD, 5AMLD prescribes enhanced due diligence measures for business relationships or transactions involving high-risk third countries. It also allows Member States to restrict OEs (Obliged Entities) from opening branches or subsidiaries in high-risk third countries, as well as preventing them from trading in Member State countries (6).
It is clear, with the latest implementation of financial regulations, that the European Union is really trying to put pressure on organised crime gangs and disrupt their flow of money. Although, on the face of it, these measures are proactive and positive, it will take some time to see what impact they have as we progress towards the end of 2020.
References
About FinTrU
Founded in December 2013, FinTrU is a multi-award winning Financial Services company that is committed to giving local talent the opportunity to work on a global stage with the largest international investment banks. FinTrU provides its clients with high quality, cost-effective, near-shore resourcing solutions. FinTrU’s products are: Legal, Risk, Compliance, KYC, Operations and Consultancy. Its clients are all Tier 1 Investment Banks based in London, New York, Tokyo, Frankfurt and Paris. FinTrU currently employs 600 staff at its two Belfast city centre offices and Derry/Londonderry.