AMLD5

The 5th Anti-Money Laundering Directive (AMLD5) is a regulatory update to the European Union’s (EU) Anti-Money Laundering (AML) framework. It was implemented on July 9, 2018, and required all 28 EU member countries to incorporate the update into their national laws by January 10, 2020.

The EU’s AMLD5 is part of a broader effort to combat money laundering and terrorist financing within the European Union. The directive aims to strengthen the EU’s AML and Combatting the Financing of Terrorism (CFT) policies by closing loopholes that are exploited by financial criminals. It also aligns the EU’s efforts with the updated Financial Action Task Force (FATF) Standards, which now include guidance on virtual assets and virtual asset service providers.

It is crucial to understand that an EU directive is not a law itself, but rather a legal framework that sets a common objective for all member states to achieve by incorporating it into their own national laws. Although directives are not directly legally binding, failure to comply with them can lead to fines and penalties imposed by the European Commission.

Despite the January 10, 2020 deadline for implementation, some EU member states have faced challenges in meeting the requirements of AMLD5 due to the complex and evolving nature of regulatory frameworks.

What are the new requirements of AMLD5?

AMLD5 introduces several important requirements in the areas of cryptocurrencies, Ultimate Beneficial Owner (UBO) registers, and prepaid card transaction limits.

What are cryptocurrencies?

AMLD5 expands the scope of AML/CFT regulations to include virtual currencies, such as Bitcoin and Ethereum. This means that virtual currency exchange platforms and custodian wallet providers are now considered “obliged entities” and must comply with AML and KYC (Know Your Customer) requirements.

These obliged entities are now required to perform customer due diligence (CDD) measures, monitor suspicious transactions, and report any suspicious activities to the relevant authorities.

What is the Ultimate Beneficial Owner Registers?

AMLD5 mandates the creation and maintenance of Ultimate Beneficial Owner (UBO) registers in each EU member state. UBO registers are databases that hold information about the individuals who ultimately own or control legal entities, such as companies or trusts.

By having a centralized UBO register, authorities can access information on the individuals behind these entities, making it more difficult for money launderers and terrorists to hide their true identities. The goal is to enhance transparency and prevent the misuse of legal entities for illicit activities.

What are the Prepaid Card Transaction Limits?

AMLD5 imposes transaction limits on prepaid cards to prevent their potential use in money laundering and terrorist financing. The directive requires that prepaid cards issued within the EU have specific transaction limits and mandatory customer identification procedures.

These measures aim to reduce the anonymity associated with prepaid cards, making it more challenging for criminals to exploit them for illicit activities.

What are the other key provisions of AMLD5?

AMLD5 also includes updates on obligated entities, customer due diligence for funds from high-risk third countries, UBO registration, and screening of Politically Exposed Persons (PEPs).

Who are the Obligated Entities?

In addition to virtual currency exchange platforms and custodian wallet providers, AMLD5 extends the obligations to other entities involved in fiat-to-crypto exchanges. These entities must now implement AML and CFT measures, including conducting customer due diligence and monitoring transactions for suspicious activities.

What is Customer Due Diligence for Funds from High-Risk Third Countries?

AMLD5 requires obligated entities to apply enhanced due diligence measures when dealing with transactions from countries identified as having strategic deficiencies in their AML/CFT frameworks. These high-risk third countries require a higher level of scrutiny to mitigate the potential risk of money laundering or terrorist financing.

What is the screening of Politically Exposed Persons (PEPs)?

AMLD5 emphasizes the importance of screening individuals who hold prominent public positions (Politically Exposed Persons or PEPs) for potential money laundering risks. Financial institutions and obligated entities must conduct enhanced due diligence on transactions involving PEPs to prevent corrupt individuals from exploiting the financial system.

By implementing these measures, AMLD5 aims to enhance the EU’s overall AML and CFT framework, making it more difficult for criminals to exploit the financial system for illicit activities.

It is important to note that AMLD5 is just one of many regulatory efforts aimed at combating money laundering and terrorist financing globally. Governments and international organizations are continually updating their regulations to stay ahead of evolving criminal tactics in the digital age.

As a newbie to blockchain technology and the wider financial landscape, understanding the various AML and CFT regulations is crucial. Compliance with these regulations ensures the integrity of the financial system and protects individuals and businesses from financial crimes.