Anti-Money Laundering Directives
The EU Anti Money Laundering Directives (AMLDs) are issued periodically by the European Parliament to be implemented by Member States as part of domestic legislation.
Essentially all regulated entities need to apply customer due diligence requirements for business relationships (i.e identify and verify the identity of clients, monitoring and reporting suspicious transactions). Over the past three decades, the European Union (EU) has regularly improved its framework to fight money laundering and terrorist financing and guarantee a consistent approach to AML legislation with the single market and protect the financial system.
The EU Anti Money Laundering Directives (AMLDs) are issued periodically by the European Parliament to be implemented by Member States as part of domestic legislation. Every directive includes new additions or updates regulatory obligations on member-state governments.
Since 2015, the EU adopted a modernised regulatory framework incorporating the following Anti Money Laundering Directives (AMLDs):
6th AML Directive
The EU’s 6 AML Directive (6 AMLD), which came into effect 3 December 2020 and must be implemented by regulated entities by 3 June 2021, aims to strengthen anti-money laundering (AML) rules in the EU and place higher responsibility on regulated entities to fight financial crime.
The 6th AML Directive aims to harmonize the definition of predicate offences against money laundering by all Member States. The 22 predicate offences for money laundering now includes cybercrime and environmental crime.
The new Directive defines initiators, facilitators and inciters of crimes as accomplices, “aiding and abetting” and self-laundering now also constitute criminal acts.
6AMLD will extend criminal liability to allow for the punishment of legal persons, such as companies or partnerships. Companies may be criminally liable for the actions of employees who engage in criminal activity.
The sentence for money laundering crimes increased to minimum of 4 year imprisonment.
6AMLD addresses the issue of dual criminality, requiring EU Member States to criminalize certain predicate offences whether they are illegal in that jurisdiction or not.
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5th AML Directive
The EU’s 5th Anti-Money Laundering Directive (5AMLD), which took effect on 10 January 2020, is designed to bring more transparency to improve the fight against money laundering and terrorist financing and tightens regulatory controls across more sectors. The scope of the Directive is extended to include virtual currency exchanges, estate agents and rental intermediaries, art dealers, customers who are applying for Citizenship or Residency by Investment, and more.
Crypto currencies face more stringent controls, with exchanges being required to register with the relevant authorities in their jurisdictions, conduct customer due diligence, and prepare suspicious activity reports where necessary. Financial Intelligence Units (FIUs) will be required to keep records of those purchasing virtual currency.
Greater emphasis on transparency around ultimate beneficial ownership (UBO) as part of a targeted attempt to fight back against financial criminals who hide behind often complex and opaque corporate structures. Member States will be required to maintain publicly available national UBO registries.
Member States are required to create and publicly release functional PEP lists that include all titles, roles or functions that are deemed to be politically exposed.
The Directive extends the range of high-value goods that will be subject to reporting requirements and regulatory enforcement, including art, oil, arms, precious metals, tobacco, historical, cultural and archaeological artefacts.
When dealing with high risk countries — specifically those identified by the EU as having sub-standard AML regulations — companies will be required to perform enhanced due diligence, which may also include Source of Wealth investigations.
The limit of prepaid cards is lowered from €250 to €150, with a €50 online/remote limit applicable. Only cards issued within the EU are allowed, unless they were issued in a country with legislation that is deemed on par with EU AML standards.
4th AML Directive
The EU’s 4th AMLD was designed to strengthen the EU's defences against money laundering and terrorist financing, while also ensuring that the EU framework is aligned with the Financial Action Task Force's (FATF) international anti-money laundering (AML) and counter-terrorist financing (CTF) standards. Key modifications included:
- Emphasis on ultimate beneficial ownership and enhanced customer due diligence
- Expanded definition of a politically exposed person (PEPs) to domestic PEPs
- Cash payment threshold lowered to €10,000 (US$11,250)
- Expanded to include the entire gambling sector beyond just casinos
- Enhanced risk-based approach, requiring evidence-based measures
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