The emergence of new payment instruments, such as cryptocurrencies, as well as EU’s commitment to the ultimate financial transparency, explains the high dynamics of changes in the European legislation. In this article, we’ll consider one of the key legislative changes in EU financial sphere – 2018/843 (AMLD5) Directive, as well as its impact on EU member-states and other countries.

About AMLD5

On 9 July 2018, the European Parliament adopted an AMLD5 – Anti-Money Laundering Directive, which is aimed at the reinforcement of anti-money laundering measures. In fact, the new Directive is an updated version of AMLD-4 adopted in 2015 and which, taking into the account the rapid development of the financial sector, already became outdated.

AMLD5 was adopted within the framework of the strengthening of control over money flows generated within and outside the EU. Its adoption is explained by the need to improve the security situation in the EU states. The prevention of terrorism financing and an increase of transparency of financial transactions are among the key aims of this document.

Also, it’s worth mentioning that regardless of the fact that the Directive came into force in July 2018, its provisions will become mandatory for countries-members only from 10 January 2020. Such delay is explained by the fact that companies, organizations as well as EU authorities have to bring their internal legislation and procedures in accordance with provisions of the Directive. As a rule, this process lasts several months.

Control over operations with cryptocurrencies

Financial control over transactions involving cryptocurrencies is one of the major innovations introduced by the Directive. Since cryptocurrencies are an anonymous payment instrument, they can be easily used for financing of criminal activities, terrorism in particular. According to the new Directive, the information about owners of cryptocurrency accounts, as well as individuals involved in transactions conducted via such accounts, should be made public and accessible for the EU financial supervision authorities.

Not only cryptocurrencies but electronic money as well was affected by changes. Among all, the limit for transactions with prepaid bank cards without an identification of owner was decreased from EUR 250 to EUR 150. Also, it’s worth mentioning that the abovementioned rules are valid for prepaid cards issued outside the EU. The limit for online non-cash payments without the identification of the bank card owner was decreased down to EUR 50. It means that the owner of the prepaid bank card from Ukraine who conducts an offline transaction over EUR150 or an online payment over EUR50 will be automatically identified. The limits established by the Directive can be reviewed by EU members, though only in favor of its decrease.

Registers of beneficiary owners – even more transparency now

AMLD5 also restricts transparency requirements and improves the accessibility of information about beneficiary owners of companies, trusts, and other similar entities. According to the document, the achievement of this goal will be ensured through the adherence to the following principles:   

  • Information on beneficiary owners available in registers of legal entities should be publicly accessible;

  • Information, available in registers of trusts and other similar entities should be accessible for competent authorities, including those executing financial control and conducting relevant inspections;

  • National centralized registers of banks, transactional accounts and owners of safe deposit boxes should be accessible for national financial supervision bodies as well as other competent authorities.

Also, the Directive promotes the merge of beneficiary owners’ registers of all countries-members on the basis of the unified all-European platform – European Central Platform, which is designed to encourage the exchange of information as well as increase the effectiveness of the fight against financial fraud and terrorism.

Reinforcement of control over financial transactions with third countries

The Directive also foresees the reinforcement of due-diligence measures aimed at companies and individuals originating from countries where, according to the EU, the increased risk of money laundering exists. Among other provisions, the AMLD5 enables the EU members to introduce additional inspections of transactions conducted with residents of abovementioned countries as well as restrict EU citizens to establish companies in such countries.  

No more anonymity of financial transactions

The AMLD5 abolishes the right to have anonymous bank accounts and safe deposit boxes. According to the Directive, by 10 September 2020, the EU members should create a centralized register containing the information on all individuals and legal entities owning or controlling bank and deposit accounts, as well as safe deposit boxes. Financial supervision bodies, as well as national competent authorities, will be granted full access to this information.  

Facilitation of access to information about owners of real estate

Information on owners of real estate, regardless of whether it’s an individualв or legal entity, will become accessible to state authorities of EU members. At the same time, unlike the system of control of bank accounts and safe deposit boxes holders, the access to the information about the real estate owners will be based not on the centralized register, but on a search engine similar to a traditional web-browser.  

What the new Directive means for Ukraine

The new Directive means more transparency in financial operations for Ukrainian companies conducting operations on the EU territory. Among all, these entities should be ready to make public a lot of financial data which, as a rule, remains confidential in Ukraine.

Individuals, especially those conducting financial operations, and holding money or assets in European banks and funds should be ready to face more strict control and transparency requirements which will become new norm for the EU countries within a year and a half.

Though, even despite the armed conflict taking place on its territory, as well as struggling financial sector, Ukraine isn’t on the list of countries where an increased risk of money laundering exists. It’s a positive sign for our country. It means that this Directive won’t create additional obstacles for European investors in Ukraine.

The abovementioned list of changes reflects trends which will dominate the EU financial market in the nearest future. On the one hand, these measures can be considered tough, as they substantially limit the opportunities of EU citizens and non-residents to preserve anonymity of their financial transactions. On the other hand, it increases the security of EU members and decreases the risk of financial misconduct, fraud, and crimes. In any case, these are additional criteria which Ukrainian companies willing to work in the EU will have to observe in the nearest future, while for the government ALMD5 is a landmark to follow in bringing the EU legislation in compliance with the EU regulations.