Recent years have seen an ever increasing drive on a global scale to combat the threats of tax evasion, money laundering and terrorist financing. The latest EU Directive (2018/843) known as the Fifth Anti-Money Laundering Directive (“5AMLD”) was published on 19 June 2018, and must be implemented by Member States by 10 January 2020, one year from now.
5AMLD amends certain provisions within the Fourth Anti-Money Laundering Directive, and further increases the compliance obligations placed on entities obliged to carry out money laundering due diligence. It also has a significant impact on the compliance obligations placed on trusts. The key compliance issues and changes which need to be considered include:
Extension to the central register of beneficial ownership of trusts (HMRC’s “Trust Register”)
Due to the risk that beneficial ownership information for certain trusts was not being monitored or registered, 5AMLD removes the central register restrictions afforded to non-UK taxable trusts. The directive requires that trustees of all UK express trusts provide information on beneficial ownership and report this on a central register by no later than 10 March 2020.
This will prove to be particularly onerous for tax neutral or dormant trusts, such as pilot trusts, insurance trusts, and for those trusts holding debts or shares in UK property, who will now be required to report their beneficial ownership to HMRC.
5AMLD further extends the definitions of relevant trusts to encompass any legal arrangement that is similar to a trust, such as where there is separation between the legal and beneficial ownership of assets. It extends the central register to any non-EU trust that either enters into a business relationship or acquires real estate in the UK.
It also widens access to the central register of beneficial ownership information. Access is currently only granted to HMRC or UK law enforcement authorities. 5AMLD extends access to any competent authorities, any natural or legal person who can demonstrate a ‘legitimate interest’, and to any entities who are obliged to apply customer due diligence information when forming a business relationship. “Legitimate interest” has yet to be determined, but could vary between member states.
Interconnection of national registers across the EU
Member states are to interconnect national beneficial ownership registers via a European Central Platform by 10 March 2021, giving access to the registers of companies and trusts across the EU.
Politically exposed persons
In order to identify politically exposed persons in the EU, lists are to be issued by Member States indicating the offices and specific functions that qualify in that country as prominent public functions.
High risk third countries
Enhanced due diligence measures will apply in relation to customers from third countries identified by the EU Commission as presenting an increased risk of money laundering. Member states will be entitled to require further measures, such as:
- the use of bank accounts established in countries with EU or equivalent AML standards for the first transaction in a business relationship;
- reporting obligations for financial transactions with counterparts in high risk third countries;
- limiting the creation of companies by individuals from high risk third countries, or the creation of companies by their own nationals in such high risk third countries.
Identity of holders of bank account and safe-deposit boxes
Anonymous bank accounts, savings accounts or safe deposit boxes will be abolished. Member States must create central registries or central electronic data retrieval systems by 10 September 2020, which allow the timely identification of any natural or legal person holding or controlling bank or savings accounts and safe deposit boxes. This information will be directly accessible by financial intelligence units (“FIUs”) and national competent authorities across the EU.
Prepaid cards (e.g. gift cards)
The thresholds for pre-paid payment cards is to be lowered from €250 to €150.
The scope of 4MLD is extended to apply anti-money laundering provisions to virtual currency exchanges, and custodian wallet providers, to cover trade in virtual currencies such as Bitcoin.
Whether or not the UK has left the European Union on 29 March 2019, any post-Brexit transitional deal is likely to require that the UK continues to apply EU law for the duration of any transition. The UK therefore has one year in which to consider how to implement 5AMLD into UK legislation, and for obliged entities and trustees to consider how to comply with their enhanced obligations.
As a summary of the current key considerations in this area, this note is by no means exhaustive and readers should seek professional advice if they require any assistance in fully understanding their compliance obligations. Trustees will need to keep abreast of these changes on an ongoing basis in order to maintain compliance and comply with the law in force from time to time. We are in a new world of global information exchange, with an impact which is here to stay.
Please do not hesitate to contact us if you would like Stevens & Bolton to advise you in relation to your compliance obligations.