By Dhanum Nursigadoo, Financial Crime Specialist, ComplyAdvantage.
The AML landscape has shifted. The fifth anti-money laundering directive (5AMLD) passed on 10th January and few were ready for it.
The new legislation is the next step following 2017’s 4AMLD, legislation that many are still trying to comply with, and the objective is to target areas of the financial compliance architecture that are fit for purpose. 5AMLD will bring about a few key changes, which we run through below.
5AMLD’s limitations on prepayment cards look like a direct attack on financial inclusion.
Prepayment cards are legitimately used by those on low incomes or with limited access to high-street banks, often due to past financial difficulties such as bankruptcy. In response to this, the reduction in use may see an increase in bank accounts with low or no access to credit.
Certain banks have considered this, with HSBC offering accounts to those with no permanent address. While these solutions may be early and imperfect, they are managing to address part of the issues the unbanked face.
Currently, Asia leads the market in crypto. The requirements of 5AMLD will help create an environment in which EU-based businesses can compete with those in the Asian market by introducing more crypto products.
In the cryptocurrency industry, there is a huge amount of confusion on what laws, regulations and regulatory agencies crypto service providers of different types were subject to. This has been a massive problem for the last decade. The new legislation is great news for the crypto sector.
When applied, 5AMLD will create a more stable framework in the EU than either the Asia Pacific and the USA. This is significant as in the Asia Pacific there is an inconsistent approach across various jurisdictions: Singapore, HK (positive) China (very negative). In the US, where there are lots of potentially interested federal agencies plus 50 state governors who also take a view. In short, clarity is always good for business.
In theory, the new regulations will make a significant difference to anonymity. However, cryptocurrency tumblers are an effective workaround to make it near impossible to track who owns what cryptocurrency. Peer-to-peer exchanges also add another layer of anonymity that will be tough to crack given the lack of clarity around the owners of the cryptocurrency being exchanged. Implementation is just the first stage of the journey for tackling AML/CFT issues in crypto. Compliance teams will need to keep an eye on developing criminal MOs.
Homogenisation of Regulation
5AMLD is an attempt at achieving regulatory homogenization. While the new directive brings alignment it is, in reality, a new minimum standard. At present, when you dig into 5AMLD, it becomes clear that key objectives can vary as to how they’re achieved, such as CDD in France requiring a passport, but certified risk in Luxembourg.
In the future, the EU could move away from issuing minimum standard directives that need to be transposed into national law and turn AML rules into EU regulations. These would have the force of law and can be directly implemented and enforced from Brussels. This would allow the Commission to be more precise about the kind of requirements it wants from states and private companies.
However given that Brexit was, in rhetoric, due to avoiding governance from Brussels, it’s unlikely that the EU will make such a decisive move towards federalization. To avoid further dissolution of the union and perhaps to encourage the UK to align with future EU AMLDs, it’s probable that it will remain as a minimum standard.
It’s difficult to see how 5AMLD will have a significant impact on criminals laundering money through art.
Art tends to be bought at the integration stage of the money laundering process, so the funds have usually been through multiple offshore transactions and mixed up before they end up in the concentration account of the person buying the art. Due diligence on buyers (and sellers) could help, especially if there seems to be a discrepancy between the apparent means and lifestyle of the buyer and the cost of the purchase.
But even the ultimate criminal purchasers can find ways around this, such as finding or grooming apparently rich nominee purchasers who act as a cut out. These nominees can just ‘give’ the item to the criminal at the end of the process without any financial record.
Unexplained Wealth Orders can help with this, but then law enforcement agencies like the NCA would need to know who owns what piece of art, when. Without a comprehensive global register (which is likely impossible) it would be difficult to justify a piece of art under a UWO.