Bianca Schreck/ July 10, 2019/ Uncategorized

At full throttle, the European Union is moving forward with the establishment of a legal framework to combat money laundering and terrorist financing. The 5th EU Money Laundering Directive was published in June 2018. Instead of the usual time frame of 24-months, member states are prompted to implement the 5th EU Money Laundering Directive into national legislation by January 10, 2020. Moreover, in most Member States, the 4th EU Money Laundering Directive of 2015 just came into force in 2017. With such rapid pace of new Money Laundering Directives, the European Union is responding to the recent terrorist attacks in Paris and Brussels and to flaws in the global financial system, which have contributed to the Panama Papers. 

One of the key changes of the 5th EU Money Laundering Directive is to bring virtual currencies within scope. Additional changes include new regulation on due diligence and extended controls of beneficial ownership as well as the introduction of an account retrieval procedure or account register. The 44 amendments to the 5th EU Money Laundering Directive are manageable and require few legal adjustments by the Member States. The legislative adaptation affects the liabilities of the banking and financial sector with its extended circle and lower discretions as well as other obligations.

Examples of additional obligations and less discretions are the enhanced due diligence measures, especially in the context of high-risk third countries. In addition, the 5th EU Money Laundering Directive also makes consideration of the beneficial ownership register obligatory. This consideration is not risk-based, creating additional unnecessary bureaucracy and costs. The structure of the beneficial ownership register does not meet expectations. Primarily, because obliged entities cannot exclusively rely on the information from the register.

The 5th EU Money Laundering Directive rightly responds to the rapidly advancing digitization of the banking and financial sectors and seeks to bring entities of virtual currencies into scope. Volker Mack, LBBW Anti-Money Laundering compliance officer, remarks that criminals prefer to conduct transactions outside of the classic, tightly regulated transaction channels. So far, there is no explicit legislation for this area of the banking and financial sector. Among other things, this is due to the constant change of the virtual money market with around 1,400 different currencies. The European Union is following the worldwide trend of subjecting virtual currencies to the same rules as real currencies. Further regulations are expected in the future on the fight against money laundering and terrorist financing by the European Union. Due to the fast pace, experiences by the 4th EU Money Laundering Directive could not be considered for the 5th EU Money Laundering Directive

The European Commission came to a similar conclusion and noted that the 5th EU Money Laundering Directive does not yet sufficiently equip the European Union for the fight against money laundering and terrorist financing. It therefore proposes further adjustments. So far, those have mainly involved material changes with regard to the offense of money laundering and terrorist financing. The European Union is already talking about the 6th EU Money Laundering Directive and is thus continuing to work at full throttle on the fight against money laundering and terrorist financing.

Bianca Schreck

About Bianca Schreck

Bianca Schreck works as a Senior Consultant with targens GmbH. After her degree as a Bachelor of Laws with focus on banks and insurances, she successfully completed her degree as a Master of Laws at the distance university of Hagen in the field of European law and criminal law. She wrote her master’s thesis about the 5th EU Anti-Money Laundering Directive and its effect on the banking and finance sector. She is currently project manager within the product line SMARAGD TCM.