The adoption of the Fourth Anti-Money Laundering Directive (the "4AMLD") in May 2015 represented a major step forward in the EU's efforts to combat money laundering.
Member states were required to transpose the 4AMLD by the 26th June 2017.
One of the key amendments introduced by the 4AMLD was the centralised register of beneficial ownership (the "CRB") for both corporate entities and trusts (and similar entities to the ways trusts operate). The CRB, as introduced by the 4AMLD, places an obligation on member states to request certain information from trustees and corporate entities and to disclose such information in the respective CRB. The information contained in each CRB must then be made accessible to certain parties who are granted access rights by the 4AMLD.
Meanwhile, the terrorist attacks in Paris prompted the European Commission to communicate an Action Plan on 2 February 2016 to improve the fight against terrorist financing. In the words of vice-president Valdis Dombrovskis, in charge of the Euro and Social Dialogue: "We must cut off terrorists' access to funds, enable authorities to better track financial flows to prevent devastating attacks such as those in Paris last year, and ensure that money laundering and terrorist financing is sanctioned in all member states. We want to improve the oversight of the many financial means used by terrorists, from cash and cultural artefacts to virtual currencies and anonymous pre-paid cards, while avoiding unnecessary obstacles to the functioning of payments and financial markets for ordinary, law-abiding citizens."
The Panama Papers leaks further highlighted that certain complex ownership structures were being used to hide criminal activities and evade tax obligations.
The 5AMLD Proposal
Following this, on the 5th July 2016, the European Commission proposed a Fifth Anti-Money Laundering Directive to amend the 4AMLD (the "5AMLD"). One of the aims of the 5AMLD was of bringing the transposition date forward to 1 January 2017 (something which has been impossible for member states to do so far because the final text of the 5AMLD has not been finalised and published yet). Although the 4AMLD tackled disclosure and transparency of beneficial ownership, the 5AMLD was aimed at further enhancing those measures. Insofar as beneficial ownership disclosure is concerned, the key issues tackled by the 5AMLD include:
- the kind of information registered in the CRBs;
- designating member states responsibility for the registration of a given entity;
- access to the information; as well as
- the introduction of the concept of interconnection of National Registers (the idea being that of creating a system of automatic exchange of information exchange between member states).
Since the release of the 5AMLD, the Council of the European Union (the "Council") has published several Presidency Compromise texts amending and updating it. The Council published the first Presidency Compromise text of the 5AMLD on the 28 October 2016 (the "1CT"). Following this, four further Compromise texts were published with the second on the 14th November 2016 (the "2CT"), the third on the 25th November 2016 (the "3CT"), the fourth being published on the 13th December 2016 (the "4CT") with the most recent compromise text being published on the 19th December 2016 (the "5CT") under the Slovak Presidency.
Various issues have been the subject of debate over the last couple of months, including who is to be given access to the CRB as well as certain terms including the definition of the competent authorities and determining in which member state the beneficial ownership of trusts should be registered.
One of the most critical issues under consideration in the recent compromise texts was the extension of access rights to the CRB to the public intended to allow for greater public scrutiny of information by the civil society. The rationale was that by allowing public access to certain beneficial ownership information, public scrutiny and reputational considerations would combat the use of legal entities and arrangements for illicit reasons and facilitate the holding of investigations.
The stand that had been taken on public access in the 5AMLD (and one which was retained in 1CT and 2CT) was later reversed in the 3CT where the requirement for public access was withdrawn and it was proposed that access would only be given to those who can demonstrate a legitimate interest (together with the competent authorities and obliged entities), thereby placing the 5CT in a position that can be associated more with the 4AMLD than the originally proposed 5AMLD. Building on the 3CT, the 4CT clarified the application of access by way of legitimate interest to the trusts CRB by giving member states the discretion to define the conditions on when legitimate interest can be claimed.
Member state responsibility. Another development in the 5AMLD was to remove references contained in the 4AMLD to trusts generating tax consequences in the particular member state and to shift focus to trusts being administered in the particular member state (rather than being governed by the proper law of that member state – something which closed the door to the possibility of choosing a proper law that is non-EU but which effectively opened the door to having trusts administered outside the EU).
Competent Authorities. The 5AMLD clarifies the definition of competent authorities as those public authorities with designated responsibilities for combating money laundering or terrorist financing including tax authorities. However, such a definition was immediately refined in the 1CT and broadened in a way so as to state that tax authorities shall be considered to be competent authorities by all member states.
Interconnection of Member State's CRB. The 4CT has also proposed a method for the alignment of the member state's CRBS to ensure coordination of national systems having varying technical characteristics. The 4CT states that the Commission will be adopting technical measures, by means of implementing acts in terms of the proposed 5AMLD to align the CRBs in order to ensure uniform conditions for the implementation of the 5AMLD.
In terms of the EU ordinary legislative procedure, following the Commission's proposed 5AMLD, both the European Parliament's (the "EP") and the Council's approval is required. Hence, the EP would need to approve the Council's 5CT in order for it to be adopted as an EU Directive. If and once this is done, and following its publication in the Official Journal of the European Union, member states will have twelve months to comply with all laws, regulations and administrative procedures of the 5AMLD.
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