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Fifth Money Laundering Directive Becomes Operational

On January 10, the changes introduced by the European Union’s fifth Money Laundering Directive (MLD5) became operational. MLD5 came into force on July 9, 2018, but member states had until January 10 to transpose these changes into national law. MLD5 amends and builds on the fourth Money Laundering Directive (MLD4).  More information is available in the February 12, 2016 edition of Corporate & Financial Weekly Digest.

Some of the changes to the anti-money laundering (AML) regime brought about by MLD5 include:

  • cryptocurrencies are now in scope of the AML regime, and therefore virtual currency platforms and custodian wallet providers operating in the EU must now conduct due diligence and report suspicious transactions;

  • the customer due diligence (CDD) regime has been clarified and harmonized. For example, all customer verification must now be done using an electronic source, if possible. EU firms must conduct CDD on existing customers in specified circumstances but also “at appropriate times…on a risk-sensitive basis.” In addition, the EU may designate a list of high risk countries for money laundering (the “blacklist”) and impose restrictions or special conditions when dealing with countries on that list;

  • the spending limit on prepaid cards, above which a firm must conduct CDD, has been reduced from €250 to €150 and to €50 for some transactions. The EU can restrict the use of prepaid cards issued outside of the EU, if that jurisdiction does not have equivalent money laundering controls (this takes effect on July 10);

  • the public can now access Registers of Beneficial Ownership for EU corporations and other legal entities, removing the requirement to show some “legitimate interest.” Trusts must also prepare Registers of Beneficial Ownership, but these will not be freely accessible by the public;

  • member states must make a list of the “prominent public functions” in their jurisdiction, in order to help to identify politically exposed persons. Member states must send these lists to the European Commission, who will publish a single, shared list;

  • financial intelligence units at EU national regulators have wider powers. For example, they can now request information from any firm at any time — under MLD4, they could only ask for information if they had received a suspicious activity report from the firm;

  • member states must establish a centralized automated mechanism for identifying the holders of bank and payment accounts and safe deposit boxes (this takes effect on September 10); and

  • the AML regime has been extended to cover all forms of tax advisory services, lettings agents and art dealers and has increased protection for whistleblowers.

MLD5 is available here, and the sixth Money Laundering Directive will take effect on December 3.

©2020 Katten Muchin Rosenman LLP

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About this Author

John Ahern, Financial Attorney, London, Katten Law Firm
Partner

John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
Partner

Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
Senior Associate

Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
Partner

Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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