The European Union's fifth Money Laundering Directive, which came into force on 9 July 2018, ought now to be enshrined in the laws of every country in the bloc.

Tom Griffiths, an associate director at the compliance consultancy of Lysis Group, told Compliance Matters: "In June 2018 the European Commission criticised 20 member states who had not fully transposed the 4th Money Laundering Directive into domestic law more than a year after the deadline of June 2017. The EC took proceedings against many of these countries, which included Ireland, France, Malta and the Netherlands.

"Many of these countries citied the fact they would wait for the EU's 5th Money Laundering Directive to be transposed, so I don’t expect the commission to experience the same issues today as they did in 2017/18 as the majority of member states are well prepared."

The City law firm of Laven & Partners has summed up the five main innovations of the directive as follows.

1. Beneficial ownership

MLD5 obliges the financial sector to divulge more information to the authorities about beneficial ownership, especially the beneficial ownership of trusts. Banks and others who can demonstrate a legitimate interest may see the information, as can any member of the public without the need to demonstrate a legitimate interest. The aim of this is to make the "customer due diligence process" [the know-your-customer or KYC process] easier.

2. A wider perimeter

MLD5 extends anti-money-laundering or AML obligations to art dealers and the managers of virtual currencies. Firms that provide virtual currencies have long had to operate AML controls in line with 4MLD, notably to prevent anonymity. Anonymous safe deposit boxes are also no longer allowed. When dealing with high-value artwork that results in a transaction of €10,000 or more, an art dealer now has to report suspicious activity and perform checks on customers when necessary.

3. PEPs or Politically-Exposed Persons

Every EU country must issue a list of specific functions which qualify as “prominent public functions” to make sure individuals who are potential PEPs are identified for monitoring. The EU will then consolidate the lists from all member-states and publish the results, while keeping people’s identities anonymous.

4. EDD for highly risky countries outside the EU

The EU will start by compiling a list of highly risky countries outside outside its borders. After this, it will require its countries to be "enhanced duly diligent" [a Basel Committee phrase] when doing business with countries on the list. They will have to obtain information on the sources of various funds and check people's backgrounds and companies'/trusts' beneficial ownership.

The aim of this change is to make EU countries take the same approach to financiers who deal with highly risky countries outside outside its borders. In short, it wants them to limit their relationships with cutomers in these countries.

5. Prepaid cards

The threshold for prepaid instruments (e-money and prepaid cards) subject to background checks has been lowered from €250 to €150.

* Laven Partners are available on +44 (0)20 7838 0010  or at info@lavenpartners.com