5th Money Laundering Directive - Update

Author:Mr Andrew Bates and Breeda Cunningham
Profession:Dillon Eustace

On 14 May 2018 the European Council voted in favour of the proposed Fifth Money Laundering Directive namely the 'Proposal for a Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC' ("MLD5"). Save for minor drafting changes, the text adopted by the Council is the same as that adopted by the European Parliament on 19 April 2018.

MLD5 was drafted partly as a response to the terrorist attacks that shook Europe in 2015 and 2016 in Paris and Brussels, along with the Panama Papers leak which revealed the chink in the armour of the European Union's fight against terrorist financing. MLD5's twin aims - counteracting terrorist financing and increasing transparency of financial transactions - look to address these shortcomings by fine tuning the Fourth Money Laundering Directive which had a deadline for transposition a mere six days before Council adopted MLD5.

MLD5 intends to increase transparency in financial transactions by introducing some radical reforms:

Centralised Beneficial Ownership Registers: Current beneficial ownership identification requirements are to be extended to certain trusts and similar legal arrangements, with Member States being required to identify which trusts and similar legal arrangements the rules should apply to. In addition, Member States will be required to allow access to beneficial ownership information on corporate and other legal entities in a sufficiently coherent coordinated way, through central registers in which beneficial ownership information is set out, by establishing a clear rule of public access, so that third parties are able to ascertain throughout the EU, who are the beneficial owners of corporate and other legal entities. Risky countries: Closer scrutiny and clarification on enhanced due diligence will be given to transactions involving nationals from risky countries when assessing whether the money has been laundered. Letterbox Companies: By providing all citizens with access to the beneficial ownership register of all companies operating within the EU, this should assist in preventing the use of letterbox companies...

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