MLD5: strengthening the fight against money laundering and terrorist financing

The final adopted fifth money laundering directive (MLD5) text has been published in the Official Journal of the EU, and will enter into force on 9 July 2018. This means member states will have to bring into force national law and regulation implementing MLD5 by 10 January 2020.

MLD5 contains a series of amendments to the fourth money laundering directive (MLD4), which strengthen the fight against terrorist financing and increase the transparency of financial transactions.

Key amendments

Improvement of safeguards for financial transactions to and from high-risk third countries

Previously under MLD4, member states could determine their own enhanced due diligence (EDD) measures to be taken towards high-risk countries. MLD5 aims to standardise treatment of business relationships or transactions involving high-risk third countries by setting out a minimum set of EDD requirements to be applied by all member states.

These requirements include obtaining additional information on: the customer and on the beneficial owners, the intended nature of the business relationship, and the source of funds – amongst others.

Preventing risks associated with the use of virtual currencies for terrorist financing and limiting the use of prepaid cards

There is a risk that virtual currencies may be used by terrorist organisations to conceal financial transactions, because virtual currency transfers can be carried out anonymously. To reduce this risk, MLD5 brings virtual currency exchange platforms and custodial wallet providers within the scope of MLD4. This means providers will have the responsibility to monitor transactions and verify customer's identities.

MLD5 also reduces the threshold for the application of the exemption from customer due diligence in respect of prepaid cards and electronic money products from €250 to €150.

Centralised national banks and payment account registers, and ensuring that financial intelligence units (FIUs) have access to information

Member states are required to establish automated centralised mechanisms, such as central registries or central electronic data retrieval systems, of bank and payment accounts. Member states must grant access to such registries to FIUs and national competent authorities to enable the prevention of money laundering and terrorist financing. The minimum data contained in the registries would include information on the identification of the account holder, of any person acting on their behalf, of the beneficial owners, the IBAN account number (which would also identify the bank), the account opening date and, where applicable, the closing date.

What’s next?

A Commission legislative proposal for a Directive laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences was published on 19 April 2018. The Commission had previously consulted on the possibility of a self-standing legislative instrument to allow for broader access to the registries for other law enforcement investigations and by other authorities (e.g. tax authorities) to help prevent organised crime and other serious offences. The April legislative proposal is the result of that consultation, and comes from a need to find quicker and more effective ways to access and exchange information on bank accounts, financial information and financial analysis.

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