EU to get its 5th Anti-Money Laundering Directive (5AMLD) to tighten illicit movement of funds

The European Union (EU) reforms to anti-money laundering laws are set to take legal effect on January 10, which will introduce new set of rules for banks handling transactions linked to high-risk countries.

EU member states are expected to pen down the 5th Anti-Money Laundering Directive (5AMLD) into national law by the end of this week, tightening controls around the illicit movement of funds. The UK and Germany shall be seen to introduce the new rules on time.

The 5AMLD was initially constructed as an emergency amendment to the previous directive, finalized in May 2015, after concerns in Brussels about opaque financial flows exposed by the Panama Papers scandal, as well as a series of terrorist attacks across Europe.

The newly introduced law shall attempt to stop the movement of illicit funds across international borders – the directive’s top priority, and the banks which are considered “obliged entities” and also covered by the 5AMLD – will face more stringent demands while executing transactions linked to countries deemed to pose a high risk of financial crime.

The Directive shall require trade finance lenders to obtain additional information on the customer and on the beneficial owner; on the intended nature of the business relationship; source of funds and source of wealth of the customer and of the beneficial owner as well as on the reasons for the intended or performed transactions.

In the trade finance sector, legally binding guidelines have already been in place since March 2018 that states how enhanced due diligence should be carried out.

However, the issues are complicated by a dispute between the European Commission and Council over which countries are considered high risk in terms of money laundering. The first European Commission blacklist was produced in July 2016 and amended regularly over the following two years.

The current list – still legally binding across the EU – includes Afghanistan, Bosnia and Herzegovina, Ethiopia, Guyana, Iran, Iraq, Lao, North Korea, Pakistan, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Uganda, Vanuatu and Yemen.

The European Commission is now due to produce a new proposed blacklist using an updated methodology. However, there it is not clear as to when that work is likely to be completed.