Have you ever wondered who’s really pulling the strings in companies and whether complex ownership structures are being used for money laundering or terrorist financing?
The amendment to the Money Laundering and Terrorist Financing Act 2017 by the EU, also known as the 5AMLD, forces transparency and obliges member states to make beneficial ownership public to avoid complexities.
Why did the ownership need to be made public? Shell companies that are not illegal by law but have a complex ownership structure make money laundering and terror-related transactions easy and undetectable for regulatory bodies.
Therefore, with the amendments to the money laundering and terrorist financing laws, the EU has significantly changed the landscape of beneficial ownership within the member states.
What is the aim? As defined earlier, the process is more stringent against money laundering and other financial crimes by making beneficial ownership information available to the public.
So, today, we are going to discuss the impact of the fifth AMLD on beneficial ownership transparency in the European Union.
An Overview of 5th Anti Money Laundering Directives
Defeating financial crimes like money laundering and terrorist financing has been a significant challenge for the EU Union for over three decades. So far, the EU has introduced a series of AML directives to combat different crimes related to finance and the economy.
However, the 5th AML came into force to further strangle the rope against the criminals behind these crimes, particularly those who committed these crimes using a complex ownership structure.
Therefore, the Fifth Anti-Money Laundering Directive (5AMLD) has made significant changes to protect us all.
It is appreciated that these directives ensure public access to company ownership information, make strict rules for virtual currencies and prepaid cards, and strengthen scrutiny for high-risk countries.
The Impact of 5AMLD on Beneficial Ownership Transparency
1. Public Access to Beneficial Ownership Information
This area was more prone to be used for money laundering activities. That is why the EU parliament brought these notable changes to 5 AMLD.
What does this change mean? The change makes it obligatory for member states to provide public access to beneficial ownership.
Was this not part of the previous AML directives. In fact, it was in the 4th AMLD. The rule was there, but the information was not public; only relevant authorities could access it.
So, what changes does this law bring for businesses?
Now, the Companies and other legal entities must maintain and update public registers of their beneficial owners.
What benefits will it bring? Now, every citizen will be able to see who is getting benefits from any business. This will ultimately increase transparency and accountability and halt the misuse of the corporate structure for money laundering and other crimes.
2. Centralized Beneficial Ownership Registers
When the body already obliges the member states to make ownership information public, why was there a need for a centralized beneficial ownership register? You must be asking the same question.
The purpose of creating the centralized register is essential for various reasons. First and foremost is the access. With centralized registers, it becomes easy for the authorities to access and cross-reference beneficial ownership information across different jurisdictions.
The second important reason is that it will reduce discrepancies and errors and provide member states with consistent and accurate information.
3. Inclusion of Trusts and Similar Legal Arrangements
The one who closely examines criminals’ money laundering techniques knows that trusts and offshore companies are their best instruments in moving illicit money to other jurisdictions.
The 5th AML Directive asks trust and similar legal arrangements to disclose their beneficial owners.
The purpose was straightforward: to close a significant loophole that previously allowed for the concealment of ownership through complex trust structures:
Registering the details and making them accessible to competent authorities has been made compulsory under this directive.
The directive also facilitates better international cooperation by ensuring beneficial ownership information is available across borders.
4. Penalties for Non-Compliance
Something was missing in the previous directives, but the body said, don’t worry, we are here to cover everything. Seems filmy; it is, by the way.
Yeah, we are talking about the penalties and fines for non-compliance with these rules and regulations.
The rules say that any company that does not comply with the registration and transpiration obligations can face hefty penalties and sanctions.
The threat to publicly disclose the failure of an organization with compliance efforts can cause reputational damage.
Non-compliant entities risk significant reputational damage, as their failure to adhere to transparency standards can be publicly disclosed.
5. Benefits for Financial Institutions and Businesses
The rules and regulations are made with an aim to ultimately benefit the businesses. How is it possible that this aim remains behind? So what benefits?
The enhanced transparency of beneficial ownership information brings several benefits, such as reducing the risk level, streamlining your compliance program, and increasing the trust among common people, which ultimately increases the chances of onboarding potential clients.
What’s next?
To make sure your business in compliant with all the required regulations, you need to incorporate the AML screening tools that can monitor, detect, and report suspicious transactions related to the money laundering and terrorist financing to the department for further actions if needed.
However, we might need clarification about which tool is best. There are many, but we recommend you try it with AML Watcher; they provide you with 30 free searches with zero false positive rates with the claim that their software reduces the compliance cost by half.
