What is Anti-Money Laundering Directive?
It is the European Union directive that aims to prevent the use of financial systems for money laundering or terrorist financing. The 5th Anti-Money Laundering Directive, which amends the 4th Anti-Money Laundering Directive was published on June 19th, 2018, as a result of the constantly changing financial situation of the market. The AMLD5 came into effect on January 10th, 2020, and is enriched with regulations concerning cryptocurrency businesses.
How will the AMLD5 affect cryptocurrency business?
First of all, the 5th Anti-Money Laundering Directive contains the legal definition of virtual currencies as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically”.
Moreover, with the implementation of AMLD5, the provisions start to cover entities operating in the field of cryptocurrency if the following requirements apply:
- “Providers engaged in exchange services between virtual currencies and fiat currencies”. E.g. cryptocurrency exchange platform, cryptocurrency exchanges, and others
- “Custodian wallet providers” which refers to wallet providers that hold the private keys of their customers
It means that the above mentioned services must meet the same requirements as financial institutions, referred to as Obliged Entities. Obliged Entities should put in place:
- internal policies
- controls
- procedures, including risk model, management practices, customer due diligence (including ongoing transaction monitoring), reporting, record-keeping, internal control, compliance management, the appointment of a compliance officer at managerial level, and employee screening
AMLD5 for cryptocurrency business
The 5th Directive makes the legal situation on the cryptocurrency market more transparent, helping entrepreneurs to obtain the necessary clarity of crypto transactions that is required to prevent money laundering and terrorist financing.
According to AMLD5, Virtual currency providers and Custodian wallet providers will be obliged to:
- be registered with the competent domestic authorities
- conduct Customer Due Diligence (the process of collection and evaluation of information and documentation regarding the customer in terms of AML/CTF risks)
- provide the trainings relating to accurate understating of Anti-Money Laundering Directives for their employees
- have a requirement to retain the documents regarding the conducted CDD and recorded transactions in accordance with national law and share it with FIU or other competent authorities
- report suspicions of money laundering and terrorist financing to FIU based on their ongoing transaction monitoring systems
Customer Due Diligence in AMLD5
Please note, that CDD concerns not only new customers but also current, risk-sensitive ones.
The main requirement for Obliged Entities is to constantly monitor business relations, which includes transactions, business and risk profile, source of funds, and keep the record. Where the Obliged Entity is unable to comply with the CDD requirements, it should not establish a business relationship or carry out the transaction and should also terminate those commercial relations.
The cryptocurrency businesses covered by AMLD5 must know the background and purpose of all transactions that meet at least 1 of these requirements:
- complex transactions
- unusually large transactions
- transactions conducted in an unusual manner
- operations do not have a clear economic or legal purpose
According to AMLD5 in case of transactions involving high-risk third countries, Obliged Entities should conduct enhanced monitoring of the business relationship by increasing the number and timing of controls applied and selecting patterns of transactions that need further examination.
To comply with the Fifth Anti-Money Laundering Directive, Coinfirm offers its services of Wallet and Transaction Monitoring that helps Obliged Entities to comply with the requirements as well as to maintain business transparency. The AML Analytics Platform supports over 1400+ cryptocurrencies and provides analysis of transaction patterns against 270+ risk assessment scenarios.
Finance Intelligence Unit – should I report?
The general answer to this question is YES. Obliged Entities must report any suspicion of money laundering or terrorist financing transactions to FIU.
What is more, the 5th Anti- Directive gives the competent authorities the competence to monitor the use of cryptocurrencies, via Obliged Entities.
All the documentation related to conducting Customer Due Diligence measures and transaction records must be retained in accordance with national law and made available to the FIU or other competent authorities.
The 5th Anti-Money Laundering Directive also allows Obliged Entities to rely on third parties (except those from “high-risk third country”) to meet some of the requirements. The ultimate responsibility for meeting those requirements remains with the Obliged Entity. Coinfirm’s blockchain AML solutions have been integrated by global exchanges to ensure compliance with the AMLD5 directive
Penalties for AMLD5 breach
Severe sanctions and penalties may be applied to Obliged Entities that do not apply appropriate measures in line with the requirements of the 5th AML Directive.
The maximum financial penalty for the breach is equal to at least twice the amount of the benefit derived from the breach where that benefit can be determined, or at least EUR 1 000 000.
If the Obliged Entity is a financial or credit institution, the sanctions are divided. In the case of a legal person – maximum pecuniary sanction is at least EUR 5 000 000 or 10% of the total annual turnover in accordance with the last available financial statement approved by the management body. In the case of a natural person – maximum pecuniary sanction is at least EUR 5 000 000.
To avoid any of these sanctions and penalties, every Obliged Entity must follow the rules of the 5th Anti-Money Laundering Directive and monitor the transactions. To meet these requirements, Coinfirm offers AML solutions which are designed by AML experts to monitor wallets and transactions. The team of specialists is ready to any issue related to AMLD5 or any other subject – contact us !
