European Commission strengthens transparency rules to tackle terrorism financing, tax avoidance and money laundering

The EU has set up strong rules to combat money laundering and the financing of terrorism, to prevent the EU financial system from being misused for these purposes. The Fourth Anti-Money Laundering Directive, adopted on 20 May 2015, set high standards, to ensure, that credit and financial institutions are equipped to detect and take action against such risks.

Nevertheless, given the evolving threats, on 5th July 2016 in Brussels the Commission adopted a proposal to further improve the current legislative framework, and speed up some other non-legislative initiatives. Moreover, the Commission made its highest priority the enhancement of the fight against tax avoidance, money laundering and terrorism financing.

The said amendments have been proposed, as a result of the terrible terrorist attacks, which hit the EU and the vast financial dealings uncovered by the “Panama Papers”.

On 2 February 2016, the Commission adopted an Action Plan on strengthening the fight against terrorist financing, which presented how the Commission would seek to upgrade the the 4th Anti-Money Laundering Directive (4AMLD). Furthermore, the plan also allows and increases the access, to exchange and use of information, and to the operational cooperation between financial Intelligent Units (FIUs) to be followed up by legislative proposal. The Union co-legislators agreed in December 2017, on a number of significant changes to the 4AMLD (5AMLD).

Two years later, on 19th April 2018 First Vice-President Timmermans, Vice-President Dombrovskis and Commissioner Jourovà expressed their positive vote, for the adoption of the 5th Anti-Money Laundering Directive by the European Parliament.

This proposal, amending the 4AMLD, intends to complement the existing preventive legal framework in place in the Union, by setting out additional measures, to better counter the financing of terrorism, and to ensure increased transparency of financial transactions and legal entities.

Moreover, The 5th Anti-Money Laundering directive will:

• enhance the powers of EU FIUs and facilitating their increasing transparency, on who really owns companies and trusts, by establishing beneficial ownership registers;
• prevent risks associated with the use of virtual currencies for terrorist financing and limiting the use of pre-paid cards;
• improve the safeguards for financial transactions to and from high-risk third countries;
• enhance the access of FIUs to information, including centralized bank account registers.
• ensure centralised national bank and payment account registers or central data retrieval systems in all Member States

The proposed update of the legal rules will be adopted by the European Parliament and the Council of Ministers under the ordinary legislative procedure. The Commission will also take into account the work done at international level by the Financial Action Task Force.

Directive (EU) 2018/843 (5AMLD) amending Directive (EU) 2015/849 (4AMLD) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, was published in the official journal 19th of June 2018, and it will come into force 20 days after its publication – 9th of July 2018.

The Member States will then have up to 18 months to transpose these new rules in their national legislation.

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