Transposition of the 5th Anti-Money Laundering Directive: preliminary draft law

Dave van Moppes | Tuerlinckx Tax Lawyers
Dave.vanmoppes@tuerlinckx.eu

I. Introduction

The transposition of the 5th EU anti-money laundering directive (AML)[1] into Belgian law is currently the subject of a preliminary draft law containing various provisions to prevent money laundering and terrorist financing (Anti-Money Laundering/Combating the Financing of Terrorism - AML/CTF) and to restrict the use of cash.

The new elements of the 5th AML Directive are discussed below, insofar as they are relevant to the transposition into Belgian law.
 

II. Extended scope of sectors and persons subject to AML/CFT obligations

In compliance with the 5th AML Directive, the scope of entities subject to anti-money laundering legislation has been expanded further. Each of these entities will be obliged to apply the legal provisions regarding AML/CTF. These new entities are:

  1. Virtual currency and custodian wallet providers;
  2. Art traders;
  3. Unrecognised tax services providers; and,
  4. Real estate agents as intermediaries in the letting of property.

These new concepts are explained in more detail below.
 

1. Virtual currency and custodian wallet providers

The European legislator believes that cryptocurrencies can enable terrorist groups to channel funds into the Union’s financial system or hide fund transfers.[2]

The European legislator’s concern stems from the (pseudo-) anonymity of cryptocurrencies, which could encourage abuse for criminal purposes. In the 5th AML Directive, the EU is bringing providers under the scope of anti-money laundering legislation, albeit admitting that this will not fully resolve the issue of anonymous virtual currency transactions. After all, users can also perform transactions without the intervention of providers.

Moreover, in accordance with the registration required by Article 47 (2) of Directive (EU) 2015/849, such providers must be registered in Belgium with the Financial Services and Markets Authority (FSMA), which will have to check whether those entities comply with the law of 18 September 2017[3].

Virtual currencies are defined as a digital representation of value that is not issued or guaranteed by a central bank or government, that is not necessarily linked to legally established currencies, and that does not have the legal status of currency or money, but that are accepted by natural or legal persons as a medium of exchange and can be electronically transferred, stored and traded. 

A custodian wallet provider is defined as an entity that provides services to safeguard private cryptographic keys on behalf of its customers to hold, store, and transfer cryptoassets.
 

2. Art traders

Secondly, (legal) persons who trade, or act as intermediaries in the trade of works of art, including when this trade is carried out by art galleries and auction houses, are added to the regulated sector if the amount of the transaction or a series of related transactions is superior or equal to EUR 10,000.

Art traders are defined as the natural or legal persons who buy, sell or act as an intermediary in the trade of works of art or movable property that is more than fifty years old, when the selling price of one or a set of these works or goods is equal to or higher than EUR 10,000[4] and is referred to in the Royal Decree pursuant to paragraph 5 of this section. Intermediaries include art galleries, auction houses and organisers of art fairs and salons.         

The draft article thus comprises two categories of persons:

  1. Persons who buy or sell works of art or movable property that is more than fifty years old; and
  2. Persons acting as intermediaries in the purchase or sale of such goods, including art galleries, auction houses and organisers of art fairs and salons.

The term ‘Original work of art’ encompasses a graphic or visual art work, such as images, collages, paintings, drawings, engravings, prints, lithographs, sculpture, tapestries, ceramic works, glassware and photos, insofar as this work is a creation of the artist himself/herself or it is a copy that is considered to be an original work of art.[5]

The Belgian legislator has extended the scope to ‘goods over fifty years old’. These include zoological, botanical, archaeological objects, parts of monuments that have not been preserved in their entirety, stamps, archives, musical instruments and so on. Reference is made to the EU Regulation on the introduction and the import of cultural goods, which stipulates that “the illicit trade in looted cultural goods has been identified as a possible source for terrorist financing and money laundering activities”.[6] Consequently, antique dealers are also added to the scope of anti-money laundering legislation.

A trader or intermediary is subject to the regulation as soon as he/she puts up for sale at least one or a set of works of art, or goods of more than fifty years old, whose value is superior or equal to EUR 10,000. In this respect, whether a potential buyer may purchase several objects, whose value is superior or equal to EUR 10,000 is irrelevant. The preventive aspect of the regulation requires that the obliged entities must provide for the organisation required by law and thus cannot easily assess every situation. Once a trader or intermediary is subject to the law, he/she will have to comply with the obligations for every customer, while the price of the purchased goods is irrelevant.
For auction houses, the limit is determined by the price of the maximum estimate.

Finally, natural or legal persons who own or manage warehouses, including bonded warehouses or warehouses located in free ports, who specifically offer a storage service for works of art or movable property more than fifty years old and exclusively for such goods and works are brought under the scope.
 

3. Unrecognised tax services providers

The so-called economic professions (external accountants and tax consultants, external recognised bookkeeper-tax specialists and company auditors) already fall within the scope of anti-money laundering legislation.

This now also includes “any person who undertakes to provide, as his/her main business or professional activity, material assistance, support or advice in tax matters, directly or through other persons affiliated with him or her”.

It is in fact creating a level playing field between, on the one hand, the traditional economic professions and, on the other, persons, companies and organisations that provide the same tax services to third parties without having to undergo any external checks and without having to meet requirements such as obtaining a diploma, following an internship that is completed by a practical competence examination, continuous training, supervision by a disciplinary authority, independence, submission to anti-money laundering legislation or taking out professional liability insurance.

This change also means that the law of 17 March 2019 on the professions of accountant and tax adviser will be amended.[7] For example, the law will henceforth stipulate that no self-employed consultant may provide advice, assist the taxpayer or represent the taxpayer if he or she is not subject to monitoring compliance with anti-money laundering legislation. The ITAA will be performing those checks.
 

4. Real estate agents

Real estate agents are subject to anti-money laundering legislation.

What is new here is that they are now also subject to it when acting as an intermediary in the letting of property whose monthly rent is greater or equal to EUR 10,000.
 

III. Extended material scope

In Belgium, the material scope of the criminal activities that give rise to the obligation to report has been laid down in an exhaustive list in the law.[8]

While anti-money laundering law states that it is not for the obliged entity to identify the underlying criminal activity of money laundering[9], and that, for example, it is sufficient that it suspects tax fraud for it to report to the Financial Intelligence Processing Unit (CTIF-CFI), without having to determine in advance whether it actually concerns serious tax fraud[10], the legal doctrine agrees that the obliged entity must at least have a suspicion that it is one of the crimes on the exhaustive list.[11]

Following the 4th AML Directive, the Belgian legislator added ‘IT fraud’ to the list. It is now proposed to replace this concept with ‘IT crime’, in order to encompass a wider range of criminal activities, in particular infringements of privacy, espionage, sabotage, hacking, incitement to hatred or racism, poedophilia, fraud, embezzlement or even cyber terrorism.
 

IV. Various additional obligations

1. Lowering the limit for non-rechargeable prepaid products to EUR 150

In certain cases and in accordance with the risk-based approach, the obliged entities may derogate from their obligation to identify and verify customer transactions or fulfil it at a later date.

Under the current anti-money laundering law, financial institutions which determined that the risk is low could waive their identification obligation if the payment instrument provided could not be recharged or could only be used with a monthly limit of EUR 250.

Under the 5th AML Directive, this monthly limit is reduced to EUR 150. The maximum amount of e-money that can be stored on the card is also reduced to EUR 150.

In addition, the limit is reduced from EUR 100 to EUR 50 if the e-money issuer repays the monetary value, and likewise for remote payment transactions. Where the refund exceeds the EUR 50 limit, the issuer will in any case have to proceed with the customer’s identification and verification.

Since prepaid payment cards are a popular means of payment for terrorist activities because of their anonymity, the legislator clearly wants to restrict anonymous issuances.  Specifically, the reduction of the limit means that financial institutions will have to identify customers when they charge prepaid cards with an amount higher than EUR 150. This measure can be linked to the extended scope of sectors and persons subject to AML-CFT obligations to include providers of cryptocurrencies and custodian wallet providers, which focuses on transparency.
 

Politically Exposed Persons (PEPs)

EU Member States are henceforth required to draw up a list of the exact functions which may be categorised as prominent politically exposed public functions.

A “politically exposed person” (PEP) is a customer or beneficial owner natural person who holds or has held a prominent public function, including (open list):

  1. heads of state, government leaders, ministers and secretaries of state;
  2. members of parliament or of similar legislative bodies;
  3. members of administrative bodies of political parties;
  4. judges of supreme courts, constitutional courts or other supreme courts, including administrative courts, who deliver judgments which cannot be appealed, except in exceptional circumstances;
  5. members of courts of auditors or of central bank boards of directors;
  6. ambassadors, consuls, chargés d’affaires and senior officers in the armed forces;
  7. members of the executive, supervisory or management body of public companies;
  8. directors, deputy directors and members of the board of directors or those holding an equivalent function in an international organisation;

Family members and close associates of PEPs are also targeted.

A family member can be:

  1. the spouse or a person who is considered as equivalent to the spouse;
  2. the children and spouses of those children or persons who are considered as equivalent to the spouse;
  3. the parents;

Persons known as close associates are defined as:

  1. natural persons who, together with a politically exposed person, are the ultimate beneficial owners of an entity or are known to have other close business relationships with a politically exposed person;
  2. natural persons who are the sole beneficial owners of an entity known to be actually set up on behalf of a politically exposed person;

PEPs are considered a higher risk, as they may be susceptible to corruption (among other things) in the performance of their political, administrative or judicial duties. Therefore, obliged entities should take increased due diligence measures when entering into business relationships with or performing occasional transactions for politically exposed persons or entities whose UBO is a PEP.[12] If a person no longer qualifies as a PEP, the continuing risk of this former PEP status should be taken into account for a period of 12 months.

In practice, the absence of public national or international lists of PEPs constitutes a problem. The lists used for this purpose are compiled from lists made available by various service providers for a fee[13]. Pursuant to the 5th AML Directive, a list will now be expressly provided which will contain only the functions of those persons, in order to comply with the protection of personal data.
 

3. Harmonisation of increased due diligence obligations with regard to high-risk countries

The 5th AML Directive introduces a harmonised enhanced due-diligence regime with regard to business relationships with third countries identified by the European Commission as high risk. The risk-based approach of current regulations requires that obliged entities take action based on the identified risk of money laundering or terrorist financing. If there is a high risk, they should intensify their due diligence measures.

Transactions with natural persons or legal entities established in high-risk third countries are automatically considered to be high-risk and the obliged entities should therefore impose increased due diligence measures.[14] These are countries where a high geographical risk has been identified by the Financial Action Group (FAG), the European Commission, the National Security Council or the Ministerial Committee.

The European Commission was empowered to identify third countries demonstrating serious deficiencies in their national AML-CFT legislation.[15] Obliged entities are required to exercise enhanced due diligence when dealing with customers in these countries,

Until now, each Member State had independently determined at national level the type of enhanced customer due diligence measures to be taken against high-risk third countries. Customers from high-risk countries were treated differently under this regime, which according to the European legislator should be avoided.[16]

Different types of additional due diligence measures have now also been listed in the 5th AML Directive. For the sake of harmonisation, the Directive now also lists the possible countermeasures against such high-risk countries, such as refusing to establish subsidiaries, branches or representative offices.

The Belgian AML law stipulates that the obligation to report can be extended to cash, transactions and situations involving natural or legal persons domiciled, registered or established in a high-risk country.[17]

As a result of the implementation of the 5th AML Directive[18], the preliminary draft sets out the following enhanced due diligence measures that obliged entities must take with regard to business relationships or occasional transactions involving persons or structures in high-risk third countries:

  1. obtain additional information on the customer and the beneficial owner(s);
  2. obtain additional information on the intended nature of the business relationship;
  3. obtain information on the source of the funds and the source of the assets of the customer and the beneficial owner(s);
  4. obtain information on the reasons for the intended or performed transactions;
  5. obtain approval from senior management in order to enter into or maintain the business relationship;
  6. conduct enhanced monitoring of the business relationship by increasing the number and frequency of checks and selecting transaction patterns which require further investigation; and,
  1. where applicable, ensure that the first payment is made through an account in the customer’s name with a credit institution whose due diligence standards imposed on customers are no less stringent than those set out in this AML law.

In addition, the preliminary draft stipulates that the King, by Royal Decree deliberated in the Council of Ministers, taken on the advice of the supervisors of the obliged entities concerned:

1°        may require the obliged entities to apply one or more additional due diligence measures to persons and legal entities carrying out transactions related to high-risk third countries. This may involve the following measures:

  • a) the introduction of enhanced relevant reporting mechanisms or the systematic reporting of financial transactions; and/or
  • b) the limitation of business relationships or transactions with natural persons or legal entities from high-risk third countries.

2°        one or more of the following measures may be applied with regard to high-risk third countries:

  • a) refuse the establishment of subsidiaries, branches or representative offices of obliged entities from the country concerned, or otherwise take into account the fact that the obliged entity concerned comes from a country that does not have adequate AML/CFT instruments;
  • b) prohibit obliged entities from establishing branches or representative offices in the country concerned, or otherwise take into account the fact that the relevant branch or representative office would be located in a country that does not have adequate AML/CFT instruments;
  • c) impose stricter prudential supervision or external audit requirements for subsidiaries and branches of obliged entities established in the country concerned;
  • d) prescribe higher external audit requirements for financial groups in respect of their subsidiaries or their branches in the country concerned;
  • e) force the obliged entities referred to in Article 5, § 1, 4° to 7°, 9° to 14° and 16° to 22° to review and amend or, if necessary, terminate correspondent relations with respondent institutions in the country concerned.
     

4. Reinforced rules on the exchange of and access to information

a) Increased ability for the CTIF-CFI to obtain all the information they need

To step up the fight against terrorist financing, the 5th AML Directive aims to strengthen the powers of financial institutions and to facilitate cooperation between Financial Intelligence Units (FIUs). The focus should be on international cooperation between the various FIUs and cooperation between the obliged entities and the FIU. In this respect, is also important that information from obliged entities flows directly to the FIU and that FIUs can obtain information without an obliged entity reporting a suspicious transaction. It should be emphasised here that the requests for information must be based on precise elements.

An FIU should therefore be able to provide information following a request from another FIU and share this information with the requesting FIU. In Belgium, these powers of the CTIF-CFI have already been incorporated into existing anti-money laundering legislation.[19]

b) Access for competent authorities and the CTIF-CFI to the data collected in the land register

The 5th AML Directive urges Member States to grant FIUs and competent authorities access to information that makes it efficient to identify natural or legal persons who own a property.[20] In Belgium, the CTIF-CFI, too, already has access to the cadastral data collected by the National Land Registry (Algemene Administratie van de Patrimoniumdocumentatie - AAPD) of the Federal Public Service Finance, but this prerogative will now also be enshrined in law. The proposeed cadastral documentation consists of all documents, records, plans, databases and information available to the AAPD.
 

5. Safe deposit box owners

For the purpose of transparent and efficient customer due diligence, the 4th AML Directive already stipulated that credit and financial institutions should not keep anonymous accounts or anonymous savings accounts.[21] The 5th AML Directive extends this ban to safe deposit boxes.[22] Here, too, the prevention of anonymity in financial transactions is central.
 

6. Giro payments[23]   

Current Belgian regulations provide for a total ban on cash transactions above EUR 3,000.[24] The restriction of maximum giro payments to this amount will be explicitly added to this article. The fact that high sums of money can be deposited in cash on various accounts has led to the abuse of the system. That is why the service is now only offered to consumers and more specifically up to a maximum amount of EUR 3,000.
 

V. Conclusion

EU Member States were given until 10 January 2020 to transpose the 5th Anti-Money Laundering Directive into their national law.  In that respect, Belgium is late with the transposition.  However, the 5th AML Directive seems to have a smaller impact than its predecessor, especially since Belgium has anticipated a number of issues as a result of the 4th AML Directive. 

Finally, we have to wait for the implementation of the Directive on combating money laundering by criminal law.[25] This includes a definition of the overarching concept of ‘criminal activity’ to promote the coherent criminalisation of money laundering among Member States. Member States must transpose the 6th AML Directive in national law by 3 December 2020.  At first glance, the impact of the 6th AML Directive for Belgium will also remain limited, as current legislation already largely takes this into account. 

 

Dave van Moppes

 

[1] Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU, EU Official Journal of 19 June 2018 (hereinafter: 5th AML Directive).

[2] Rec. 8 5th AML Directive.

[3] In Article 5 of the law of 18 September 2017, the preliminary draft empowers the King, on the basis of a Royal Decree deliberated in the Council of Ministers, taken on the advice of the FSMA, to define more precisely the conditions for the registration of those providers, the conditions for the exercise of their activities and the supervision to which they are subject.

[4] When the intermediary is an auction house, the selling price referred to in the first paragraph is the maximum estimate by the auction house.               

[5] Art. XI.175 WER.

[6] Record 11 Regulation (EU) 2019/880 of the European Parliament and of the Council of 17 April 2019 on the introduction and import of cultural goods, EU Official Journal of 7 June 2019, Ep.151.

[7] Law of 17 March 2019 on the professions of accountant and tax adviser, Belgian State Gazette of 27 March 2019.

[8] Art. 4, 23° Anti-MoneyLaundering law.

[9] Art. 47, §1 Anti-MoneyLaundering law.

[10] Explanatory Memorandum to the Bill to Prevent Money Laundering and Terrorist Financing and to Restrict the Use of Cash, Parl.  St. Chamber 2016-17, No. 54-2566/001, 159.

[11] F. DERUYCK and. VERRECKT, “Melden graag! Maar opgepast… Over de bescherming van financiële instellingen bij het uitvoeren van de meldplicht op basis van de wet van 18 september 2017”, BFR 2018, vol. 1, (8) 12.

[12] Art. 41 Anti-MoneyLaundering law.

[13] For example, Worldcheck and Dow Jones

[14] Art. 38 Anti-MoneyLaundering law.

[15] Art. 9 4th AML Directive.

[16] Record 12 5th AML Directive.

[17] Art. 54 Anti-Money Laundering law

[18] Art. 18bis 5th AML Directive.

[19] Art. 81 Anti-Money Laundering law

[20] Art. 32ter 5th AML Directive.

[21] Art. 10, par 1 4th AML Directive.

[22] Art. 1, par 6 5th AML Directive.

[23] A giro payment is a financial service provided by the post office which gives an instruction to credit a sum of money to a postal current account or a bank account with a beneficiary financial institution established in Belgium.

[24] Art. 67 Anti-Money Laundering law

[25] Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law, EU Official Journal of 12 November 2018, Ep. 284.

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