While not new at all, the AML5 – a directive for anti-money laundering operations – is a challenge for many financial institutions and businesses. Many of these institutions are not even fully aware of it or what it actually implies. Before even getting fully implemented by everyone, a new directive came out – AML6. The tax reporting standard AML5 and now AML6 may have serious consequences for those who fail to bring it in properly.
The legislation was introduced in the summer of 2018. Every country in the European Union had to introduce it into the national legislation by the beginning of 2020. Many organizations have managed to become compliant, but then, many are not fully prepared for these standards yet – mostly because they cannot fully understand what it means. So, what do you need to know about these standards, and why are they so important?
Understanding the importance of AML5
This is not the first standard in this field though, but the overall purpose is quite similar, and not much has changed overtime. It follows AML4, but it also brings in a few upgrades. The primary goal is to improve the battle against money laundering. At the same time, the standard aims to reduce terrorist financing and find ways to raise barriers against these trends within the European Union. There are certain rules that must be met by all countries and their institutions.
One of the purposes of this standard is to boost ownership transparency. At this point, knowing who owns what will prevent money laundering operations. Even when it comes to financing terrorist organizations, many of these issues are conducted through less-known organizations. Ownership structures are not fully transparent, so authorities often end up losing track of where the money comes from.
On the other hand, the tax reporting standard AML5 and now AML6 will also work on establishing centralized bank registers. Account-holders will be more transparent to the authorities. While most FIUs (Financial Intelligence Units) in Europe do share information when in need, having centralized databases will provide faster access to all these details, leading to a more efficient structure in the battle against money laundering.
At the same time, money laundering and terrorist financing may take other forms as well. It is not all about flat currencies. In fact, virtual currencies are just as common these days. Since they are quite anonymous, gaining access to such details is critical. There are risks associated with these factors – as well as prepaid instruments, so regulating this market will give the authorities more access over who owns what.
The standard goes on to improve the relationship between multiple institutions spread throughout the European Union. There are more AML supervisors that can collaborate for more efficient results. Furthermore, the European Central Bank will also benefit from a more thorough collaboration.
Last, but not least, while the standards cover more aspects, it is worth mentioning the possibility to broaden the criteria to assess high risk countries. When fully implemented, the standard will ensure that all organizations will apply the same rules to keep an eye on the financial flows from such places.
What it means to comply with the AML5 standard
The list to comply with AML5 is quite simple and straightforward. Also, it varies from one institution to another. Requirements will vary based on the profile of the organization. At the same time, while the standard must be applied throughout the entire European Union, different countries may also face different rules. Some other actions are more general, though, and they apply to most institutions in the European Union.
Trust transparency
Trust transparency is among the first keys in the process and targets trusts. While in theory, trusts do not have too much to hide, they are difficult to access at times, and hidden details may seriously affect legal actions. Once the standard is up, competent authorities will have the power to access the ownership details without facing any restrictions whatsoever. The same rule applies to those with a legal interest in seeing such details.The trust may have different profiles. For example, some trusts operate as beneficial owners of companies. At this point, the authorities will still be able to access the respective information with a written request.
To implement this standard, you will have to make sure your people are aware of all these changes. Ownership details must be gathered in an efficient manner according to the laws.
Ownership transparency
Talking about transparency and ownerships, in scope organizations should be aware of making details public. There are certain requirements in place that imply submitting such information to a centralized registry. Accuracy is mandatory in the process. From this point of view, KYC (Know Your Customer) policies should be up to date and complete – they must also include all the required information.At this point, organizations should conduct an impact assessment operation to find potential gaps or issues in their KYC policies. They need to ensure everything is in place before updating the centralized registries.
The centralized bank account registers will boost the collaboration with the European Central Bank due to the centralized bank registers. Banks and holders can be easily identified, while financial investigation units should face no issues whatsoever in terms of requesting information.
Prepaid cards
While in theory they are perfectly fine and make a good choice for safety and peace of mind, prepaid cards have often been associated with various crimes. The tax reporting standard AML5 also requires financial organizations to keep track of prepaid card owners. Owners with less than 150 euros in the account will not be considered though, but larger amounts only.To comply with this rule, organizations are meant to identify prepaid card transactions. They should prevent transactions linked to anonymous or unidentified individuals – high-risk considerations.
Cryptocurrencies
Cryptocurrencies represent a solid trend these days, and many believe they will become the future – easy payments, better rates, cheaper than flat currencies, lower taxes, more privacy, and so on. But all these benefits can become disadvantages for the authorities, as well as governments. There is a constant try to get the market regulated, and while efforts have been made, there is still plenty of work to do.All exchanges between cryptocurrencies and flat currencies are covered by AML5. The same rule applies to anything involving cryptocurrencies, from wallets and traders to various related services. Virtual platforms – at least those established or operating in the European Union – will not need to adopt all the regulations coming with AML5. The policies are all about identifying and verifying clients, as well as monitoring transactions and reporting suspicious activities.
High risk assessments
The high risk assessments associated with AML5 target various countries. Basically, the European Union classifies countries by multiple criteria. The high risk ones will be revised on a regular basis, and each country in the union should follow the same rules.Getting ready for AML6
The tax reporting standards AML5 and now AML6 are not new at all. These are not the first standards of this kind, and there will most likely be others as well. Regulations are extended on a regular basis. For instance, AML6 kicked in about half a year after the fifth one was introduced. Every directive comes with extra rules – most commonly, new rules imply updating the current ones for even more efficiency against money laundering operations.
The primary purpose of AML6 is to boost and increase the list of offenses – especially the ones associated with criminal acts. Such offenses are crimes committed as part of more serious acts. At the same time, the European Union has also increased the penalties and fines for money laundering.
Just like the previous directives, this one affects every country in the European Union. Again, countries had to translate the laws into their own regulations by December, 2020. The United Kingdom is the only entity opting out of AML6. After all, the country has decided to leave the European Union. However, other entities operating in Europe must align with this directive – an essential requirement for 2021.
What makes AML6 stand out in the crowd
Every new directive brought in a plethora of changes – some of them more important than others. AML6 makes no exception either, as it brings in a few updates that all countries in the European Union must adopt.
The directive comes with new money laundering offenses. The third article in the directive brings in an impressive amount of offenses that were not even mentioned in the previous directives. All these offenses have been brought in with the purpose of criminal punishment.
To help you get a better idea, you should know that inciting, aiding or attempting anything associated with money laundering has become a criminal offense now, meaning there is severe punishment for it.
The fifth article in the directive goes even further, as it includes penalties for natural individuals as well. Practically, penalties having something to do with predicate offenses will bring up to four years in prison. Extra sanctions will be given to natural individuals behind the respective offenses.
The jurisdiction has also been affected – mostly throughout the tenth article. Members must get together and cooperate in a tight collaboration when crimes and offenses are conducted internationally. Crimes could target individuals of different nationalities operating over more countries. At this point, these countries are meant to work together to annihilate crime networks.
Complying with these rules makes life even harder because organizations have barely managed to get the tools and education to comply with the previous tax reporting standard. The main goal is to ensure all entities are aware of these offenses – as well as the workers associated with these entities. They need to know how to identify problems and use the tools they have to act upon them.
Bringing cybercrime into a directive
Tax reporting standard AML5 and now AML6 may seem similar from some points of view, but AML6 is the first directive of this kind where cybercrime is actually featured and associated with money laundering and tax evasion. The focus on cybercrime has been appreciated by more governments out there. After all, despite all the benefits they come with, cryptocurrency funds have also gained a fortune from hacks, phishing operations, and fraud.
Cybercrime is not new at all. In fact, it has always been a consistently growing problem. With AML6, there will also be some extra requirements for multiple business entities. Collaboration is a must now, and anything that involves money laundering must be thoroughly investigated the right way – sharing information, operating across multiple jurisdictions, and so on. For example, if a crime affects two different businesses, they are meant to work together to provide evidence and bring the offender in front of the law.
This update increases the liability for business entities. With AML5, only obliged entities were forced to report suspicious activities and collaborate with financial investigation units.
AML6 is crystal clear when it comes to punishment regarding cryptocurrency money laundering as well. With the previous directive, particular individuals were liable for it. But now, legal individuals will also be targeted. In other words, senior management is likely to be affected too, not to mention companies.
There are 22 offenses listed in the standard, and some of them have nothing to do with money laundering – not directly, at least. Instead, they imply the illegal traffic of arms, stolen goods, drugs, and so on. While the cryptocurrency market is not necessarily aimed at such activities, there are, however, some active players on these markets.
Moving on, member states of the European Union should make sure that anything related to such issues is a criminal offense. Any person that aids in the process – regardless of the role – will be given a sentence. The article includes those with no material benefits as well.
The single market has been one of the most active players in terms of regulatory activities for cryptocurrencies. A bunch of new regulations and proposals came out in the fall of 2020. The European Commission came out with some ideas on MiCA (Markets in Crypto Assets), only to target cryptocurrencies and their providers.
While in theory the tax reporting standard AML5 and now AML6 will bring in some good changes, not everyone was happy with the outcome. For example, some critics claimed that the travel rule is not fully implemented at a global level. The efficiency is still low, and there will not be too many changes.
There is something that no one can deny, though – organizations, authorities, and jurisdictions that apply these guidelines faster will most likely be considered safer than others when it comes to dealing with partners, institutions, and even retail users. AML6 is responsible for this change of views.
Initially, the classic financial segment overlooked cryptocurrencies – even Bitcoin. These days, the cryptocurrency has managed to build its way in. Practically, it is widely accepted as a safe asset. Europe is one of the best markets for cyptocurrencies these days. Given all these trends, it is pretty obvious that big tickets will target countries with strict, stable, and straightforward regulations, and this is exactly what the European Union is trying to do.
With these thoughts in mind, AML6 is basically an update of AML5. It closes and seals some of the loopholes associated with previous directives. It makes offenses, punishments, and rules clear, leaving no room for doubts.
What does it all mean?
By this time, you basically know everything that the tax reporting standard AML5 and now AML6 will bring in. AML5 is old now, as AML6 came out just months after it. If you have never paid attention to these directives, getting used to the new and strict updates might be a bit unusual. There are obviously some questions out there, as well as some issues. What does AML6 mean in simple words? What do you actually need to do?
The directive is mostly aimed at businesses, corporations, institutions, and individuals associated with them. The primary goal is to prevent money laundering. In other words, tax reporting is a big thing now, and income of any kind must be declared to prevent getting in trouble.
Crimes are better defined now. Prior to AML6, there were obviously some loopholes out there. Every crime is well detailed and associated with particular actions, so there would be no room for misinterpretations.
The criminal liability getting extended means individuals are no longer targeted themselves. Legal representatives – such as your lawyer or perhaps the accountant – might be involved and face the consequences of tax evasion and many laundering. Companies and partnerships are included in the directive too.
The cooperation requirement is another major update. Prior to the directive, only certain affected businesses had to cooperate. Today, businesses involved must cooperate to find and gather evidence – it makes no difference if one of them is more involved than the other, which will probably be the case anyway.
Last, but not least, it is worth mentioning the dual criminality. Particular money related offenses can now be unlawful in two different jurisdictions. One could commit a crime in two different places – it is now illegal in both of them. For example, the crime is prosecuted in the country where it takes place, as well as the jurisdiction where the money laundering is actually committed.
Cryptocurrencies have made it to the directive for the first time. This is probably the biggest cause of concern for those dealing with cryptocurrencies. While there are numerous benefits associated with digital coins, the truth is they can also be used for numerous crimes. They ensure a high degree of privacy and even anonymity, meaning it is impossible to track individuals or companies sometimes.
While lots of people rely on cryptocurrencies for the low taxes, fees, and privacy, the truth is this level of anonymity will also create a good environment for shady individuals interested in money laundering, tax evasion, and other criminal activities. This is what led to a call for regulating the market in the first place. Most countries are doing something about it, but the European Union has taken it to another level by drawing it into the new AML6.
AML / KYC Platforms
List of usable AML / KYC platforms on the market. Many of them are developed for banks and financial institutions but they are also used in larger companies where it is important to comply with the same standards in connection with major ban and customer transactions.Conclusion
As a short final conclusion, the tax reporting standard AML5 and now AML6 are definitely changing some aspects regarding tax reports and evasion. AML5 is one of the multiple directives used with this purpose, but AML6 takes it even further and provides more specific details regarding crimes and the cooperation between various institutions and organizations. On the same note, AML6 is the first directive to actually include some regulations regarding the cryptocurrency market, which will certainly make a difference.
The updates are welcomed by those who invest in cryptocurrencies, as well as those who rely on digital money for everyday expenses and not necessarily investments. There were constant calls for this market to be regulated, and the European Union has made the first big step to change something about it – individual countries from all over the world have already come up with basic laws, though.
The new regulations are likely to reduce tax evasion by promoting transparency among banks and institutions. At the same time, regulations from banks will have to become more severe – not to mention KYC policies. Banks will require more details to verify their customers, but online wallets (for both flat and digital currencies) will have to follow the exact same rules.
As a direct consequence of these new regulations, the cryptocurrency market is likely to gain a bit in value. Simply put, more and more people and organizations will gain confidence in digital coins because they benefit from proper regulation now – at least in the European Union, but outside countries are very likely to start a similar process. Values will stabilize a little – no more massive fluctuations, yet the overall market will go up in value in the long run.
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