Introduction
The fourth EU money-laundering directive has only just been transposed into the national laws of the member states. Yet on 19 April, the European Parliament voted to adopt a new version (modification to directive (EU) 2015/849).
Following the Paris and Brussels terrorist attacks and the Panama and Paradise Papers scandals, the EU has decided to update its legislation to increase transparency, in particular for tax purposes, and keep pace with changing technology (such as virtual currency). Data protection and personal privacy seem to be taking a back seat. In any case, in this day and age anything that is not transparent is automatically assumed to be illegal.
We have summarised the main changes for you here:
1. Extension to the scope of the anti-money laundering directive: more people affected
More people will be affected by the new money laundering directive. As well as auditors, external accountants and tax advisors, it will also cover anyone who provides help, assistance or advice on tax as a business activity or main profession.
Estate agents will also be subject to the directive. This includes those acting as intermediaries for rental transactions, but only if the monthly rent is €10,000 or more.
Lastly, the anti-money laundering directive will also cover entities providing exchange services between virtual currencies and legal tender currencies as well as storage facilities, traders and intermediaries in the art world (art galleries, auction houses, freeports, etc.).
2. Central register of companies and trusts
In addition to the usual official organisations (the authorities responsible for combating money laundering and terrorist financing, the tax authorities, the authorities monitoring the obliged entities, the judicial authorities, etc.) it will be possible for individuals to publicly access a register of the beneficial owners of companies operating in the European Union.
For trusts and similar structures, the register will be accessible to anyone who can demonstrate a legitimate interest. Each member state will define in its internal law how this notion is to be understood. The applicable law will be the law of the country in which the trustee lives or runs their business. The directive itself sets out that it intends “persons who can demonstrate a legitimate interest” to include investigative journalists and NGOs (for example Public Eye, etc.).
The text adopted says:
“Public access to beneficial ownership information allows greater scrutiny of information by civil society, including by the press or civil society organisations, and contributes to preserving trust in the integrity of business transactions and of the financial system.
It can contribute to combating the misuse of corporate and other legal entities and legal arrangements for the purposes of money laundering or terrorist financing, both by helping investigations and through reputational effects, given that anyone who could enter into transactions is aware of the identity of the beneficial owners.
It also facilitates the timely and efficient availability of information for financial institutions as well as authorities, including authorities of third countries, involved in combating such offences. The access to that information would also help investigations on money laundering, associated predicate offences and terrorist financing.”
The register must detail the settlors, trustees, protectors, beneficiaries (or class of beneficiaries) and any other natural person who has effective control over the trust.
The public, or in the case of trusts anyone who can demonstrate a legitimate interest, must be able to access, at the minimum, the name, month and year of birth, country of residence and nationality of the beneficial owner, together with the nature and extent of the beneficial interest. Member states are free to offer access to additional information through their internal legislation.
It is stated that even if the trustee does not live or run a business in a member state, they will be required to register in any member state where they have started a business relationship or purchased a property in the name of the trust or similar structure.
Data on beneficial owners will be accessible for five years after the structure or company is wound up.
Lastly, the information will be shared and interconnected between all member states via the central European database created as a result of directive (EU) 2017/1132.
To reduce the risks of fraud, blackmail or bribery, the directive will require anyone wishing to access the information to pay a fee and register online so that their identity is recorded.
3. Central register of bank accounts and immovable property
The directive also provides for the creation of searchable central databases capable of identifying, in a timely manner, any natural or legal person holding or controlling a bank or payment account identified by an IBAN or a safe deposit box held by a credit institution within member state territory.
Similarly, a central register will be created to identify all natural or legal persons holding immovable property within the EU.
4. Other changes
Other legislative changes include:
– A reduction in the threshold for identifying the owners of prepaid cards, from €250 to €150.
– New rules requiring virtual currency exchange platforms (e.g. those dealing with bitcoin) and custodian wallet providers to check their clients’ identities.
– Stricter criteria for deciding whether countries outside the European Union present a high risk of money laundering and a more detailed examination of transactions involving nationals of high-risk countries (including the possibility of sanctions).
– Protection for anyone reporting money laundering (including the right to remain anonymous).
5. Next steps
The text has been approved by the European Union Council last week. The revised anti-money laundering directive will come into force three days after it is published in the Official Journal (OJ). Member states will have 18 months to introduce the new legislation into their own internal laws. In practice, this means that the transposition deadline can be expected to be reached by the end of 2019 and that the database of companies will therefore have to be in place by that date. For the database of trusts, the date will likely be early 2020 (within 20 months of the modifying directive coming into force), and for bank accounts and safe deposit boxes, mid-2020 (within 26 months). The interconnection between the various databases (trusts and companies) across the member states should be operational by early 2021 (within 32 months).
The only remaining question is the position that the United Kingdom will take on this issue. Brexit is set for March 2019, and if Britain remains within the single market for the transition period (probably lasting until mid-2021) the EU will require the country to incorporate EU laws into national law during this time.
Conclusion
The creation of public databases containing financial information about individuals or accessible by third parties that can demonstrate a hypothetical legitimate interest seriously limits fundamental human rights, and in particular the right to personal privacy. In addition, in a world where sensationalism reigns supreme and fake news is communicated freely as a means to an end or simply for glory, it is clearly impossible to control how the information collected will be used, in particular by journalists or NGOs.
Individuals’ private lives are being laid open to public scrutiny in the name of the fight against terrorism. But no one seems the least bit concerned, probably because there has been precious little communication on the subject by the EU, and also because few people expect to be affected. Levels of concern will undoubtedly rise once the authorities or individuals (employers, etc.) find out that Mr X is seeing a psychiatrist (because he has paid the bills) or is making gifts to his mistresses (by bank transfer), or he is refused a loan because his other accounts are overdrawn.
Also, will these measures actually do anything to prevent terrorist attacks? When we look, for example, at the way France manages its “S file” system, we can legitimately ask whether the new measures will be effective. In the meantime, the tax man is rubbing his hands with glee…
Switzerland is not an EU country and will thankfully escape this overkill. Our country will always weigh up whether the public interest of giving the state increased powers to monitor individuals justifies the consequent loss of personal privacy.
*****
The contents of this newsletter are not to be construed as a legal or tax opinion or advice. Should you require more information, please either email us or get in touch with your usual contact at CROCE & Associés SA.
This newsletter is available in French, English and Italian on our website www.croce-associes.ch.