The end of anonymity. Cyprus transposes into Law the Fifth Anti-money laundering Directive. (Directive 2018/843)

The end of anonymity. Cyprus transposes into Law the Fifth Anti-money laundering Directive. (Directive 2018/843)

Introduction

The Fifth Anti-Money Laundering Directive (5AMLD) came into effect on the 10th January 2020 and serves to address new issues that have been exposed since the Fourth Anti-Money Laundering Directive which came into force back in 2017. It is a European Union (EU) legislation with the aim to strengthen the barriers in the battle against money laundering and terrorist financing.

The directive notes that this new legislation is, in part, a response to the terror attacks that have happened within EU member states over the past few years namely in Britain, France and Belgium. It is worth noting that the 5AMLD has not made any changes to penalties that are in place for breaches, however, the scope of firms/individuals who will be caught by the regulation has widened.

Particularly, the 5AMLD requires transparency as regards the real owners of a company by public beneficial ownership registers for legal entities within EU.

Further, in order to improve the coordination of national and European supervising authorities, the 5AMLD requires the interconnection of the Beneficial Owner registers at EU Level, while Member States shall take any necessary act to ensure the accuracy of the information of registers.

The Cyprus House of Representatives on 18/02/2021 has voted an amendment to the  the Prevention and Suppression of Money laundering and Terrorist Financing Law 188(I)/2007 , fully implementing  5th AML Directive.

The key changes are outlined below.

Creation of UBO Registry for Companies

Under the new Law the Registrar of Companies and Official Receiver, is appointed as the competent authority for the maintenance of the Central Register of the Real Beneficiaries of companies and other legal entities.

The Registrar is also authorized to collect information about the real beneficiaries of companies and other legal entities through the intermediary system solution that has been developed.

The Companies’ Registry will be open to the public and in this respect, any person or governmental authority, may have access and get the information as to who the ultimate beneficiaries of companies are, holding share percentage more than 25%.

In the case of  companies where nominee shareholders are used, the ultimate beneficial owners holding more than 25% if the share issued, will be disclosed to the Companies Registry and the information therein will be accessible to the public.

The UBO Registry will be set up in the next few weeks and there will be a voluntary period to register expiring on March 2022.

Creation of UBO registry for trusts

Further, the 5AMLD creates a separate registry for trusts.

This is the trust registry for beneficiaries of trusts, the “Trusts’ Registry”. In this case, the trustees of a particular trust are obliged to disclose to the Trusts’ Registry to be created, the ultimate beneficiaries of the particular trust.

In cases of trusts the beneficial owner can be the settlor, trustees, protectors, or individuals implementing regulating control over the trust.

Access to Companies’ and Trusts’ Registers

A significant change introduced by the new provisions is the requirement to register UBOs and make this information publicly available.

Specifically, the 5AML Directive provides additionally for access by the public, (natural or legal persons) as well.

The difference with the Companies’ Registry, is that the Companies Registry will be open to the general public, while the Trusts’ Registry, will be open only to the competent regulatory authorities and persons that can demonstrate legitimate interest and proving same through relevant procedure to be implemented, may have access to the Trust’s Registry.

Access to the Trust’s Registry must also be granted to any member of the public in relation to a trust which holds or owns a controlling interest in a company that is not incorporated in the EU, and is therefore not included in any member state’s register of Companies Registry.

Ιn addition, concerning Trusts and other types of legal arrangements, legitimate interest should be governed by the law of the Member state where the trustee is established or resides. Member states should define legitimate interest, both as a general concept and as a criterion for accessing beneficial ownership information in their national law.

Member states should also ensure that access to beneficial ownership information is following data protection rules.

Beneficial Ownership information will be available and effected through online registration and the payment of a fee.

Virtual Currencies and Cryptocurrency

Moreover, and for first time the 5AMLD addresses the danger arising by virtual currencies and pre-paid cards, being used for Terrorist Financing and Money Laundering. Specifically, the 5AML Directive broadens its scope by including virtual currency exchange platforms and custodian wallet providers as obliged entities, while 4AMLD was limited to more traditional schemes. Second, enhanced the transparency of virtual currency transactions, by creating central databases for virtual currency user’s identities and wallet addresses. Third, the 5AMLD defined key terms, as “virtual currency” and “custodian wallet provider”.

Further, Customer Due Diligence (CDD) is now required for amounts over €150, instead of €250, which has been the case under 4AML. Furthermore, entities dealing in any other valuable assets, like real estate, are now obliged to conduct CDD and report suspicious activity.

The exemption from customer identification and identity verification no longer applies if the redemption or cash withdrawal of the monetary value of the electronic money exceeds EUR 50 or in the case of remote (online) payment transactions. The threshold was €100 and reduced to €50.

PEPs and PPFs

The categories of individuals who can be regarded as PEPs have been broadened.

• Members of governing bodies or political parties,
• Directors and members of the board or equivalent function of an international organization,
• Mayors.

Domestic PEPs are also in the scope for EDD measures.

In addition to the list of names with PEPs, the EU member states will be issuing lists with all positions qualifying as Prominent Political Functions (PPFs).

The lists will be extended to include international organisations; this should make the lists updating and maintenance by Obliged Entities easier.

Enhanced Due Diligence for High-Risk Third Countries

The EU currently maintains a list of High-Risk third countries, and when doing business with clients within these countries, parties are required to undertake enhanced due diligence measures. One of the new updates that the 5AMLD introduces, is that any client that is based in a High-Risk country is now subject to compulsory enhanced due diligence measures, of which the ‘relevant person’ must undertake. These include obtaining information on the source of funds, background checks and beneficial ownership to name just a few. Member States may also prevent firms from opening branches or subsidiaries in high-risk third countries and prevent the opening of a branch or subsidiary of a firm based in a high-risk third country.

This change aims to harmonize the rules concerning high-risk jurisdictions across the Member States. The EU hopes to ensure greater coordination and encouragement of firms to limit relationships with these countries.