How Is the 5th Directive Affecting Offshore Companies?

The Fifth Anti Money Laundering Directive is well transposed into national laws of EU state members by now. In theory. National governments should have adopted 5AMLD by the 10th of January 2020, and the directive is a response to financial crime across the EU and offshore leaks investigated in the Panama papers. New rules aim at addressing better more complex issues around modern-day money laundering that the 4th directive did not cover.

Among the new measures, enhanced due diligence (EDD) measures are a requirement to monitor suspicious transactions involving high-risk countries. Additionally, few high-risk industries are targeted too in an attempt to contain financial crime.

Offshore companies an indirect target

Although the directive aims at solving issues across all EU member countries, the scope extends to offshore entities and jurisdictions as well. Indirectly, the 5AMLD introduces strict enhanced due diligence measures for financial flows from third countries with high risk. The EU sees this fit now as, in their view, there is an increased risk of money laundering. The 5AMLD is designed to bring further transparency concerning ownership and business activities within the European Union.

Member States can require further reporting obligations for financial transactions with high-risk third country partners or limiting the establishment of such companies from high-risk third-country entities or creating companies by their own nationals in such high-risk third countries.

Green light for financial intelligence units (FIUs)

The rights and power of national financial intelligence units of the Union will be expanded. Cooperation and information exchange between the FIU and other relevant institutions will become a regular. In theory, FIU will be allowed to request, obtain and use information from any entity (virtual currency and custodian wallet providers included) based on internal analysis and intelligence. FIUs will now have access to any information and not only to the reported suspicious activities.

Increased transparency and public registers are new aspects brought to the table by the EU Commission. While the aim is to combat financial crimes, it also raises concerns on the nature of the business environment this new directive can shape. New requirements could create frictions between member states and potentially harm the corporate sector in some countries.