The UK prepares to adopt the Fifth Anti-Money Laundering Directive
In a letter sent to MP Margaret Hodge, the Department for Business, Energy and Industrial Strategy (BEIS) confirms that the government intends to ratify the EU Fifth Anti-Money Laundering Directive.
This law was enacted in the aftermath of increased terrorist activity across Europe as well as in response to the Panama Papers which revealed widespread use of trusts and nontransparent corporate structures for laundering money gained through bribery, corruption and tax-evasion.
EU member states must adopt the directive into domestic legislation no later than the 10th January 2020, almost a year before the transition period for Brexit comes to an end.
The UK is officially due to leave the European Union in March next year; however, a transition period is envisaged, lasting until the end of 2020. During this time, Britain has pledged to respect existing EU legislation.
Yet it is not entirely clear how the British Government will act if Brexit negotiations fail to bring about a deal. We believe that the UK will probably continue to adhere to EU anti-money laundering policies since this may be a precondition for continued access to European markets.
The Fifth Anti-Money Laundering Directive, among other things, requires the creation of a publically-available register of company owners. Likewise, a common transnational database of company and trust owners should also be established. State financial intelligence units should receive automatic extrajudicial access to information about bank account holders.
General access to the database is not expected. Yet EU member states must provide access to information about beneficiaries of trusts to all who have a ‘reasonable interest’ in seeking such information, including journalists and NGOs.
EU member states will independently determine the rules on supplying such information to individuals. As a result, the practical situation will vary from country to country. The directive merely indicates that it is necessary to make provisions for the work of NGOs and investigative journalists in combating money laundering.
The directive only extends to EU member states. This means that British Overseas Territories will have no obligation to abide by it. The British Virgin Islands, Bermuda, Jersey, Guernsey and the Isle of Man will still be able to provide their companies and trusts with a certain level of confidentiality.
Nonetheless, Britain’s adoption of the directive is likely to mean increased pressure on tax havens in British sovereign territories outside United Kingdom proper. These territories, like the UK itself, rely on access to European financial institutions, especially banks and pension funds. In the past they have always tried to follow Brussels’ lead in fighting money laundering through such measures as creating financial intelligence agencies.