A. Background Information on AML framework and developments
Currently the EU is placing significant attention to AML/CFT in light of the increasing numbers of terrorist attacks as well as the continuous revelations of the failure of the banking system to properly implement the AML laws and regulations and prevent money laundering. The ECB is heavily criticized for failing its supervisory role and penalties imposed on banking institutions have increased from millions to hundreds of millions and the notion of a single supervisory mechanism is promoted.
At the moment all member states should have transposed the 4th EU AML directive (AMLD4) into their national law. Cyprus has completed the transposition on the 3rd of April 2018.
Following AMLD4, a new Directive has been adopted and published, the 5th EU AML Directive (AMLD5), whose provisions should be implemented by January 2020.
From a Cyprus perspective the current law in force is, as of the 3rd of April 2018, “the (consolidated) Prevention and Suppression of Money Laundering and Terrorist Financing (Amending) Law of 2018” (the AMLD4 Transposition Law) which is the transposition of AMLD4 into the national AML/CFT legal framework.
The most significant amendments to the Law vs. AMLD3 as well as the main changes to be expected from the implementation of AMLD5 are outlined in this memo along with some early structuring considerations.
B. Most significant changes from AMLD4 Transposition Law
The most significant changes introduced by the AMLD4 Transposition Law are the following:
- Definition of “beneficial owner” (BO): The percentage of ownership/control was increased from 10%+1 share to 25%+1 share.
Beneficial Ownership Registry for Companies
- Beneficial Ownership Information: The Law provides for the maintenance of a central register of UBOs of companies that will hold adequate, accurate and current information on their beneficial ownership. The register will be accessible to:
- Without any restriction:
- The Competent Supervisory Authorities
- Tax Authorities
- The Law Enforcement
- Within the framework of customer due diligence:
- Obliged entities (ASPs, Banks, etc)
- Persons or organisations that can demonstrate legitimate interest.
- The particular provisions of the operation of the registry as well as the procedures for verifying legitimate interest will be determined in relevant Regulations which are being drafted.
Beneficial Ownership Registry for Trusts
- Information held by the trustee of an express trust: The Law provides for the maintenance of a central register of beneficial owners of trusts which generate tax consequences in Cyprus.
- The Trusts register must hold adequate, accurate and current information on their beneficial ownership, including the identity of:
- the trustee,
- the settlor,
- the protector,
- the beneficiaries or class of beneficiaries and
- any other natural person exercising effective control over the trust.
- Access, within the framework of their responsibilities, will be held by:
- The Competent Supervisory Authorities
- The FIU/ MOKAS
- The Tax Authorities
- The Law Enforcement
- Obliged entities will also have access to the UBOs in the framework of customer due diligence.
The specific provisions for the creation and operation of the Trusts register will be determined in relevant Regulations which are being drafted.
C. Main changes from AMLD5 implementation by 20/1/2020
The AMLD5 entered into force on 9/7/2018 modifying AMLD4 released in 2015. AMLD5 was proposed in July 2016 as part of the Action Plan against terrorism announced in February 2016, after the attacks in Paris and Brussels, and as a reaction to the Panama Papers published in April 2016. The plan to implement the changes by January 2017 resulted overambitious; a final compromise text was reached only in December 2017. EU Member states are obliged to transpose the modified regulations into national law latest by 20/1/2020. The main changes introduced by AMLD5 are the following:
- extends the scope to virtual currency platforms, e-wallet providers, and traders of art.
- grants access to the general public to UBO registers of EU based companies.
- makes it an obligation to consult the UBO registers when performing AML due diligence.
- obliges member states to create a list of national public offices and functions that qualify as politically exposed (PEP).
- introduces strict enhanced DD measures for financial flows from high-risk third countries.
- ends the anonymity of bank and savings accounts, as well as safe deposit boxes and creates central access mechanisms to bank account and safe deposit boxes holder information throughout the EU.
- makes information on real estate holders centrally available to public authorities.
- lowers thresholds for identifying purchasers of prepaid cards and for the use of e-money.
- further enhances the powers of the FIUs and facilitates cooperation and information exchange among authorities.
Changes relating to UBO registries
- For companies the Registers of beneficial ownership information created under the AMLD4 will be made accessible to the general public.
- The need to demonstrate a legitimate interest for access will be eliminated except for trusts and similar legal arrangements. In that case access to beneficial ownership information will be granted to any natural or legal person that can demonstrate a legitimate interest as well as to any person filing a request in relation to a trust or similar legal arrangement which holds or controls any corporate or other legal entity.
- Member states must implement mechanisms to ensure that information in those registers is accurate and up to date and apply effective sanctions in cases of breach.
- Obliged entities will have to notify the authorities of discrepancies found while conducting customer due diligence (KYC) between the UBO registers and the UBO information they hold.
- The EU Commission has been tasked to ensure the interconnection of the many registers at EU level by 10 March 2021.
D. Early planning considerations
The Regulations relating to the creation of the UBO Registers for Cyprus Companies and Trusts under the AMLD4 Transposition Law, are still being drafted whereas the transposition of AMLD5 into local legislation is expected to take place close to the deadline of 20/1/2020. It is our view though that those who are looking to limit public access to the beneficial ownership of their structures should consider, following a relevant tax and legal review, the establishment of a trust as the ultimate holding vehicle of their assets. Fiduserve can assist in putting in place structures which give due consideration to international tax provisions and conditions, and personal as well as family circumstances, and provide the necessary support and resources to successfully maintain it in a compliant manner.
Disclaimer: This memo should be used as a source of general information only. It is not intended to give a definitive statement of the law and it should not be construed as legal or other advice. Furthermore, it is based on information and legislation currently available to us which may be subject to further changes by the regulators.
Further information and advice on specific matters can be provided upon request.