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AML5 - Looking behind a Directive

Definition 
‘AML5’ is best explained subsequent to the definition of ‘AML’ (Anti-Money Laundering): 
Anti-Money Laundering refers to a set of procedures, laws and regulations designed to stop the practice of generating income through illegal actions. 1 

AML5, specifically, is the 5th Anti-Money Laundering Directive, a new European regulation which came into effect on 9 July 2018, for the purpose of furthering the fight against Money Laundering and Terrorist Financing by means of requiring centralized, public registers of companies and their Ultimate Beneficial Owners (see ‘UBO’). This aims to increase transparency in financial dealings, reducing anonymity and in doing so, risk for involved parties.  

Provenance - Etymology and historical usage 

Etymology & Usage 
It is thought that the concept of money laundering came about in the 1920s, when members of the organized crime would purchase laundromats to disguise money that they obtained illegally. By recording the money as income for the cash-run businesses, criminals were able to claim ‘dirty’ money as ‘clean’. The actual term ‘Money Laundering’ was first used in 1961 on the 18 U.S. Code § 1961, section 19562  which defines “the laundering of monetary instruments”, however, it was still not a term widely used by the public or the media.  

It was only in 1982 that the term first appeared in a judicial context3 and, since then, it has been adopted into mainstream media and is used throughout the world. AML regulations were officially recognized through the formation of the Financial Action Task Force (FATF) in 1989, which set international standards and called for united action against money laundering. By 2001, terrorist financing also became a major focus of the FATF and a number of recommendations were introduced to member countries. 

In 2000, the FATF began revealing countries that did not comply with or enforce AML laws (placing them under public scrutiny) and, by 2012, compiled a number of recommended practices to be adopted by its 35 member countries, to meet AML and Anti-Terrorist Financing guidelines. It is up to each member country to adhere to these guidelines and best practices to make sure money laundering is dealt with on  a national level.  

The graph below illustrates the exponential rise in the use of the term ‘Anti-Money Laundering’ from the early 2000’s onwards:

Best practices 
Becoming AML5 compliant involves running identity checks and collecting information on Ultimate Beneficial Owners. This can be achieved by running a full Know Your Customer (see ‘Business KYC’) check, which compiles sanction list screenings, company information & documents, as well as media checks and lists for Politically-Exposed Persons and Sanctions (see ‘PEP’). From this, a risk profile can be developed and an informed decision can be made about business proceedings. 
While Business KYC checks in the past have taken a long time to complete, kompany is able to speed up the process by providing real-time access to official and audit-proof commercial register information covering more than 100 million companies in 150+ jurisdictions. 

Future 
AML5 will play a big role within the realm of cryptocurrency and e-money, as platforms and wallet providers based in Europe will face stricter requirements in order to comply with AML and Anti-Terrorist Financing laws. Because cryptocurrency is relatively new and is more complicated to police than traditional financial systems, AML5 is an important step towards much-needed regulation. 

 

 

https://www.investopedia.com/terms/a/aml.asp 
https://www.law.cornell.edu/uscode/text/18/1961
https://law.justia.com/cases/federal/district-courts/FSupp/551/314/2366254/

Definition: https://paytechlaw.com/en/aml5-update/ ; https://www.investopedia.com/terms/a/aml.asp 
Future: https://www.forbes.com/sites/vishalmarria/2018/09/13/eu-5th-anti-money-laundering-directive-what-does-it-mean/#3e58879a5d3c 
Best Practice: https://www.tmf-group.com/en/news-insights/articles/2018/july/digital-currencies-defining-addressing/ 
Usage: https://www.investopedia.com/terms/f/financial-action-task-force-fatf.asp ; https://www.investopedia.com/terms/a/aml.asp ; https://theuijunkie.com/money-laundering-term/ 

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