On May 21, 2020, the Implementation Act Amendment Fourth Anti-Money Laundering Directive (AMLD5) entered into force. Since then, bitcoin companies, including Bitonic, have been subject to integrity supervision by De Nederlandsche Bank (DNB). At the European level, however, there is still more to come in the field of anti-money laundering regulations that may be relevant for bitcoin companies. In this article we take a look at the future.

Before looking ahead, let’s look back at developments in the fight against money laundering and terrorist financing. We take as a starting point the establishment of the Financial Action Task Force (FATF) in 1989 at the initiative of the G7. The FATF is a global intergovernmental watchdog to combat money laundering and terrorist financing.

The FATF publishes guidelines that provide legislators of the various member states of the European Union (EU) with guidance when implementing European directives. In addition, the FATF has developed a global framework when it comes to preventing money laundering and countering terrorist financing. These international standards can be found in the FATF Recommendations. These standards were and are the inspiration for the anti-money laundering guidelines listed below.

First Anti-Money Laundering Directive (AMLD1)

The first anti-money laundering directive came into force in 1991. The directive was intended to restrict money laundering – particularly from drug crimes – within the financial sector. Countering terrorist financing was not yet within the scope of application at that time. The directive also only applied to credit institutions and financial institutions, such as banks and insurers. The purpose of the directive was to promote the soundness and stability of financial institutions and the stability of the financial system as a whole.

Second Anti-Money Laundering Directive (AMDL2)

In 2001, the second anti-money laundering directive came into force. In this a number of matters were updated in response to the updated _FATF Recommendations_. The scope of the guideline has also been considerably expanded. Accountants, lawyers, tax advisors, casinos, dealers in things of great value, brokers, notaries and trust offices also had to believe the anti-money laundering regulations.

Third Anti-Money Laundering Directive (AMLD3)

The third anti-money laundering directive, together with the PEP directive (a directive that provided the technical aspects of the definition of politically exposed persons ), was the successor of the second anti-money laundering directive in 2005. In the third anti-money laundering directive, a number of matters were again updated and the scope was broadened to the financing of terrorism. More detailed rules were also introduced for identifying clients and UBOs of entities. UBO stands for ultimate beneficial owner . This refers to a natural person who ultimately owns a particular entity. Stricter rules were also introduced for large cash payments in the Third Anti-Money Laundering Directive.

Fourth Anti-Money Laundering Directive (AMLD4)

The third anti-money laundering directive (together with the PEP directive) was succeeded by the fourth anti-money laundering directive in 2015. The scope was further expanded. Providers of gambling services have also been subject to anti-money laundering regulations since then. Furthermore, compliance started to play an increasingly important role at institutions that fall under anti-money laundering regulations. The UBO register was also created. The registration and information about UBOs had to provide more transparency about UBOs.

Fifth Anti-Money Laundering Directive (AMLD5)

On May 21, 2020, the fifth anti-money laundering directive came into force in the Netherlands. The Fifth Anti-Money Laundering Directive has tightened the Fourth Anti-Money Laundering Directive on certain points – such as measures with regard to high-risk third countries and anonymous prepaid cards. Since then, bitcoin companies, including Bitonic, have also been subject to integrity supervision by De Nederlandsche Bank (DNB). The directive also stipulated that ??? the UBO registers introduced in the fourth anti-money laundering directive ??? should be public. In addition, information exchange between Financial Intelligence Units (FIUs) from different EU Member States had to run more smoothly. All this to combat money laundering and terrorist financing faster and better.

Would you like to read more about anti-money laundering regulations? Then consider the WWFT Handbook.

Preview

As you have read, the fight against money laundering and terrorist financing has undergone major developments. However, there is much more in store. On 20 July 2021, an ambitious legislative package (AML/CFT) was presented by the European Commission. This package will completely replace the fourth and fifth anti-money laundering directives.

The package itself consists of four legislative proposals:

• A Regulation establishing the Anti-Money Laundering and Terrorist Financing Authority (AMLA Regulation).
• A Regulation to Prevent the Use of the Financial System for Money Laundering or Terrorist Financing (AML Regulation).
• A directive on the mechanisms to be put in place by Member States to prevent the use of the financial system for money laundering or terrorist financing purposes and repealing Directive (EU) 2015/849 (AMLD6).
• A recast of Regulation (EU) 2015/847 extending the information to be included in credit transfers to crypto-assets (WTR2 recast).

After several directives (AMLD1 to AMLD5) – which have been implemented in the Netherlands in the Money Laundering and Terrorist Financing Prevention Act (Wwft) – we now have to deal with regulations. Regulations have direct effect and take precedence over the national law of the EU Member States. The European Commission believes that these Regulations can more effectively address cross-border situations (single EU rulebook for AML/CFT).

What does this mean for bitcoin companies?

But what does all this mean for bitcoin companies? Bitcoin companies will soon also fall within the scope of the AML regulation. This regulation has many similarities with the Fifth Anti-Money Laundering Directive. In that sense, bitcoin companies in the Netherlands – which are registered with DNB and comply with current anti-money laundering regulations – need not worry much. This is in contrast to some foreign parties, such as Binance. The AML regulation does tighten up some rules in the field of customer due diligence. For example, the limit for client investigation will be lowered and there will probably be a standard investigation obligation (Art. 20 AML Regulation).

Furthermore, in the future – in addition to the AFM – bitcoin companies will most likely have to deal with another new regulator. The European Commission wants to create a European AML/CFT supervisor (AML authority). All this in the interest of an efficient and harmonized approach to money laundering and terrorist financing. The AML Authority is planned to be established on January 1, 2023.

We find a controversial issue in the recast of Regulation (EU) 2015/847 extending the information to be added to transfers to crypto-assets (WTR2 recast). Under the current WTR2 regulation, payment service providers currently have an obligation to collect, add and keep information from the sender and recipient available to the competent authorities in the case of credit transfers. This is also known as the travel rule .

After the WTR2 realignment comes into effect, bitcoin companies will also have to comply with the _travel rule_. The expansion of the _travel rule_ stems from updated recommendations for virtual asset service providers from the FATF.

When transferring bitcoin or other crypto to another bitcoin company, a bitcoin company will have to ensure that the name, account number, address, official personal document number and client identification numbers or place and date of birth of the sender are added (art. 14 paragraph 1 sub a/mc WTR2 rearrangement). The bitcoin company will also have to add the name of the recipient and his account number (art. 14 paragraph 2 sub a and b WTR2 recast).

Please note that the information listed above does not have to be stored on-chain (art. 14 paragraph 4 WTR2 recast). Lighter requirements are also imposed on transactions under EUR 1,000 (art. 15 paragraph 2 WTR2 recast). For example, in such transactions only the name and account number of the sender and recipient will have to be added (art. 15 paragraph 2 sub a and b WTR2 recast).

Completion

With the legislative package, the European Commission wants to take the fight against money laundering and terrorist financing to a higher level. However, the unbridled export of personal data does not seem to have been taken into account. Not to mention the rising costs of anti-money laundering compliance. It is therefore questionable whether the lost war against money laundering and terrorist financing will still be won.

Would you like to read more about new anti-money laundering regulations? Read more about the reform of the European AML/CFT landscape here. Prefer to listen to a podcast? Listen to the episode of Compliance advises with Pierre Simon here.