The Law of 25 March 2020 (the "AML 5 Law")1 transposing certain provisions of Directive (EU) 2018/843 ("AMLD 5") entered into force on 30 March 2020. The AML 5 Law expands the reach of the amended Law of 12 November 2004 on the fight against money laundering and terrorist financing (the "AML Law") in several ways. Further, the Law of 25 March 2020 establishing a central electronic data retrieval system concerning IBAN accounts and safe-deposit boxes (the "AML 5 Law bis"), also amending the AML Law, entered into force on the same date2 .
The main amendments to the AML Law concern, in particular,
- the specification of certain definitions;
- an extension of the personal scope;
- a reinforcement or clarification of professional obligations;
- registration requirements for certain professionals;
- enhanced supervisory and sanction powers, including for self-regulatory bodies, and
- increased national and international cooperation.
The concept of "control through other means" of a beneficial owner over a client that is a corporate entity may be assessed on the basis of the criteria in the Law of 10 August 1915 on commercial companies regarding the conditions for the preparation of consolidated accounts as well as in accordance with certain specific circumstances. Such control may be found notably when a natural person has
- the power to appoint or remove a majority of the members of the administrative, management or supervisory body;
- control over a majority of voting rights through a shareholders' agreement;
- a direct or indirect right or power to exercise dominant influence or control, such as by virtue of a contract or a provision in the articles.
In addition, the definition of a "Politically Exposed Person" (PEP) now also includes persons exercising functions mentioned on a list regarding prominent public functions published by the European Commission in accordance with Article 20[a] of AMLD 4.
Further, the definition of "high-risk country" refers to a country mentioned on the list of high-risk countries established by the Commission in accordance with Article 9(2) of AMLD 4 as well as to countries designated as representing a high risk by the Financial Action Task Force (FATF) and any other country which supervisory authorities and professionals consider as such in their risk assessment.
Moreover, the definition of "financial institutions" is extended to all persons subject to CSSF3 supervision for anti-money laundering and counter terrorist financing purposes, thus harmonizing the sanctions regime.
Finally, the AML 5 Law introduces new definitions with regard to virtual assets and their service providers, who are newly in scope (see below).
2. Personal scope
The following persons and entities are included in the scope of the AML Law:
- tied agents and agents as defined, respectively, by the amended Law of 5 April 1993 on the financial sector and the amended Law of 10 November 2009 on payment services;
- estate agents when acting as intermediaries in the letting of immovable property, but only in relation to transactions for which the monthly rent is ≥ EUR 10 000 as well as real estate promoters when acting as intermediaries for the selling or buying of immovable property;
- any person (in addition to tax advisers, who were already covered) who undertakes, directly or by means of other persons to which that other person is related, to provide material aid, assistance or advice on tax matters as their principal business or professional activity;
- virtual asset service providers and providers of custodian and management services relating to such assets. These newly introduced service providers offer services related in particular to the exchange, holding, storing and transferring of virtual assets, including virtual currencies;
- persons trading or acting as intermediaries in the trade of works of art for certain types of transactions, including, for example, storage and trade in the context of free ports, where the value of the transaction or a series of linked transactions amounts to EUR 10 000 or more.
3. Enhanced professional obligations
Different aspects of the KYC process are further specified:
- new factors potentially evidencing higher risk are added in Annex IV of the AML Law;
- professionals must obtain proof of registration of BOs in relevant registers of BOs and keep records of their verification efforts regarding BOs and any difficulties encountered;
- professionals must understand the purpose and intended nature of the business relationship;
- if money laundering/terrorist financing is suspected, in order to avoid alerting the client, professionals can choose not to carry out the KYC but to transmit a suspicious transaction report to the Cellule de Renseignement Financier (CRF), the financial intelligence unit.
Regarding simplified customer due diligence, it is worth mentioning that the thresholds relating to electronic money products below which simplified due diligence applies have been lowered.
Enhanced customer due diligence has been clarified or expanded in various ways:
- complex or unusual transactions require increased monitoring of the business relationship;
- expanded due diligence requirements apply to business relationships or transactions involving high-risk countries and supervisory authorities and self-regulatory bodies must impose additional mitigating measures on persons and entities carrying out transactions involving such countries as well as restrictions on the possibility of carrying out activities there;
- the extent of due diligence applicable to cross-border correspondent relationships by credit institutions, financial institutions and other institutions involved is also further specified.
In addition, the AML 5 Law further clarifies the existing framework regarding the outsourcing of KYC obligations to third parties and adequate internal management requirements (e.g. independence and appropriate selection of persons in relevant internal control functions, inclusion of the members of the management bodies and of the effective direction in training programmes). It also reinforces the policies and procedures to be implemented at group level.
Finally, besides the more stringent measures now provided in the AML Law, professionals are granted flexibility to carry out the identification of the customer and the verification of his identity also via certain electronic identification means.
4. New registration requirements
The AML 5 Law bis introduces registration requirements for virtual asset service providers in a dedicated register established by the CSSF. It also provides that trust and company service providers must register with the relevant supervisory authority or self-regulatory body.
5. Supervisory authorities and self-regulatory bodies
The powers of self-regulatory bodies are enhanced. Both supervisory authorities and self-regulatory bodies have a role in informing relevant professionals about countries applying insufficient AML/CFT measures and the concerns to which this gives rise. Self-regulatory bodies receive supervisory, investigative and sanction powers, including the imposition of fines, similar to those of supervisory authorities. Like supervisory authorities, self-regulatory bodies must put in place secure communication channels and protections for whistleblowers, in particular regarding labour law. They must publish their decisions as well as an annual report.
6. Increased cooperation
Supervisory authorities, self-regulatory bodies and the CRF cooperate closely at national level. The CSSF and CAA4 must cooperate with relevant supervisory authorities at European Union level. Specific cooperation with the European Banking Authority is required from the CSSF regarding CRR institutions. In general, supervisory authorities cooperate with their counterparts in other Member States or in third countries, including regarding information requests under certain conditions. Self-regulatory bodies also cooperate with equivalent bodies in other countries.
A coordinated version of the AML Law (in French) is available under this link.
1. AMLD 5 has substantially amended Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Directive 2015/849, as amended by AMLD 5, is referred to as "AMLD 4").
2. Its Article 13 amending the Law of 30 May 2018 regarding markets of financial instruments entered into force on 26 March 2020.
3. The Commission de Surveillance du Secteur Financier, the supervisory authority of the financial sector.
4. The Commissariat aux Assurances, the supervisory authority of the insurance sector.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.