The European Union introduced the Fifth Money Laundering Directive (5MLD) to further strengthen transparency and counter-terrorist provisions of the Fourth Money Laundering Directive (4MLD).
The implementation of the 5MLD takes the form of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019. These amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (which implemented the 4MLD). The changes came into force on 10 January 2020.
The 2019 Regulations extended the scope of the anti-money laundering regime in the UK to include additional entities. The effect is that those additional entities need to be registered and carry out client due diligence (CDD). These include tax advisors, letting agents (where the monthly rent equals or excess 10,000 euros), crypto-asset exchanges and art intermediaries.
Further, the 2019 Regulations require the UK to establish a centralised automated mechanism which allows the beneficial owners of bank accounts and safe deposit accounts to be identified. This may increase the requests for information made by banks.
The 2017 Regulations included the implementation of the Trust Registration Service (TRS), which requires trusts and estates which incur a UK tax liability to register with HM Revenue & Customs. This involves the registration of the beneficial ownership information.
The 5MLD expands the scope of the TRS by requiring the registration of all UK and some non-EU resident express trusts, whether or not the trust has incurred a UK tax consequence. However, the 2019 Regulations did not include any changes to the TRS in order that further technical consultation could take place.
The good news is that prior to introducing the 2019 Regulations, the Government consulted on the proposal that charitable trusts would fall within the definition of an express trust and would, therefore, have to register. However, as a result of responses to that consultation, this proposal has been dropped. In its technical consultation document on the 5MLD and the TRS (which was launched on 24 January 2020 and closes for comments on 21 February 2020), the Government proposes that charitable trusts will not be required to register because the risk of these kinds of trusts being used for money laundering or terrorist financing activity is low.
This removes the prospect of charitable trusts having to bear the burden of registering with the TRS and keeping the details of beneficial ownership up to date.
However, that does not mean that Charities can ‘rest on their laurels’. They remain a target for money launderers as identified by the Serious Organised Crime Agency (SOCA now the National Crime Agency) as far back as 2013. SOCA identified a number of instances where charities were unwillingly involved in a donation scam using fraudulently obtained credit cards. The scam involved fraudster’s informing a charity that they would donate a large sum of money on the condition that the charity sent half of the donation onto another specified charity. In reality, the ‘specified charity’ was no other than the fraudster’s personal bank account. Therefore ongoing vigilance is required by charities, carrying out due diligence, checking donations and implementing robust financial controls. SOCA went on to warn charities to be on their guard against:
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- Donors making loans as a means of laundering funds, or making donations with specific restrictions so to effectively transfer funds overseas and disguise the origin
- Anonymous donations that are a means of disposing of the proceeds of crime
- Tax avoidance/evasion by donors claiming tax relief on donations whilst at the same time seeking a private benefit from that donation