The law strives to prevent acts of money laundering and terrorist financing. The scope of the Directive is limited to the EU, but the measures are aimed at preventing illicit financing on an international level. [2] This means that the EU strives to prevent money laundering and terrorist financing anywhere in the world (goal), not just on EU soil. However, the EU only has to power to impose laws on its own citizens and companies (scope).

In layman’s terms, the law contains a set of rules that obligate providers of financial services to monitor who their customers are and what kind of transactions they make and report any suspicious or illegal transactions. The law knows a “risk-based approach”. This means that a financial service provider doesn’t need to examine each transaction that it processes. This would be unworkable. Instead, the financial service provider must assess the risk transactions and determine if it requires further inspection or not. This includes looking at who is making the transactions and where the transaction originates from or goes. For example, a transaction from a high-risk country, such as a tax haven, would be earmarked as “high risk” and the financial service provider is obligated to inspect it closely. [3]

The 5th adoption of the law (5AMLD) also included Crypto-Asset Service Providers (CASPs). CASPs were included in 5AMLD because cryptocurrencies were being used to circumvent anti-money laundering and counter-terrorist financing rules (AML/CFT). Under AMLD5, each CASP in the EU that allows customers to exchange fiat money for cryptocurrencies or offers a custodial wallet falls within the scope of the regulation. It’s due to this law that you are obligated to verify your identity when you sign up with a new crypto exchange. [4]

SOURCES

  1. EUR-lex: Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU
  2. European Commission | EU context of anti-money laundering and countering the financing of terrorism
  3. Swift | Key takeaways from the 5th AML Directive
  4. Linklaters LLP | EU opens door for cryptocurrency exchanges to apply AML rules