Money laundering is a significant financial crime with devastating consequences if left unchecked.[1] Regulators across the world have tried to stop the spending of proceeds gained from illicit activity.[2] This article seeks to critically analyse Fourth Money laundering directive (MLD4 or 4MLD) and address the reasons why the Fifth Money laundering directive[3] (MLD5 or 5MLD) was adopted so soon after 4MLD’s enactment and does the latest EU Directive go far enough. With emerging trends in the movement of money and the change in the application of law and politics, there is a demand for new governance structure to handle global challenges like Money Laundering.[4]  Modern-day money laundering (ML) uses today’s digital financial ecosystem to convert illegally obtained money into legitimate money that would not be investigated or red flagged by law enforcement agencies and regulators.[5]

The 4MLD[6] is a directive enacted by the European Union (EU) to strengthen the EU’s defences against ML and financing of terrorism and related activities. It was tailor-made to follow the Financial Action Task Force’s (FATF) international anti-money laundering (AML) and counter-terrorist financing (CTF) standards[7] and ensure Global consistency on AML and stop the financing of terrorism in an increasingly connected world. 4MLD improves the risk-based approach to ML and CTF[8]. 4MLD goes beyond the FATF standards and sets a higher threshold.

ML activities affect the proper ordering of financial markets regulatory cost leading to increased regulation of the financial market. [9] The adverse effect of ML shows that it is essential for countries to manage their exposure to ML risks.[10] 4MLD notably covers a wide range of criminality connected to ML, incorporates new forms of businesses, focuses on beneficial owner checks and reviews suspicious reporting rules. Despite the efforts of MLD4 in combating ML, the European Union and member states[11] highlighted the need for a framework to cover emerging technologies particularly non-fiat currencies which can be used to perpetuate ML.


What is interesting about ML is that it has an endless variety of ways. ML cuts across all types of criminal activities, from drug trafficking to white-collar crimes, human beings to trafficking in arms and wildlife parts, to public corruption in the developing world, to tax evasion, to evading sanctions on rogue states and to financing terrorism. It may occur via placing cash in the financial system, to moving money already in that system,[12] to using all sorts of twenty-first-century alternatives to the financial system such as stored value cards, bitcoins and other virtual currencies[13].

The 4MLD implements a Risk-Based Approach[14] which demands that financial institutions’ efforts must be proportionate [15]to the risk of ML, by focusing more resources on high‐risk transactions and fewer resources on low‐risk transactions[16]. Banks are expected to undertake risk assessments of businesses to evaluate whether the policies and procedure are commensurate with the risk involved[17].

MLD4 also introduced appropriate due diligence which must be performed before the establishment of a new business relationship and in circumstances in which factors relevant to risk assessment have changed. Where a risk assessment determines a customer as low risk, `simplified measures may be appropriate.

MLD4 tries to respect people’s liberty but ends up not respecting same as it employs industrial size spying on people with little or no results. According to Haynes, these laws represent a considerable intrusion into personal liberty may find themselves spied on and their details kept on a central database without the provisions of the GDPR being obeyed. While MLD4 as the aim of preventing ML, it does not effectively succeed as admitted by the EC[18]

Under MLD4[19] an individual who is entrusted with a prominent public function other than a junior or mid-level official is regarded as a politically exposed person (PEP) and therefore, enhanced due diligence must be applied. A close associate is deemed as an individual known to have business relations with a PEP, or an individual who has sole ownership of an entity or arrangement that is known to be established for  the standard of enhanced due diligence applies to this person, as well as their family member and close associates enhanced due diligence still applies up to 12 months after they leave their role. Haynes believes that this would cause problems as the full range of people caught, in this category would be high and any individuals who fall under this list would slip through the net, especially those captured by the wording of “persons known to be close associates” of one of the persons on the PEPs list[20].

The same offences related to ML are in place but with the addition of a new crime – A person who recklessly makes a false or misleading statement in the context of a ML investigation can now be punished by either Fine or imprisonment of a maximum of 2 years. According to Andres Knobel,[21] the 4MLD suffers from loopholes about companies and trusts. The 4MLD regarding trusts[22] triggered registration of trusts’ beneficial owners under ambiguous conditions (unclear on if the trust or the trustee had to be located in the EU) and only if the trust generated tax consequences, without describing what that meant.

The data leaks such as the Panama Papers, Paradise Papers, and Russian Laundromat showed the need for more regulations to stop illicit flows of money. Secondly, as technology continues to advance, it is necessary for legislation to keep pace. This is of particular importance when discussing virtual currencies and digital payment systems as referred to earlier. Věra Jourová the EU Commissioner for Justice, Consumers and Gender Equality stated that

“The Panama Papers and the recent terrorist attacks have shown that we urgently need better Anti-Money Laundering rules.”[23]

The 4MLD aim of preventing ML would have been challenging particularly regarding virtual currencies as it does not explicitly cover virtual currencies[24] which can be used to perpetuate ML. Transparency International in a 2016 report admitted that levels of asset recovery by the UK are minimal compared to the likely monies being laundered.[25] The legislation seemed very reactive and not proactive like 5MLD. It can be said that 4MLD’s intention was never to explicitly include virtual currencies under its scope explicitly and this was deemed a defect by the EC. However, the provisions of 5MLD outrightly refer to virtual currencies through its exchanges. The public and institutions, on the other hand, need to be concerned regarding the reasons behind the new Directive. The EU has continued to churn out directives in the sheer hope that its blanket approach as utilized in MLD4 would prove effective.[26]

While 4MLD[27] has a list of entities mandated to be compliant with the regulations such as Financial services institutions, Auditors, external accountants and tax advisers, amongst others. MLD5 extends the “obliged entities” to include; Fiat[28]/Virtual currency exchangers (VCEPs),[29] and Custodian wallet providers (CWP)[30].  The key amendments that MLD5 makes to the 4MLD regime is quite strategic and they were prepared to counter credible emerging threats through which ML may affect today’s world negatively.

Under the provisions of MLD5[31], the scope of 4MLD is extended to include operators participating in exchange services between virtual currencies and fiat currencies (VCEPs and CWPs). This move indirectly ensures that MLD5 regulates cryptocurrency usage. The amendment also clarifies enhanced due diligence (EDD)[32] measures for certain entities regarded as high-risk third countries.

The 4MLD provisions did not take account of the of the Electronic Identification and Signature Regulation (eIDAS Regulation).[33] The amendments introduced by MLD5 have recognised the eIDAS Regulation, and therefore the 4MLD CDD measures (and related record keeping obligations) were amended to take account particularly regarding notified electronic identification schemes and ways of ensuring cross-border legal recognition.

MLD4 also created the FIUs as independent institutions in line with FATF directives. They now have additional powers to request information from any firm under MLD5. The powers are inclusive of being able to request ML and terrorist financing information from firms where a firm has not submitted a suspicious activity report (SAR). The current regime is that some FIUs can only ask a firm for information after having received a SAR from the firm this. This power would, therefore, allow the FIUs to get information from firms that have not filed a SAR.

While many countries have adopted FATF, its recommendations are wide-ranging and impose procedures and responsibilities that many smaller entities struggle to comply with. The impositions have also led to tighter financial documentation across the globe. The question therefore arises that will this “procedures based” approach by itself stamp out ML in all its various forms? With ML strategies consistently improving, it is challenging to observe across all risk areas with all entities across different countries. 

The FATF was initially intended as a temporary body to establish a set of recommendations on which to develop AML laws. After continuously having its original four-year term extended, it now operates as a body which according to Andrew Haynes’s primary function is to provide jobs for its employees by finding the need for repeated extensions to the existing laws. Haynes believes that as long as the FATF exists, there will be repeated demands for developments to the existing law[34].

MLD5 may create repercussions for all regulated firms particularly regarding the directive’s addressing of beneficial ownership. While it is not as extensive in its reach as 4MLD and has been rightly referred to as a “4MLD update”, changes in beneficial ownership information, virtual currencies and dealing with high-risk third-party states are in dire need of updates to current working practices.[35] I admit that in the fight against ML the regulators and key bodies should be proactive in their approach and not reactive.

The amendments allows for the establishment of national centralised automated mechanisms[36] to identify holders of bank and payment accounts and safe-deposit boxes. Member states, therefore, have a mandate to establish a central mechanism, like a register or data retrieval system which would allow enabling FIUs and other competent authorities swiftly identify holders and controllers of bank and payment accounts and safe-deposit boxes.

These would also Improve monitoring of existing customers. Member States are expected to put automated centralised systems in place[37], (e.g. central registries) which allow for the swift identification of any natural or legal persons holding or controlling payment accounts, and bank accounts held by a finance institution within their territory, and ensuring that the information held in those centralised mechanisms is directly accessible, at national level, to financial intelligence units and competent authorities.[38]

Several enhancements are made to the 4MLD beneficial ownership register provisions, including improved access to the registers for firms for CDD purposes. Recognition that cross-border correspondent relationships can present different levels of risk. The EDD measures to be applied to cross-border correspondent relationships must consider the fact these relationships do not offer the same level of ML and terrorist financing risk.

While many countries have adopted FATF, its recommendations are wide-ranging and impose procedures and responsibilities that many smaller entities struggle to comply with. The impositions have also led to tighter financial documentation across the globe. The question therefore arises that will this “procedures based” approach by itself stamp out ML in all its various forms? With ML strategies consistently improving, it is challenging to observe across all risk areas with all entities across different countries. 

Firms not affected by the extended scope of the activities falling under 4MLD may still be affected by some of the requirements, specifically the extension of the beneficial ownership information requirements to trusts and the provisions which apply to high-risk countries. Member states are mandated to maintain and keep updated lists of the specific functions that qualify as prominent public functions in their locales. The member states are further expected to send their lists to the Commission. The Commission, in turn, would create and manage an updated equivalent EU-level list as well as publish a single list of prominent public functions, based on all the lists. These measures are merely to help in the identification of politically exposed persons who are very prominent personalities in ML across the world[39].

Under MLD5, PEPs will be inclusive of individuals trusted with public functions both domestically and abroad (previously just abroad), and therefore the need for firms to perform enhanced due diligence and monitoring will be extended. This will subsequently increase the burden on firms conducting their research.[40] In defining comprehensive due diligence, the IOSCO outlined it as;

“the CDD process is a key component of securities regulatory requirements intended to achieve the principal objectives of securities regulation, the protection of investors; ensuring that markets are fair, efficient and transparent; and the prevention of the illegal use of the securities industry”.[41]

One-way MLD5 seeks to provide greater transparency is by providing authorities and FIUs with timely and unrestricted access to beneficial ownership information. For instance, more extensive powers are to be given to FIUs regarding access to useful ownership information. The Commission states that unfettered access to information is essential to ensure illicit flows of funds are appropriately traced and detected. To facilitate this, the proposed amendments provide for a shift from investigation-based access, triggered by suspicious transactions, to intelligence-based access for FIUs[42].

That means FIUs would be permitted to have access to beneficial ownership information held in registers even when there is no suspicion of any wrongdoing. With respect to trusts, this drive for greater financial transparency has translated into an extension of the requirement for the reporting of beneficial ownership information to all express trusts, regardless of whether they have generated any tax consequences.[43] The European Commission justifies this by stating that enhancing access to beneficial ownership information on both corporate entities and trusts is necessary for mitigating the risk of financial crime and formulating prevention strategies. While Haynes disagrees with the commission on this as the so-called open transparency by the EU is an abuse of the right to privacy as well as the data protection Act.

The push for public registers looks politically motivated aimed at appeasing public outrage when scandals relating to tax evasion, ML and terrorist financing are exposed by the media as done by the Panama and Paradise papers respectively. I am tempted to agree with Simeone[44] on the fact the new directive is a PR stunt aimed at appeasing most of the people outraged by ML because the steps taken by the regulatory bodies show them as reactive rather than proactive.

This proposed expansion of access to beneficial ownership information on trusts raises several concerns about privacy and transparency of a trust. On the other hand, the growing call for increased financial transparency that is accompanied by greater disclosure of and access to confidential information about a trust causes tension with the fundamental notion of trust privacy. This also raises issues for the protection of the rights to privacy and data protection of individuals under the Data Protection Act[45] and Art 8 of the European Convention on Human Rights. Despite this, the CJEU has been known to waive the right to privacy under Article 8[46] in cases involving banking secrecy.[47] 

The revised 5AMLD extends the collection of confidential beneficial ownership information from a targeted specific basis to a generalised one. Based on this generalisation, the “purpose limitation’ principle and the proportionality principle may clash. The “purpose limitation’ principle is aimed at ensuring that personal data is collected for “specified, explicit and legitimate’ purposes. The Data Protection Act[48] echoes this principle by providing in data protection principle that the collection of data has to be for “one or more specified and lawful’ purposes.[49]


The revised 5AMLD also attempts to cover policy purposes that go beyond anti-ML and countering financing of terrorism. There are other policy purposes captured by the inclusion of “associated predicate offences’, which may include offences such as tax evasion and financial crime. The lack of precision of the scope and extent of “associated predicate offences’ is further compounded by the fact that the Member States utilize different legal definitions of some of these offences. While the 5AMLD seeks to ease access to information for member states it may end up creating a complex information-sharing network consisting of different data controllers with different data processing purposes. Greater clarity needed as to when and how central register information may be appropriately processed and used, including by the public, and which parties are to be accountable.

However, the demand for greater financial transparency may potentially conflict with notions of privacy and confidentiality. John Riches stated that

the past two decades there has been a paradigm shift in the view of policy makers and legislators to the appropriate boundaries that exist with respect to what is the legitimate boundary of privacy and confidentiality of a person’s financial affairs. The new imperative is to create a more transparent environment …’.

Having just one model or taking a one-size-fits-all approach simply does not fit the reality of the situation. The solution, however, is not to replace the old ML legislation with a new one that fits every case but rather to recognize that a crime that generates proceeds, virtually anything that is done with that money may be a ML offence if the elements of the offence under the applicable statute are satisfied.[50]

At present, it seems that proportionality and effectiveness are real concerns for private sector end users and that they can all too easily be swept aside by high-level momentum and exaggerated fears that may trigger the next regulatory response.[51] The layer upon layer of risk assessments required by MLD4 will inevitably reveal risks,[52] and the temptation will remain to tighten regulations and rules to combat[53] these risks,[54] particularly in the light of the pressure to demonstrate compliance with international standards.  However, if there is no political will, at the UK, EU or international level, to slow the pace of change, the relentless regulatory regime being pushed is likely to continue, with little regard to effectiveness or proportionality, and it may fall to the regulated sector, where the costs and burden of compliance are felt most heavily, to resist[55].

The slew of regulations implemented or are proposed at European and domestic level are aimed at embedding the principle of transparency as a key tool by which to strengthen the AML regime. Transparency will help, but until other jurisdictions outside of Europe improve their controls to comparable levels and enforce them to the same rigour, criminals will still be able to exploit differing levels of restrictions in other jurisdictions.

Perhaps a proactive action taking samples of risk areas involving some low and high risks can be monitored across groups of selected entities? Different countries can undertake different sampling of risk areas. Also, the European regulators should approach regulators in offshore centres and negotiate information sharing arrangements to exchange data and uncovering beneficial ownership structures behind offshore companies. With greater cooperation, financial regulators would be able to tackle the scourge of ML.[56]

The Directives[57] despite being transparent and far-reaching still lack a unified list of predicate crimes, organisations are not criminally liable, a non-existent international co-operation for the prosecution of money laundering and lacks enhanced punitive measures.  I believe that the innovative funding approach used by terrorists requires a centralised method of dealing with ML as such finances are movable from several jurisdictions at the click of a button. European legislation ought to allow for proper cooperation between Banks and regulators across borders, particularly regarding timely information sharing.[58]  It is necessary for cross-border tools as highlighted by the proposed MLD6 to be adopted to address problems that may arise from the publishers or controllers of non-fiat currencies who are still not expressly controlled by regulators. A centralised approach as rightly pointed out by MLD5 is needed to tackle ML as this prevents issues of asymmetric information from arising between countries. 


[1] ‘Money Laundering – Financial Action Task Force (FATF)’ (, 2018) <> accessed 16 December 2018.

[2] ‘UK Regulator FCA Investigates 75 Firms, Individuals Over Money Laundering Issues’ (KYC360, 2018) <> accessed 17 December 2018. Louis Ashworth, ‘German Watchdog Calls For Deutsche Bank To Crack Down On Money Laundering’ (, 2018) <> accessed 17 December 2018.

[3] Fifth Money Laundering Directive (EU) 2018/843

[4] Emmanuel Ebikake, ‘Money Laundering’ (2016) 19 Journal of Money Laundering Control.

[5] Hal Berghel, ‘The Future Of Digital Money Laundering’ (2014) 47 Computer.

[6] Fourth Money Laundering Directive (EU) 2015/849

[7] International Standards on Combating Money Laundering And The Financing of Terrorism & Proliferation, 2018)

[8] Article 6-8 Fourth Money Laundering Directive (EU) 2015/849

[9] Cox D, Handbook Of Anti Money Laundering (John Wiley 2014)

[10] Adebola Adeyemi, ‘Slipping Through The Net: The FCA’s Approach To Lessening The Incidence Of Money Laundering In The UK’ [2018] SSRN Electronic Journal

[11] ‘European Commission – PRESS RELEASES – Press Release – Statement by First Vice-President Timmermans, Vice-President Dombrovskis And Commissioner Jourovà On The Adoption By The European Parliament Of The 5Th Anti-Money Laundering Directive’ (, 2018)

[12] domestically and internationally

[13] Adavize Alao, ‘Making A Case For The Regulation Of Cryptocurrency In Nigeria — Lawyard’ (Lawyard, 2017) <> accessed 17 December 2018.

[14] Article 6-8 (Fourth Money Laundering Directive (EU) 2015/849

[15] Article 8(3), Fourth Money Laundering Directive (EU) 2015/849

[16] Anna Simonova, ‘The Risk‐Based Approach To Anti‐Money Laundering: Problems And Solutions’ (2011) 14 Journal of Money Laundering Control.

[17] Article 46(1) Fourth Money Laundering Directive (EU) 2015/849

[18] ‘European Commission – PRESS RELEASES – Press Release – Statement by First Vice-President Timmermans, Vice-President Dombrovskis And Commissioner Jourovà On The Adoption By The European Parliament Of The 5Th Anti-Money Laundering Directive’ (, 2018) <> accessed 17 December 2018.

[19] Article 13 & 20 Fourth Money Laundering Directive (EU) 2015/849

[20] Andrew Haynes, ‘The Fourth Anti Laundering Directive: More Of The Same?’, Company Lawyer (2018).

[21] Andres Knobel and Jacques Terray, ‘The EU’S Latest Agreement On Amending The Anti-Money Laundering Directive: At The Vanguard Of Trust Transparency, But Still Further To Go’ (, 2018) <> accessed 17 December 2018.

[22] Article 30 Fourth Money Laundering Directive (EU) 2015/849

[23] ‘JUST Newsroom – Strengthened EU Rules to Prevent Money Laundering And Terrorism Financing – European Commission’ (, 2018) <> accessed 15 December 2018

[24] ‘European Commission – PRESS RELEASES – Press Release – Statement by First Vice-President Timmermans, Vice-President Dombrovskis And Commissioner Jourovà On The Adoption By The European Parliament Of The 5Th Anti-Money Laundering Directive’ (, 2018) <> accessed 17 December 2018.

[25] ‘Empowering The Uk To Recover Corrupt Assets: Unexplained Wealth Orders And Other New Approaches To Illicit Enrichment And Asset Recovery’ (Transparency International UK, 2016) <> accessed 17 December 2018.

[26] Jackie Harvey, ‘Just How Effective Is Money Laundering Legislation?’ (2008) 21 Security Journal.

[27] Article 2, Articles 3(1) and (2) defines financial institutions Fourth Money Laundering Directive (EU) 2015/849

[28] Fiat currencies are coins and banknotes that are designated as legal tender and electronic money, of a country, accepted as a medium of exchange in the issuing country, such as the euro

[29] The Commission refers to this type of provider as a virtual currency exchange platform (VCEP)

[30] . The Commission described them as the equivalent of a bank or payment institution offering a payment account.

[31] Article 1(1) of Fifth Money Laundering Directive (EU) 2018/843 

[32] Article 1(11) Fifth Money Laundering Directive (EU) 2018/843 

[33] EIDAS Regulation (EU) 910/2014

[34] Andrew Haynes, ‘The Fourth Anti Laundering Directive: More Of The Same?’, Company Lawyer (2018).

[35] Carton J, Regulated Firms Braced For Fifth Money Laundering Directive | Encompass Blog&#39; (, 2018)> accessed 16 December

[36] Article 1(19) of eIDAS Regulation is Regulation (EU) 910/2014 

[37] Supra


[39] Recital 12 to MLD5


[41] IOSCO (2004), “Principles on client identification and beneficial ownership for the securities industry”, available at: (accessed 25 January 2017).

[42] Revised 5AMLD, Recital (14)

[43] See amendment to Art 31 of the 4AMLD proposed by Art 1(10) of the revised 5AMLD.

[44] Wong, Simone (2017) The New EU Anti-Money Laundering Directive: Farewell to transparency of UK trusts. Trust Law International, 31 (3). pp. 137-151

[45] 1998

[46] Convention for the Protection of Human Rights and Fundamental Freedoms (European Convention on Human Rights, as amended) (ECHR)

[47] Case C‑580/13 Coty Germany [2015] ECLI:EU:C:2015:485

[48] 1998

[49] This then raises an issue for the “purpose limitation’ principle of data processing when there is generalised collection of personal data, which enables multiple and/or simultaneous processing of the data by different controllers and for different policy purposes that may not all be compatible

[50] Stefan D. Cassella, ‘Toward A New Model Of Money Laundering’ (2018) 21 Journal of Money Laundering Control..

[51] European Commission, Staff Working Document executive summary of the impact assessment accompanying the proposal for a directive of the European Parliament and of the Council 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 Directive 2009/101/EC (SWD (2016) 224 final). This expressly cites the Panama papers as one of the rationale (together with ‘recent terror attacks’) as grounds to further improve the anti-money laundering framework set out in the 4th Money Laundering Directive, (EU) 2015/849

[52] Roy Snell, ‘An Alternative to Adding more Rules, Laws and Regulations for Preventing Serious Economic Crime’ Serious Economic Crime: A Boardroom Guide to Prevention and Compliance(White Page Ltd 2011) 77–82 at 79.

[53] As shown by MLD5 and MLD6

[54] For example, the National Risk Assessment 2015 identified risks relating to inconsistency among professional body supervisors, which has resulted in the establishment of the Office for Professional Body Anti-Money Laundering Supervision in February 2018, an additional layer in the compliance chain

[55] Sue Turner and Jonathan Bainbridge, ‘An Anti-Money Laundering Timeline And The Relentless Regulatory Response’ (2018) 82 The Journal of Criminal Law.

[56] Adeyemi A, ‘Slipping Through The Net: The FCA’s Approach To Lessening The Incidence Of Money Laundering In The UK’ [2018] SSRN Electronic Journal

[57] MLD4 and MLD5

[58] ‘The 6Th Anti-Money Laundering Directive – The Battle Continues… – Financial Services UK’ (, 2018) <> accessed 17 December 2018.

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