On January 10, the deadline for the transposition of the so-called “Fifth Directive” regarding the prevention of money laundering and terrorist financing concluded — Directive 2018/843 —.
Among the new features included in the Fifth Directive, we will analyze the new obligated subjects as well as the modifications made to the existing ones. The Spanish legislator transposed this European norm through the Royal Decree-Law 7/2021, which we thoroughly analyzed in previous posts.
General Considerations
The Fifth Directive modifies two sections: (i) the one related to auditors, external accountants, and tax advisors; (ii) real estate agents. Additionally, it adds four more sections related to individuals who trade in art and providers of virtual currency exchange services — cryptocurrencies — for legal tender — fiat currencies —, as well as providers of virtual wallets — e-wallets —.
MODIFICATIONS
BEFORE: “a) auditors, external accountants, and tax advisors;”
NOW: “a) auditors, external accountants, and tax advisors and any other person who commits to provide, directly or through third parties with whom that person is related, material assistance, support, or advice on tax matters as a principal business or professional activity;”
BEFORE: “d) real estate agents”
NOW: “d) real estate agents, even when acting as intermediaries in the rental of real estate, but only in relation to transactions where the monthly rent is equal to or greater than €10,000;”
NEW ADDITIONS
“g) providers of virtual currency exchange services for fiat currencies;”
“h) providers of e-wallet custody services;”
“i) individuals who trade in works of art or act as intermediaries in the trade of works of art, even when carried out by art galleries and auction houses, when the transaction amount or a series of related transactions is equal to or greater than €10,000;”
“j) individuals who store works of art, trade in works of art, or act as intermediaries in the trade of works of art when carried out in free ports, when the transaction amount or a series of transactions is equal to or greater than €10,000.”
Modifications Affecting Existing Obligated Subjects
Tax Advisors
The directive adds, in the section related to auditors, external accountants, and tax advisors: “and any other person who commits to provide, directly or through third parties with whom that person is related, material assistance, support, or advice on tax matters as a principal business or professional activity.”
Thus, the Fifth Directive broadens the range of obligated subjects, including individuals who advise on tax matters without specific qualifications.
Real Estate Agents
Regarding real estate agents, the directive focuses on those intermediaries involved in rentals exceeding the threshold of €10,000 per month. The European Union considers it suspicious for someone to pay such a high rent, hence the emphasis on monitoring these transactions to prevent money laundering.
New Obligated Subjects
Art
Although the Prevention of Money Laundering and Terrorist Financing Law established in 2010 already recognized individuals who “trade professionally in art objects and antiques” as obligated subjects, the Fifth Directive adds a series of considerations that the legislator must take into account regarding this profession.
The Fifth Directive mentions both individuals who trade in works of art — already included in Spanish legislation — and art galleries or auction houses as new obligated subjects when the transaction amount reaches €10,000.
It also considers as obligated subjects individuals who store, trade, or act as intermediaries in the trade of works of art in free ports — tax-free or loosely regulated areas — when the transaction amount reaches €10,000.
New Technological Services
Among the innovations introduced by the Fifth Directive, the effort made by the Union to mitigate the use of new technological services by terrorist and criminal groups is notable. Specifically, the Fifth Directive establishes as new obligated subjects: “providers of virtual currency exchange services for fiat currencies;” and, “providers of e-wallet custody services.”
As previously indicated by the European Commission in its 2017 Report on risk assessment concerning money laundering, virtual currency exchange platforms and e-wallet service providers would be new obligated subjects to consider.
The Fifth Directive defines virtual currency — cryptocurrency — in Article 1.2 d) as: “any digital representation of value not issued or guaranteed by a central bank or public authority, which does not have the legal status of currency or money but is accepted by a group of individuals as a means of payment.”
It also defines providers of e-wallet custody services in Article 1.2 d) as: “an entity that provides safeguarding services for private cryptographic keys on behalf of its clients, for holding, storing, and transferring virtual currencies.”
Conclusion
Through this initiative, the European Union aims for these new business models to report suspicious operations and to restrict the anonymity provided by cryptocurrencies. All of this seeks to enhance the processes for preventing money laundering, with the goal of maintaining a Single Market free of black money.
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