Most have already heard about it, but few know exactly what it is about – the so called AML5 Directive. The AML5 Directive issued by the European Union in 2018 lays out the regulations that help corporations, nations and individuals deal with Anti-Money-Laundering in order to counter Terrorism Financing. In this post we will cover the main changes that AML5 implies and how they will affect the use of cryptocurrencies. The full set of legal guidelines and regulations can be found on the official EU Law website.
What does AML5 change?
Before AML5, each country was independent when it came to the way they dealt with the identification of its people. In the financial domain this was often handled poorly and therefore resulted in different illegal activities. In order to create a transparent financial system, that prevents criminal activity through anonymous transactions, the EU had to come up with a set of rules and guidelines for all of its member states. This affects not only users of digital assets but a wide variety of professional fields, e.g. real estate, art dealers and even phone service providers. AML5 is the fifth version of the Anti-Money Laundering Directive and came into force in mid-2018. All member states are required to implement it until January 10th, 2020.But what exactly does this mean for cryptocurrency holders?
AML5 and its Effect on the Use of Digital Currencies
AML5 has quite a few implementations in store for the users of digital currencies. The threshold for anonymously deposited e-money was lowered from 250€ to 150€, and they can only be withdrawn in cash for a value of up to 50€.
Also, the usability of digital currencies is more restricted now due to AML5: Non-verified online payments using digital currencies can only be made up to an amount of 50€ and anonymous prepaid-cards are harshly restricted.
Any company who focuses on cryptocurrency is subject to about the same laws as the previous version of the directive (AML4) already proposed. The criteria for this is mainly about whether the amount of money received or transferred in digital currency exceeds the 10,000€ threshold. However, even lower amounts of money can be deemed suspicious and have to be reported if they stem from the same source and are continuous.
Especially crypto-trading platforms and wallet providers have to keep their Know-Your-Costumer responsibilities in mind and be compliant to all the AML5 regulations. Anonymous transactions are no longer allowed and the users have to be fully identified first.
For users from ‘high-risk’ third countries, i.e. non-EU nations, this will also include elaborate background checks and further investigation into their financial intentions and records.
If individuals or companies act in a non-compliant way towards the AML5 regulations this may result in heavy fines or even cease and desist orders. Proper documentation of your crypto-assets and keeping track of the transactions are necessary to avoid this. In early 2019, Swedish crypto-trader Linus Dunker learned this lesson the hard way when he received a tax bill of 300% of all profits he ever made off trading crypto. He had been trading since 2014 and simply never reported the individual transactions and the correct price he initially paid for buying them. Ultimately, this got him a fine of 1,000,000 USD!
Until September 2020, the EU also wants to implement designated Finance Intelligence Units (FUIs) that monitor the registrations of both natural and legal entities. The EU aims to create a more transparent financial system but forgets that anonymity and decentralization are the main constituents of cryptocurrencies and the reason why people use them in first place. It is not quite clear yet how they want to unify these two approaches in a way that is fair for everyone involved.
There will definitely be more focus towards the legal treatment of cryptocurrencies in the future, so we highly suggest to take a look at our “countries and their crypto-laws” blog series or contact a certified legal advisor in your country for further advice and guidance.