What money laundering rules mean for crypto and trusts

  • Describe what the new anti-money laundering rules mean
  • Describe how crytpo-assets will be affected
  • Identify what will happen with trusts
What money laundering rules mean for crypto and trusts

January 2020 will be particularly active in terms of taxation.

Not only will we have the usual flurry of personal tax return activity, but this year we have the UK transposition of the EU 5th Money Laundering Directive.

This will be particularly topical, possibly even controversial, given the pre-Christmas general election and the new government’s clear statements on leaving the EU at the earliest opportunity.  

The UK already has various rules in place in relation to Anti-Money Laundering, most notably through the Proceeds of Crime Act 2002 and the UK Money Laundering Regulations which themselves replaced the Money Laundering Regulations 2003.  

The UK Money Laundering Regulations require various businesses (obliged entities), for example: banks, solicitors, accountants, tax advisers, estate agents, casinos to require and hold various documentation of those using their services, including proof of identity.

The rules also require that those obliged entities maintain controls to monitor risks of money laundering or terrorist financing and, in some circumstances, report such situations to the authorities, generally the National Crime Agency (NCA).

There are significant penalties for those individuals and entities failing to fulfil their responsibilities.

Similar rules apply across the world, particularly in the EU via a number of Directives.

Anti-Money Laundering Directive

The latest EU Directive, (Directive 2018/843, the 5th Money Laundering Directive) on Money Laundering, officially becomes UK law on 10 January 2020.

It seeks to tighten and clarify a number of areas of perceived risk, and also brings in some additional new rules.

Significant changes introduced by the new Directive include changes in the following areas: obliged entities, electronic money, customer due diligence, beneficial ownership requirements, enhanced due diligence, politically exposed persons (PEPs), requirement to notify discrepancies in beneficial ownership information, trust registration service, national register of bank accounts, pooled client accounts.

The first stage of the UK Draft legislation was published on 20 December 2019 by way of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019.

Some notable draft legislation has not yet been published, in particular the proposed changes to the UK Trust Registration Service.

Turning to some of the more interesting proposals for change, the inclusion of crypto asset exchanges and digital wallet providers as new obliged entities is very topical, and will no doubt create significant web chat over the months if not years to come.

Crypto currencies

“Crypto” (currency) means different things to different people and the definition has developed over time.

Most commentators would agree that it is not a currency and has more of the characteristics of an asset, as individuals and some businesses will acquire them on the basis they will potentially rise in value and later be sold at a profit.

 Some financial institutions are starting to offer lending facilities against such assets.

The Crypto Asset Taskforce, set up by HM Treasury, the Financial Conduct Authority (FCA) and the Bank of England, defined crypto assets as “cryptographically secured representation of value or contractual rights that uses distributed ledger technology and can be transferred, stored or traded electronically”; it subdivides crypto assets into three categories; exchange tokens, security tokens and utility tokens.