EU 5th AML (Anti-Money-Laundry) Directive
Blockchain is about to be anchored within regulatory laws in the European Union. It’s body the European Commission released a directive which aims to prevent money laundering and has now – for the first time – included Blockchain activities. That’s for one a huge step forward and some kind of acknowledge that Blockchain is relevant and it is here to stay.
However, this new directive must be transformed into national law by all EU member states (and closely-connected 3rd party nations). With that, the door for non-consistent laws between the nations has been opened which stands in direct contrast to another goal of the EU: the digital domestic market.
Regulatory fragmentation – Germany
Germany, for one, is about to over-regulate in terms of what was expected. As the bill has not yet been passed by lawmakers, there is still room for changes and adjustments. Hence, this article describes the foreseeable impact of the law which is mostly referred to as the 5th AML directive or the 5th Anti-Money-Laundry Directive. What does this mean for companies that want to leverage Blockchain technology and to target the German market.
PLEASE NOTE THAT THIS IS NOT LEGAL ADVICE AND ONLY REFLECTS THE OPINION OF OUR TEAM
Is there some kind of license that requires permission?
As of now, the German jurisdiction is about to set up a new kind of license which is called custodian service provider (“Kryptoverwahrgeschäft”) and concerns all businesses, that hold or manage Blockchain Private Keys for third parties, and those keys have to be assigned with crypto assets (“Kryptowerte”), which are basically all cryptocurrencies which have a value and are tradeable. Although that might be a huge simplification yet it summarizes the essence of the bill.
This license can be applied for at BaFin (German finance authority).
I am based outside of Germany, do I still need the license?
It is most likely that it doesn’t matter where a business is located. All entities, that are qualified to hold the license (custodian service provider that holds crypto assets) and target the German market (e.g. by having German customers) are obligated for the license. Even if the business provider is not located in the EU.
There are discussions about whether passporting might be applicable or not within the EU. That way, a business which is regulated in another member state could offer their services within the whole EU. However, as Germany is about to create a unique license it is unlikely that passporting can be applied.
Does it differentiate between Utility and Security tokens?
Most likely no. There is no difference between utility, currency or security tokens. As long as they are classified as crypto-assets (“Kryptowerte”), this license is qualified (well, in case that all the other checkmarks are also checked).
If a Private Blockchain is used and the created tokens can’t be traded, this could be a non-crypto-asset. However, it is sufficient to run a small website where that tokens can be bought or sold to count as ‘tradeable’.
What is the time frame of the 5th AML directive?
The EU has set the deadline on the 10th of January 2020. From there on all obligations in terms of KYC and AML shall be implemented within the business activities.
It is expected – and planned – to add a transitional period for the license that could be extended until June 2020. Note that this will only concern the license not the directive itself.
Is it easy to apply for the license?
There are clear requirements for businesses that want to apply for the license. This includes qualified managing directors with strong experiences in the relevant fields. It will also be mandatory to have capital of at least 125,000 Euro, which can freely be used and is without any debts. It is also expected that the business needs a physical office within Germany.
There are many more documents and certificates needed such as a business plan or personal certificates. Don’t expect it to be a 100 meters run but rather a marathon.
How long will it take to acquire the license?
This is subject to be determined. It will surely take some months from start to the end.
Is there any way around this?
First of all: no! If you are committed to applying for the license, there is no way around. However, if you have a partner that holds already the license there might be a contractual solution. Tangany for one is about to apply for the license which could be the easiest and most elegant solution for foreign (and also domestic) businesses to comply with the regulation.
Tangany offers a custody infrastructure solution for companies which includes the safe (HSM-secured) storage of private keys with programmable wallets by a connected API. Hence, we are about to be regulated like stated before and aim to provide our clients with not only a technical solution to work with Blockchain but also a regulatory compliant one.
What should be the next step?
If you are using Blockchain – not matter whether it is Bitcoin, Ethereum or an own token – and you manage the Private Keys for your customers, you should start right away to deal with the 5th AML Directive (“5. Geldwäscherichtlinie”).
Get familiar with the bill and get legal advice on that matter. If you like, you can always get in touch with us. Either to discuss the possibility of cooperation or to get some recommendations of experienced lawyers. Just drop us an email at firstname.lastname@example.org.
Official draft (German): Entwurf eines Gesetzes zur Umsetzung der Änderungsrichtlinie zur Vierten EU-Geldwäscherichtlinie