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persons. The Commission has, by way of

delegated Regulation effective 23 September

2016, published an initial list of high-risk third

countries and it is anticipated that this list will

be reviewed three times a year and be amended

as appropriate. Minimum potential higher-risk

situations are set out in Annex II of 4AMLD.

ECDD measures do not need to be invoked

automatically with respect to branches or

majority owned subsidiaries of EU obliged

entities where these branches or subsidiaries

fully comply with group-wide procedures and

policies in accordance with 4AMLD.

By 26 June 2017, the ESAs must issue

guidelines on the risk factors to be taken

into consideration where SCDD and ECDD

are appropriate. Draft guidelines were

published in October 2015,

both generic and

sector-specific, including for the investment

management and investment funds sector.

ECDD is required to be carried out in respect of

politically exposed persons (PEPs). 4AMLD widens

the net of PEPs to include domestic (not just

foreign) PEPs and also defines as PEPs “family

members” and “persons known to be close

associates”. Obliged entities must have a procedure

for identifying PEPs. Where a person ceases to

have the characteristics of a PEP, the obliged entity

must, for a period of at least 12 months thereafter,

consider the continuing risk posed by that person

and apply appropriate and risk-sensitive measures

until such time as the person is deemed to pose no

further PEP-specific risk.

As regards reliance on third parties carrying out

initial CDD measures, 4AMLD specifically prohibits

reliance on third parties established in high-risk

third countries identified by the Commission,

except in the case of branches or majority-owned

subsidiaries of EU-obliged entities where these

branches or subsidiaries fully comply with group-

wide procedures in accordance with 4AMLD.

Under 5AMLD, the Commission intends to impose

minimum ECDD procedures on obliged entities to

ensure greater harmonisation across the EU.

Beneficial ownership registers

Under 4AMLD, in order to address perceived

deficiencies in transparency around beneficial

ownership, corporate and legal entities, trusts

and similar structures will be required to hold

adequate accurate and current information on

their beneficial ownership.

“Beneficial ownership” is defined as any

natural person who ultimately owns or controls

a corporate or legal entity and/or on whose

behalf the entity is conducting its activity.

In the case of corporate entities, it relates

to a natural person who ultimately holds a

shareholding/controlling interest or ownership

interest of 25% plus one share or ownership

interest. The default position is that “if, having

exhausted all possible means and provided

there are no grounds for suspicion”, the

relevant entity does not identify a beneficial

owner, or if the relevant entity has any doubt

as about whether the person(s) identified is

the beneficial owner, then the senior managers

(including the directors and CEO) of the entity

must be entered on the internal register as the

“beneficial owners”. In such circumstances,

the entity must also keep records of all the

steps taken to ascertain the beneficial owners.

It should be noted, of course, that in the case

of some corporate entities, especially UCITS

and open-ended AIF funds, there may be not

be any beneficial owners who are direct or

indirect shareholders because of the broad-

based ownership of many such funds. In such

cases, details of the directors of the fund entity

are likely to be required to be entered on the

Under 5AMLD, as originally proposed, the

25% ownership threshold is reduced to 10%

in situations of entities that present a real risk

of being used for money laundering and tax

evasion. The Presidency Council compromise

proposal does not, however, contain the 10%

prescriptive requirement. Member States must

ensure that the information on beneficial

ownership is held in a central register in each

Member State and that it must be accessible

to competent authorities and FIUs, obliged

entities when carrying out CDD measures

and those who can demonstrate a “legitimate

interest” in the information. Access to the

information shall be in accordance with

data protection laws and may be subject to

online registration and the payment of a fee.

Under 5AMLD, the Commission has proposed

a requirement that details on beneficial

ownership be made publicly available. These

new requirements on beneficial ownership will

be a significant departure for companies and

other entities within the EU, particularly the

requirement that registers be made publicly

available. It will be challenging and costly

for funds to obtain, maintain and update