Money laundering and financing of terrorism (ML/FT) pose a serious threat to the integrity of the EU economy and financial system and to the security of its citizens. The current Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime at EU level takes the form of a directive which requires transposition into national law, and this often leads to delays in implementation and variations in national rules. Additionally, the current regime is not detailed or granular enough and there is no central coordination body at EU level. This hinders cooperation between national supervisors and Financial Intelligence Units (FIUs).
In an attempt to remediate the above-mentioned gaps, on 7 May 2020, the European Commission presented an action plan which set out the measures that the Commission will undertake to better enforce, supervise and coordinate the EU's rules in this area. The six pillars emanating from this action plan were the following:
Ensuring effective implementation of the existing EU AML/CFT framework
Establishing an EU single rulebook on AML/CFT
Bringing about EU-level AML/CFT supervision
Establishing a support and cooperation mechanism for FIUs
Enforcing EU-level criminal law provisions and information exchange
Strengthening the international dimension of the EU AML/CFT framework.
On 20 July 2021, the Commission published a series of legislative proposals which follow up on this action plan. The proposals relate to the following:
The AMLD6 will replace the 4th AMLD (as amended by the 5th AMLD) and will introduce, interalia, the set up and access to beneficial ownership, cooperation between authorities and real estate registers.
The existing directive requires Member States to establish registers or mechanisms to retrieve information about bank accounts and their owners. One of the proposed amendments to the directive relates to the establishment of a cross-border system between these national registers or mechanisms to enable FIUs to also access information from other Member States. This will facilitate financial investigations and asset recovery in cross-border cases.
The Commission is proposing the establishment of an agency which will be the central authority coordinating national authorities to ensure that the private sector correctly and consistently applies EU rules. The AMLA, which is scheduled to come into existence in January 2023, will strive towards having a single integrated system of AML/CFT supervision across the EU, which will ensure cooperation among the FIUs.
The AMLA’s roles will include the following:
to provide consistent guidance and support to Member States, ensuring standardised and premium supervisory standards, approaches, and risk assessment methodologies;
to facilitate the exchange of information in relation to suspicious activity intelligence across the EU as well as hosting an information exchange platform; and
to conduct periodic reviews on member state supervisors, including non-financial supervisory authorities and self-regulated bodies with a view of ensuring that all supervisors have resources in place to carry out their purpose effectively.
The AMLA will also be given the authority to take supervisory control and impose penalties on financial institutions whose national supervisor is incapable or disinclined to impose remedial action. The supervisory controls will include the power of the AMLA to carry out investigations, on-site inspections and restrict the business of the financial institutions in case of non-compliance with AML/CFT requirements.
The term “single EU rulebook” refers to a unified AML/CFT regulatory framework which includes directly applicable AML/CFT rules and requirements imposed on obligated entities. The rules at EU level will be more detailed and granular than at present and will include a number of Regulatory Technical Standards to be prepared by the future EU AML Authority. Member States will still be able to respond to specific risks, for example by requiring additional sectors at national level to apply AML/CFT rules if justified by specific risks in that Member State.
The Single EU Rule Book will cover rules on customer due diligence, beneficial ownership and the powers and task of supervisors and FIUs. National bank registers will also be linked, such that FIUs will have quicker access to information on bank accounts and safe deposit boxes. Access to such a system will be extended to law enforcement authorities, thus aiming at having more rapid investigations and recovery of criminal assets in cross border cases.
Some of the measures which will emanate from the Single EU Rule Book include the following:
a number of additions to the list of obliged entities;
detailed and harmonised rules to clarify the type of information needed to identify beneficial owners;
an obligation for non-EU legal entities that have a link with the EU to register their beneficial ownership in the EU's beneficial ownership registers;
new disclosure requirements for nominee shareholders and nominee directors; and
the prohibition of anonymous crypto-asset wallets.
The rulebook will be based on technical standards prepared by the AMLA, which must still be established. The full rulebook, including technical standards, is expected to be in place and apply by the end of 2025.
An amendment is being proposed to the 2015 EU Regulation on transfers of funds (Regulation 2015/847) to extend its scope to transfers of crypto-assets. This amendment is in line with the “travel rule” of Recommendation 15 of the FATF on Virtual Service Providers (VSPs) and it will ensure that the EU AML/CFT rules apply to the entire crypto sector and that VSPs provide full information about the sender and beneficiary of all virtual assets transfers. The rationale behind this measure is to facilitate the identification of those who send and receive crypto-assets for AML/CFT purposes, to identify possible suspicious transactions and to block them if necessary. Such an amendment will also align EU legislation with key standards of the Financial Action Task Force (FATF).
Current EU rules already acknowledge the risk posed by large cash sums by requiring all operators trading goods that receive cash payments above €10,000 to apply AML/CFT requirements, while allowing Member States to adopt stricter measures.
Some Member States have already gone beyond EU rules by setting limits on large cash transactions, however the Commission is now proposing to introduce at EU level a maximum amount of €10,000 for large cash transactions, whilst also allowing Member States to maintain lower capping limits at national level.
The Commission is proposing a revised approach to third countries which aims to ensure that external threats to the EU’s financial system are mitigated by implementing a harmonised approach at EU level and ensuring more granularity and proportionality in the definition of the consequences attached to the listing.
The Commission will identify third countries by either taking into account the public identification by the FATF or on the basis of its own autonomous assessment. Third countries which will be “subject to a call for action” by the FATF will be identified by the Commission as high-risk third countries and placed on a ‘black list’. All enhanced due diligence measures will apply to these countries, as well as country-specific countermeasures to proportionately mitigate the threat they pose.
Third countries with compliance weaknesses in their AML/CFT regimes, defined as “subject to increased monitoring” by the FATF, will be identified by the Commission as placed on a ‘grey list’ and subject to country-specific enhanced due diligence measures, proportionate to the risks.
The Commission will also identify countries which, although not being listed by the FATF, it considers to pose a risk to the EU’s financial system based on its own assessment.
If you wish to discuss or learn more about these new developing areas within the AML space, and the new EU legislative package, get in touch with our Financial Crime Compliance Team.
More detail on the proposals can be accessed through the European Commission website.