On July 20, 2021, the European Commission presented a significant set of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules. The proposal will establish a new EU authority to combat money laundering. The proposals aim to improve the detection of suspicious transactions and activities, and to shut the loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.
The proposals improve the existing EU framework by responding to emerging challenges linked to technological innovation. They take into account virtual currencies, more integrated financial flows in the Single Market and the global nature of terrorist organizations. The proposals bring convergence in the AML/CFT rules and establish a more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active in cross-border transactions.
The Four Legislative Proposals
The initiatives consist of four legislative proposals:
- A Regulation establishing a new EU AML/CFT Authority;
- A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership;
- A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States;
- A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).
New EU AML Authority (AMLA) Proposed
The initiatives will establish a new EU Authority (AMLA) to transform AML/CFT supervision in the EU and improve cooperation among Financial Intelligence Units (FIUs). The AMLA will serve as the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules. AMLA will also furnish support to FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.
The AMLA will:
- create a single integrated system of AML/CFT supervision throughout the EU, based on common supervisory methods and convergence of high supervisory standards;
- directly supervise some of the riskiest financial institutions that operate in a large number of EU Members or require immediate action to respond to imminent risks;
- monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
- support cooperation among national FIUs and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.
One EU Rulebook for AML/CFT
The Single EU Rulebook for AML/CFT will harmonize AML/CFT rules across the EU, including, for instance, more detailed rules on Customer Due Diligence, Beneficial Ownership and the authorities and task of supervisors and FIUs. The initiatives will connect existing national registers of bank accounts, furnishing faster access for FIUs to information on bank accounts and safe deposit boxes. The Commission will also supply law enforcement authorities with access to this system, accelerating financial investigations and the recovery of criminal assets in cross-border cases. Access to financial information will be subject to strong safeguards in Directive (EU) 2019/1153 on exchange of information.
Extending AML/CFT Rules to the Crypto Sector
Currently EU AML/CFT rules apply to only certain types of crypto-asset service providers. The proposed initiatives will extend these rules to the entire crypto sector, obliging all service providers to conduct due diligence on their customers. The proposals will ensure full traceability of crypto-asset transfers, such as Bitcoin, and will permit prevention and detection of their possible use for money laundering or terrorism financing. Additionally, the proposals will fully apply EU AML/CFT rules to the crypto sector and prohibit anonymous crypto asset wallets.
Limit Cash Payments to € 10,000
The Commission has proposed an EU-wide limit of €0,000 on large cash payments. The limit is high enough not to question the euro as legal tender and recognizes the important role of cash. In about two-thirds of EU Members limits already exist, but the amounts vary. National limits under € 10,000 can remain in place. Limiting large cash payments makes it more difficult for criminals to launder money. Additionally, the proposes forbid anonymous crypto-asset wallets, similar to the prohibition of anonymous bank accounts.
“Black-Lists” and “Grey-lists” for Third Countries
The EU will continue to use a “black-list” and a “grey-list.” In addition to using the FATF list for its own listing, the EU will have its own list based on an autonomous assessment.
The Commission proposals are in the hands of the European Parliament and Council. The future AML Authority should be operational in 2024 and will start its work of direct supervision slightly later, once the Directive has been transposed and the new regulatory framework starts to apply.
The AMLA with direct authority over institutions with cross-border activities or institutions with problems will contribute significantly to stronger compliance. The AMLA will help establish a single integrated system of AML/CFT through common supervisory methods and convergence of high supervisory standards. It will also facilitate cooperation among FIUs and more convergence with respect to their operation.
The extension of AML/CFT rules to crypto-asset service providers and prohibition of anonymous crypto asset wallets will plug a gap in the use of virtual currency to circumvent AML/CFT regulation.
The connecting of existing national registers of bank accounts along with the national beneficial ownership registers for companies and trusts will facilitate financial investigations and asset recovery.
Unfortunately, the use of its own grey and black lists will contribute to the proliferation of such lists internationally, causing more limits and closures of correspondent bank accounts and financial exclusion for persons in small jurisdictions.
For additional information see Questions and Answers: AntiMoney Laundering and Countering Financing of Terrorism (AML/CFT) and Factsheet: Stronger EU rules to fight financial crime, Anti-money laundering and countering the financing of terrorism legislative package, and Proposal on centralised bank account registeries.
The next issue (August) of the IELR will have a more comprehensive discussion of the EU Commission’s AML/CFT initiatives.