Introduction

On July the 20th 2021, the European Commission publicly announced its presentation of the 'most ambitious package of measures' to combat Money Laundering and the Financing of Terrorism.

These developments are inherently a result of recent concerns that several Member States have failed to implement, enforce, or even prove the effectiveness of AML Laws (primarily through the transposition of Directives) throughout the Union. This has prompted the European Commission (EC) to 'close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system'.

Throughout this article, the author will be delving into recent amendments and will give a very brief overview of the salient proposals which will be implemented at a pan-European level.

Challenges within the Sector.

AML/CFT professionals working in this sector can all agree that the 'bedrock' of each and every national law primarily relies on the effective transposition of EU Directives. However, the EC has noted that some countries often delay implementation - which is also compounded by the fact that there is a 'fragmented approach' insofar as AML/CFT rules are concerned - across the European Union.

More significantly is the fact that there is no single/central coordination body at EU level (unlike, for instance, the European Central Bank) which effectively hinders meaningful cooperation between AML/CFT Supervisors and local Financial Intelligence Units (FIUs).

The EU has also reiterated that both Money Laundering and Terrorism financing pose 'serious threats' to the integrity and stability of the Union - a fact that was also echoed by Europol which estimated that roughly 1% of the EU's annual GDP is involved in 'suspected financial activity'.

Commission Action Plan.

One might recall that in May of 2020, the Commission had presented an Action Plan for a comprehensive and robust EU Policy on preventing Money Laundering and Terrorism Financing. This Action Plan had presented to the public a specific set of measures crystallised in six main priorities to serve as a 'roadmap' to combat AML/CFT. These included:

  • Ensuring effective implementation of the existing EU AML/CFT Framework.
  • The promulgation of a single EU Rulebook on AML/CFT.
  • Enhancing EU-level AML/CFT supervision.
  • Establishing a support and cooperation mechanism for FIUs.
  • Enforcing EU-level criminal law provisions and information exchange.
  • Strengthening the internal dimension of the EU AML/CFT framework.

New Legislative Proposals.

Within this context, the Commission is proposing an AML/CFT package that consists of four key & innovative legislative proposals:

  • A Regulation establishing an EU AML/CFT Authority (AMLA) - which would take the form of a decentralised EU regulatory agency.
  • A new Regulation on AML/CFT containing directly applicable AML/CFT rules; including a revised & exhaustive EU list of entities subject to AML/CFT rules (which are known as Obliged Entities - or 'subject persons' within the local context.
  • A Directive on AML/CFT, which replaces the existing EU AML/CFT directive - which contains provisions not appropriate for a Regulation and requiring national transposition - such as 'inter alia' rules concerning national supervisions and Financial Intelligence Analysis Units in every respective Member State;
  • A revision of the 2015 Regulation on Transfer of funds.

It is expected, that through these measures, the EU's AML/CFT regime will be sufficiently modernised - contents and governance of which will hopefully lead to a more robust and comprehensive system which will be able to prevent and detect any Money Laundering/Financing of Terrorism threats the Union will be facing.

A new Authority to combat AML/CFT.

Perhaps one of the most interesting and salient features of this mammoth reform is the setting up of a new AML Authority ('AMLA') - which is scheduled to be established in 2023 and commence direct supervision of designated high-risk entities by not later than 2026.

The Commission has clarified that this new body's activity will centre on: 1) AML/CFT supervision and 2) providing the necessary support to all the EU's Financial Intelligence Units (referring to the FIAU - from a purely local perspective).

The purpose of this new Unit is to provide an 'integrated system' of all national supervisory authorities to foster mutual support and cooperation. Insofar as the 'financial sector' is concerned, this new Authority it will directly supervise financial sector entities that are facing the highest risk of Money Laundering and Financing of Terrorism.

From a non-financial point of view, the Authority will merely adopt a 'coordination' role accordingly. It is important to note that the AMLA will not supplant already existing National Supervisors or FIUs - as the whole point of the new unit is to foster integration and coordination amongst national authorities accordingly.

Contextually, insofar as FIU's are concerned, the AMLA will enhance cooperation, primarily by formulating standards for the reporting and exchanging of information - promoting joint operational analyses and by hosting the central online system - FIU.net

In terms of the OECD principles on Corporate Governance, the Authority will (in terms of the Dual Contro principle) also operate on the basis of a 1) Chair and 2) Executive Director - the latter organ of which will be in charge of the day-to-day management of the Authority (like a Chief Executive Officer).

On the other hand, the Chair will 'represent' the Authority and will spearhead the 1) Executive Board and 2) General Board. The latter board will have both a regulatory and supervisory function. The former shall take all pertinent decisions towards individual obliged entities ('subject persons') and/or individual supervisory authorities - on a case-by-case basis.

The Supervision of certain entities will be carried out by Joint Supervisory Teams led by Staff of the Authority and personnel for the relevant national supervisors.

An EU Rulebook for AML/CFT.

Part of the revamped AML/CFT ecosystem is the formulation and setting up of one homogenous AML/CFT Rulebook (similar to a Manual) which will be imposed on all obliged entities. What is important to note is that these rules will (unlike a Directive) not necessitate the need to be transposed into National Law - and applicability will be instant as soon as the Rulebook is published.

The Commission has highlighted that these new laws will include a number of 'Regulatory Technical Standards' which will be prepared by the 'AMLA' such as harmonisation and a consistent approach of Customer Due Diligence (CDD) measures.

Who must comply with the new Rulebook?

The Rulebook applies to all 'Obliged entities' - who are in turn compounded to apply AML/CFT measures (such as CDD, reporting suspicious transactions, etc) - although, at present, obliged entities are largely requested to apply rules as per local legislation (e.g. from a Maltese perspective, the PMLFTR which in turn sets out standards as per the Implementing Procedures (both Parts I and II).

Obliged entities include inter alia, credit and financial institutions, and various non-financial entities such as: (Designated Non-Financial Businesses and Professions such as Lawyers, Real Estate Agents, and Casino).

Within this context, it is envisaged that there will be a number of new additions such as: all types and categories of crypto-asset service providers, mortgage credit intermediaries, and operators working on behalf of third-country nationals to obtain residency permits to live within an EU Member State.

Other provisions & contents.

The new Rulebook will seek to enhance provisions relating to obtaining Beneficial Ownership information - ensuring that there is a pan-European obligation to report BO information to all respective national registers. This is also applicable within the context of 'Nominees' who are requested to disclose on whose behalf they are acting. Another interesting proposal is the establishment of a 'cross-border' system between national registers containing bank account information - the purpose of which is to enable all FIU's to quickly and effectively access data.

This will also help law enforcement agencies (LEAs) access and search the system connecting the bank account registries. Considering the need to always 'follow the money trail', these new measures will certainly help anti-financial crime experts in comprehensively accessing and identify any suspicious data or bank accounts.

Conclusion.

The key takeaways from this article can be aptly summarised in two key words: 'Harmonisation' and 'Effectiveness'. The European Union is determined to (on a best-efforts basis) create a harmonised and consistent approach that can help mitigate most ML/FT conundrums. To do this, the creation of a Central Authority and Single Rulebook should certainly pave the way for greater cooperation & understanding of all threats and vulnerabilities the Union is facing.

The FATF (Financial Action Task Force) has always insisted on the ubiquitous notion of 'Effectiveness' - wherein laws and regulations should not merely be confined to fancy documents or textbooks but should be effective enough to afford Law Enforcement Agencies the potential of detecting, deterring and preventing Money Laundering - whilst ensuring effective prosecution of all criminals accordingly. To what extent this robust and comprehensive set of proposals will seek to effectively combat ML/FT remains to be seen - but at least 'the die is cast'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.