Following the agreement reached by the European Council and the Parliament last January on parts of the AML package that aims to safeguard both EU citizens and the EU’s financial system against money laundering and terrorist financing, the full text of Europe’s new Anti-Money Laundering (AML) Regulation and Directive has been released.
The Commission has stated that the AML Regulation “will for the first time, exhaustively harmonise rules throughout the EU” thereby “closing possible loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.”
Through the new package, all rules which pertain to the private sector will be collected in the new Regulation, whereas the organization of institutional Anti-Money Laundering/Counter Terrorist Financing (AML/CFT) systems at national level in the Member States (MS) will be dealt with by the new Directive.
The new AML Regulation Directive
Expanding of the list of obliged entities
The new AML Regulation expands the list of obliged entities significantly. An obliged entity is one which is bound to perform due diligence on their clients or customers, due to their central role as gatekeepers in the AML and CTF framework deriving their privileged position to detect suspicious activities. Currently, obliged entities include financial institutions, banks, real estate agencies, asset management services, casinos and merchants, among others.
However, the new Regulation will contain rules which will also cover the majority of the crypto sector, notably rendering all Crypto Asset Service Providers or CASPs to conduct due diligence on their customers, consisting mainly in the verification of facts and information provided by such customers, and reporting suspicious activity when this occurs.
It will also render various other sectors responsible to conduct their due diligence within the context of AML/CTF, namely:
- Traders of luxury goods, such as precious stones, metals, jewellers, horologists, and
goldsmiths, - Traders of luxury cars, airplanes, and yachts; and
- Traders of cultural goods
The new Regulation also acknowledges the high risk that the football sector poses to AML/CFT efforts, and hence, includes professional football clubs and agents as obliged entities. Nevertheless, the Regulation allows for MS to have a degree of flexibility in this regard, by recognizing that the sector and its risk, is subject to wide variations, and it therefore allows MS to remove entities from the list when they are considered a low risk.
The rules pertaining to the football sector will apply following a 5-year transition period, whereas
the rules pertaining to the other newly obliged entities will apply following a 3-year transition period.
The Council and Parliament also agreed that the following obliged entities are obliged to adopt
enhanced due diligence measures in these instances:
- Crypto-asset service providers were there are cross-border correspondent relationships and;
- Credit and financial institutions where business relationships with very wealthy (high networth) individuals involve the handing of a large amount of assets.
Cash Payments
The agreement has paved the way for the introduction of a European Union (EU)-wide maximum limit of €10,000 for cash payments, and allows MS to reduce this maximum if they wish. Furthermore, obliged entities will now be bound to identify and verify the identity of persons who carry out occasional transactions in cash between €3,000 and €10,000.
Beneficial Ownership
The provisional agreement harmonises and clarifies the rules on beneficial ownership – referring to the persons who actually control or enjoy the benefits of ownership of a legal entity, despite the title or property being in another name. It does so by bringing attention to the fact that beneficial ownership is based on ownership and control, and highlighting the importance that these are analysed in order to identify all beneficial owners of a particular entity or across types of entities, including non-EU entities when they do business in the EU or purchase real estate in the EU. It also sets the beneficial ownership threshold at 25%.
The agreement moreover contains rules which are applicable to multi-layered ownership and control structures, to ensure that it is no longer possible to hide behind multiple layers of ownership. This is accompanied by provisions on data protection and record retention, which aim to make the work of the competent authorities easier and more efficient.
Lastly, all foreign entities that own real estate within the EU must register their beneficial owners, and this with retroactivity until 1st January 2014.
High Risk Third Countries
Enhanced due diligence measures must also be applied by obliged entities with respect to occasional transactions and business relationships involving high risk third countries who represent a threat to the integrity of the EU’s internal market due to their own shortcomings in AML/CFT.
An assessment of the risk posed in such events is to be carried out by the Commission, and such is to be based on the Financial Action Task Force Listings (FATF). If a high level of risk is found, then the Commission is justified in applying additional specific EU or national countermeasures, which may be both at the level of the obliged entity or the MS.
The AML Directive
The directive will focus on the organization of institutional AML/CFT systems at the national level in EU member states.
It complements the regulation by improving the organization of national anti-money laundering
systems.
Beneficial Ownership Registers
- Information submitted to the central register will need to be verified;
- Entities or arrangements, that are associated with persons or entities who are subject to targeted financial sanctions, will be flagged;
- Entities in charge of the registers are granted the power to carry out inspections at the premises of registered legal entities, in case of doubts regarding the accuracy of the information in their possession;
- Public authorities, obliged entities, persons of the public with legitimate interest, including the press and civil society, may access the registers.
- The agreement provides that real estate registers are made accessible to competent authorities through a single access point, to facilitate investigations into criminal schemes involving real estate. Information such as price, property type, history, mortgages, judicial restrictions, and property rights are to be included in the information made available.
Responsibilities of FIUs
The agreement also talks about the responsibility incumbent on every MS’ Financial Intelligence Unit (FIU). These are tasked with preventing, reporting and combatting money laundering and terrorist financing, and they are also responsible for receiving and analysing information relevant to money laundering and terrorist financing, mainly in the form of reports from obliged entities.
It provides that FIU’s will have immediate and direct access to financial, administrative and law enforcement information, including tax information, information on funds and other assets frozen pursuant to targeted financial sanctions. They will also have access to information on transfers of funds and crypto-transfers, national motor vehicles, aircraft and watercraft registers, customs data and national weapons and arms registers, among others.
The agreement provides that in addition to continuing their dissemination of information to the competent authorities who are tasked with combatting money laundering and terrorist financing, FIUs are, in cross border cases, to cooperate more closely with their counterparts in the MS concerned with the suspicious activity report.
The agreement also confirms the application of fundamental rights as an integral part of the FIUs work.
Lastly, the agreement sets out a framework whereby FIUs can suspend or withhold its consent to a transaction to give it time to carry out the necessary analyses and to assess the suspicion, and to disseminate the results to the relevant authorities to allow for the adoption of appropriate measures.
Supervisors
The provisional agreement also talks about the role of supervision in Member States, insofar as each MS is to ensure that all obliged entities established in its territory are subjected to sufficient and effective supervision by one or more supervisors, who are to apply a risk-based approach. In case of suspicion, the supervisor/s are to report to the FIUs.
The agreement provides for the creation of supervisor colleges, which are essentially new supervisory measures for the non-financial sector.
Risk Assessment
The provisional agreement comments on the sustained importance of risk assessments as a tool, used by the Commission, to assess the risks of money laundering and terrorist financing, and to help it with making recommendations to Member States on measures that they should follow. Risk assessments, however, are not limited to the Commission, as they extent to the MS who are obliged to carry out their own separate risk assessments, and to mitigating any discovered risk.
Conclusion
Belgium’s Minister of Finance commented, on behalf of the Council, that “This agreement …will improve the way national systems against money laundering and terrorist financing are organised and work together… [to] ensure that fraudsters, organised crime and terrorists will have no space left for legitimising their proceeds through the financial system”.
The next step is for the texts to be finalised and presented to MS’ representatives in the Committee of permanent representatives, and the European Parliament for approval. If approved, the Council and the Parliament will have to formally adopt the texts before they are published in the EU’s Official Journal and enter into force.
This article is not intended to constitute legal advice and neither does it exhaust all relevant aspects of the topic.
Authored by: Andrew Mifsud
