In a notable advancement aimed at protecting the rights of European Union (EU) citizens and fortifying the integrity of the EU's financial system, the Council and European Parliament successfully reached a provisional agreement on key elements of the anti-money laundering package on January 18, 2024. This comprehensive set of measures was initially announced in July 2021.
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1. AMLR - The EU Single Rule Book 2. The 6th AML Directive 3. EU Anti-Money Laundering Authority (AMLA) |
Three key pieces of legislation included:
Vincent Van Peteghem, the Belgian Minister of Finance, emphasised the paramount significance of this accord, highlighting its pivotal role in thwarting fraudsters, organised crime, and terrorists from legitimizing illicit proceeds through the financial system.
This innovative package represents a strategic shift by consolidating all regulations related to the private sector into a new regulation. Meanwhile, the directive will focus on structuring institutional AML/CFT (Countering the Financing of Terrorism) systems at the national level across member states.
The following offers a brief overview of the legislation, with more detailed information anticipated soon once the full legal texts are published. This includes key elements highlighted in the Council press released:
Anti-money laundering regulation (AMLR)
Expanding the AML Regulatory Umbrella:
The provisional agreement significantly broadens the scope of the anti-money laundering regulated sector, incorporating new entities within its purview. Notably, the crypto sector will now face thorough scrutiny, mandating all crypto-asset service providers (CASPs) to conduct due diligence on transactions > exceeding €1000. This move is aimed at reinforcing vigilance and mitigating risks associated with transactions involving self-hosted wallets.
Also stepping into the spotlight are traders dealing in luxury goods, including precious metals and stones, jewellers, horologists, goldsmiths, and even dealers of high-end assets like cars, airplanes, yachts, and cultural goods.
Furthermore, the provisional agreement recognises the heightened risk in the football sector and extends the list of obligated entities to include professional football clubs and agents. However, recognising the sector's variability in risk levels, member states retain the flexibility to remove them from the list if they pose a low risk. The rules will come into effect after a longer transition period, kicking in 5 years after entry into force, as opposed to the three years applicable to other obligated entities.
Obliged Entities as Gatekeepers:
Within the AML/CTF framework, obliged entities, including financial institutions, banks, real estate agencies, asset management services, casinos, and merchants, serve as crucial gatekeepers. Their unique position endows them with the ability to identify suspicious activities and act as a bulwark against money laundering and terrorist financing.
Enhanced Due Diligence Measures:
In an effort to reinforce the integrity of cross-border correspondent relationships for crypto-asset service providers, the Council and Parliament have introduced specific measures for enhanced due diligence. Negotiators have also instituted heightened vigilance for ultra-high-net-worth individuals (individuals with a total wealth of at least 50 million euros, excluding their primary residence), designating them with an elevated risk profile. This scrutiny extends to entities offering personalised wealth management services to such individuals, including banks, investment firms, and funds. A consensus has been reached on implementing a 5-million-euro threshold for assets under management.
The question may arise: How might the omission of enhanced due diligence measures be perceived in terms of its impact, and are we heading into an era where there's a greater emphasis on meticulous examination and scrutiny? In fact, neglecting these regulations could be viewed as a risky oversight with potential consequences, given the increasing complexity of business landscapes and the evolving regulatory environment.
As we move forward, there seems to be a growing trend toward a heightened emphasis on meticulous examination and scrutiny, reflecting a collective recognition of the importance of thorough due diligence in mitigating risks and ensuring the integrity of business transactions.
Cash Payments: EU limit o large cash payments of 10 000 euro
To curb money laundering, an EU-wide maximum limit of €10,000 for cash payments has been set. Member states have the flexibility to impose a lower maximum limit if deemed necessary. Obligated entities must identify and verify the identity of individuals conducting occasional transactions in cash ranging from €3,000 to €10,000. Will this deter money launderers effectively? Time will show.
Beneficial Ownership Threshold:
The provisional agreement strives for more harmonised and transparent rules on beneficial ownership. This includes an expanded scope, covering ownership and control components. Notably, foreign entities with real estate holdings will now be subject to retroactive registration of beneficial ownership, dating back to January 1, 2014.
The EU parliament and the EU Commission both agree that beneficialownership means holding a minimum of 25% of shares, or voting rights, or other direct or indirect ownership interest, calculated at each level of the value chain, along with control or indirect control of an entity. However, the details of the new threshold are yet to be clarified, given the limited information in the press release. We eagerly await to see how this will be transposed in member countries. For a concise overview, please refer to our latest article published in Mondaq for ease of reference: "AMLA - The New Guardian in The Fight Against Money Laundering".
It is worth noting that there was a discussion of lowering this threshold, with MEP's initially considering a 15 % threshold. However, the final decision maintains the basic percentage threshold for ownership at 25%.
How will this redefine transparency and accountability in ownership structures? What impact will this have on combating hidden ownership?
Related rules pertaining to multi-layered ownership and control structures are also clarified to ensure that concealing ownership through multiple layers of companies will no longer be effective. Simultaneously, provisions regarding data protection and record retention are clarified, streamlining the efforts of competent authorities and expediting their work.
High-Risk Third Countries:
The Commission will assess the risk based on Financial Action Task Force (FATF) listings, justifying additional specific countermeasures for high-risk third countries. Furthermore, the high level of risk will justify the application of additional specific EU or national countermeasures, whether at the level of obligated entities or by the member states.
Anti-money laundering directive (AMLD6)
AML Directives and Beneficial ownership registers. What's new?
The directive introduces novel elements, placing a strong emphasis on verifying information submitted to central registers. Entities associated with individuals under financial sanctions must be flagged on interconnected registers. The Beneficial Ownership Register Interconnection System ('BORIS') is one such tool for linking national central registers.
Access to the UBO register: Are we entering a new era of information accessibility?
Persons from the public with a legitimate interest, including the press and civil society, can now access the registers. Referring to the initial decision by MEPs in March 2023, it was agreed that in accordance with the latest Court of Justice ruling, individuals with legitimate interest, such as journalists, reporters, other media representatives, civil society organisations, and higher education institutions, should have the right to access the register. Further clarifications on access will be provided at a later stage.
The responsibilities of FIUs
According to the agreement, Financial Intelligence Units (FIUs) will have immediate and direct access to a range of information, encompassing financial, administrative and law enforcement data. This includes tax information, details on frozen funds and other assets pursuant to targeted financial sanctions, data on fund transfers and crypto-transfers, national motor vehicles, aircraft and watercraft registers, customs data, and national weapons and arms registers, among others.
The agreement establishes a robust framework for FIUs, granting them the authority to suspend or withhold consent to a transaction, to conduct thorough analyses.
EU Anti-Money Laundering Authority (AMLA)
AML Authority (AMLA) Update: How will AMLA reshape the supervisory landscape? Are we witnessing a paradigm shift in financial regulation?
The recent statement of the Council of the EU on December 13, 2023, provides insights into the preliminary agreement outlining AMLA's structure. AMLA will comprise a general board, with representatives from supervisory bodies and FIUs across all member states. Additionally, an executive board, serving as AMLA's governing body, will include the Authority's chair and five independent full-time members.
Nine Member States, namely Brussels, Frankfurt, Dublin, Madrid, Paris, Rome, Riga, Vilnius, and Vienna, have expressed interest in hosting AMLA. The Commission is set to evaluate these applications and present its findings by the end of January 2024. We eagerly await the announcement of the successful host.
AMLA Supervision: Direct supervision up to 40 firms. The EU's comments on the preliminary agreement indicate that AMLA's supervisory powers will extend to crypto asset service providers, aligning with the EU Markets in Crypto-Assets (MiCA) Regulation effective June 29, 2023. Although AMLA will directly supervise a limited number of financial entities, its primary impact will likely be indirect, influencing how national authorities oversee financial institutions in the EU. AMLA is anticipated to finalise the list of Selected Obliged Entities by August 2025, with direct supervisory activities anticipated to commence by the end of 2026. The Commission aims to complete its initial evaluation of the AMLA's performance by the year 2030.
Future Outlook:
What transformative changes can we anticipate in the fight against money laundering and terrorism financing? What lies ahead in the EU's relentless pursuit of financial integrity?
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The upcoming steps revolve around finalising the location of AMLA, with assessments submitted by the Commission and hearings with applicant states scheduled. Upon resolution, the AMLR, AMLD 6, and AMLA Regulation will undergo formal approval, taking effect after publication in the Official Journal of the EU. While AMLD 6 implementation awaits national transposition, AMLA is gearing up for operationalisation, providing obligated entities with a transition period to align with the revamped EU AML framework.
Conclusion:
In conclusion, this provisional agreement marks a pivotal moment in the EU's battle against money laundering and terrorist financing. As these texts progress towards formal approval, the exhaustive harmonisation of rules across the EU signifies a robust regulatory framework. The agreement not only addresses existing loopholes but also sets a new standard for transparency, accountability, and diligence in the financial landscape. Are we witnessing the dawn of a new era in financial regulation? How will these measures resonate across the global financial community? Only time will reveal the profound impact of this monumental agreement.
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