On 17 January, the Council of the European Union (EU) and the European Parliament (EP) reached a provisional agreement on a new legislative package that aims to strengthen EU rules on money laundering (AML) and terrorist financing activities (CFT).
The Commission presented its AML/CFT legislative package on 20 July 2021, aiming to establish a new EU anti-money laundering authority (AMLA), recast the regulation on transfers of funds for crypto-assets transparency and traceability, and include regulations and directives on AML mechanisms and requirements for the private sector.
The agreed package includes a new Regulation setting forth a single AML and CFT rulebook (AMLR) and the sixth AML Directive. With these legislative changes and the establishment of the AMLA, the EU is on the verge of significantly reforming its AML and CTF frameworks.
Key Elements of the Political Agreement
The key elements of the package include harmonising rules, expanding the scope of obliged entities, enhancing due diligence measures, and setting cash payment limits, with which the EU seeks to mitigate risks of financial crimes through the established financial system.
The main elements of the political agreement – which is yet to be finalised in the coming weeks – reached between the Council and the Parliament are the following:
- Comprehensive Harmonization: The new AML regulation will harmonise rules across EU Member States, closing potential loopholes that criminals exploit to launder illicit funds and/or finance terrorism through the financial system.
- Obliged Entities Expansion: The regulation broadens the spectrum of obliged entities to include most of the crypto sector, compelling all crypto-asset service providers (CASPs) to perform due diligence on their customers and report suspicious activities. Other sectors included by this broadened scope are traders of luxury goods (such as precious metals and stones, luxury cars, yachts, artwork etc.) and the football sector, for both clubs and agents (though Member States will enjoy certain flexibility in the case of low-risk entities).
- Enhanced Due Diligence Measures: The regulation introduces specific enhanced due diligence measures for cross-border correspondent relationships for CASPs. Enhanced scrutiny will also apply to business relationships with very wealthy (high net-worth) individuals involving large asset handling.
- Cash Payment Limitations: An EU-wide maximum limit of €10,000 will be set for cash payments to hamper the laundering of dirty money. Obliged entities must identify and verify the identity of persons involved in occasional cash transactions between €3,000 and €10,000.
- Beneficial Ownership Transparency: The new framework aims to make the rules on beneficial ownership more harmonized and transparent, setting the beneficial ownership threshold at 25% and clarifying rules applicable to multi-layered ownership and control structures. The agreement also makes clear that beneficial ownership is based on two components: ownership and control. It also establishes a registration requirement for beneficial ownership of all foreign entities owning real estate, applying retroactively until 1 January 2014.
- High-Risk Third Countries: Enhanced due diligence measures will be mandatory for transactions and business relationships involving high-risk third countries identified as a threat to the EU’s internal market integrity. This assessment will be carried out on the Financial Action Task Force listings (FATF), and high-risk levels will merit the application of additional specific EU or national countermeasures.
FIU’s Enhanced Role
Already established financial intelligence units (FIUs) in the Member States will have immediate and direct access to financial, administrative, and law enforcement information, enhancing their ability to prevent, report, and combat money laundering and terrorist financing. FUIs will continue to circulate information to their respective competent authorities. When making decisions, FIUs must apply and consider fundamental rights and will have the ability to suspend or withhold consent to a transaction.
The agreement mandates effective supervision of all obliged entities within Member States’ territories. Supervisors will report instances of suspicions to FIUs and adopt a risk-based approach in their operations. New supervisory measures for the non-financial sector (so-called supervisory colleges) will also be introduced.
Both the EU and Member States will conduct risk assessments at their respective levels, with the Commission making recommendations to Member States based on these assessments.
To complete the overhaul of the EU’s AML package, the EU needs to decide on the location of the AMLA. So far, nine Member States have submitted applications to host the institution, and the final decision is scheduled to be made jointly by the EP and the Council by 30 January 2024.
With respect to the political agreement, the finalized texts of the agreement will be presented to Member States representatives and the EP for approval, before formal adoption and publication.