Beating financial crime – European Commission presents comprehensive package of AML/CFT legislation
In May 2020, we wrote about the European Commission’s (EC) ambitious plans to tackle money laundering and terrorist financing (AML/CFT) even more rigorously at the European Union (EU) level. These plans have now taken concrete form. The EC presented four legislative proposals on 20 July 2021:
- A proposal for a regulation establishing a new European AML/CFT Authority;
- A proposal for an AML/CFT regulation;
- A proposal for a sixth anti-money laundering directive, which will replace the existing fourth anti-money laundering directive (as amended by the fifth anti-money laundering directive); and
- A proposal for revision of the regulation on information accompanying transfers of funds.
This package of legislative proposals, if adopted by the Council and the European Parliament, will lead to significant changes in the European AML/CFT landscape. Below, we will briefly touch upon a number of salient elements per legislative proposal.
AMLA Regulation – European AML/CFT Authority
In the most extensive of the four proposals (no less than 121 pages), the EC proposes to establish a new European AML/CFT Authority (AMLA). Based on the proposed AMLA regulation, the AMLA must be established as of 1 January 2023 and focus (among other things) on:
- the coordination of supervision by national supervisors and investigations by national FIUs;
- exercising direct AML/CFT supervision on selected financial institutions (certain institutions with a high inherent risk profile and operating in several Member States);
- exercising indirect AML/CFT supervision of non-selected institutions; and
- issuing guidelines to ensure uniform application of AML/CFT rules in the EU.
The proposed AMLA regulation provides for far-reaching investigation and enforcement powers for the AMLA. The activities of the AMLA are to be funded on the one hand from the EU budget and on the other from the fees that selected and certain non-selected institutions will be required to pay to AMLA each year.
AML/CFT regulation – inter alia rules for CDD
Secondly, the EC is introducing an AML/CFT regulation. This proposed regulation sets out the requirements for customer due diligence (CDD), the outsourcing of AML/CFT tasks, business-wide risk assessment, the compliance function and the reporting of suspicious transactions to the FIU. These requirements currently largely follow from the fourth anti-money laundering directive (AMLD4) as amended by the fifth anti-money laundering directive (AMLD5). The AML/CFT regulation will therefore become the primary source of legislation for institutions subject to AML/CFT supervision in the future.
Another salient obligation of the proposed AML/CFT Regulation is the prohibition for traders to accept more than EUR 10,000 in cash. Member States will be allowed to set this threshold at a lower amount. In the Netherlands, a proposal for a threshold of EUR 3,000 is being prepared. See also our earlier post on this subject.
The EC proposes that the AML/CFT regulation should also apply to ‘crypto-asset service providers’ as referred to in the proposed MiCA Regulation. This means that in the future a large part of the European crypto sector will fall under AML/CFT supervision (at this moment - at least in the Netherlands – only providers of custodial wallets and providers of services for the exchange between fiat currencies and virtual currencies are subject to AML/CFT supervision).
If the AML/CFT regulation enters into force at any time, this will mean that many provisions of the Dutch Money Laundering and Terrorist Financing (Prevention) Act will lapse. After all, a regulation is directly applicable in all EU Member States. It will be interesting to see what this will mean for Dutch phenomena such as the objective reporting indicators and the relatively low threshold for reporting transactions to the FIU based on the subjective indicator.
Sixth anti-money laundering directive – inter alia rules for enforcement by national supervisors
Thirdly, the EC proposes a sixth anti-money laundering directive (AMLD6). This directive, which unlike the AML/CFT regulation must first be implemented in the Netherlands, is intended to replace AMLD4/5. Based on the proposed AMLD6, Member States may in the future propose to the EC to also place sectors other than those mentioned in the AML/CFT regulation under AML/CFT supervision in their country. In addition, Member States will have to perform a national AML/CFT risk assessment at least every four years (in the Netherlands this is currently every two years). Furthermore, the provisions from AMLD4/5 regarding the UBO register and the register for IBAN bank accounts and safe deposit boxes, and the access to these, are taken over in AMLD6 with some additions. Furthermore, the investigation powers and enforcement possibilities of and cooperation between national supervisors are set out in this proposal.
Extension of regulation on information accompanying transfers of funds to crypto-assets
Lastly, the EC is presenting a proposed revision of the regulation on information accompanying transfers of funds. As a result of this revision, the scope of the regulation will be extended to cover transfers of crypto-assets where a crypto-asset service provider, as referred to in the proposed MiCA Regulation, is involved. This means that crypto-asset service providers of the originator must ensure that transfers of crypto-assets are accompanied by information on the originator and the beneficiary, whereas crypto-asset service providers of the beneficiary must implement effective procedures to detect whether the information on the originator and beneficiary is included in, or follows, the transfer of crypto-assets.
We are curious to see how this will work out in practice.
The comprehensive package of proposals will be assessed by the Council and the European Parliament in the coming period. In any case, given the application dates proposed by the EC, it will be several years before most of the proposed measures will enter into force, i.e. by the end of 2024 at the earliest. For example, the EC aims for the AMLA to become operational in 2024.