What are the latest updates on EU Regulation on AML? Following years of legislative deliberation, the European Commission (EC) unveiled on 20 July 2021 a suite of legislative proposals designed to fortify the European Union’s (EU) Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) regulations.
This package comprised the Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLAR), the Directive on the mechanisms to be implemented by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (6AMLD), the Regulation establishing the European Anti-money Laundering Authority (AMLA), as well as the amended Regulation on information accompanying the transfer of funds and certain crypto-assets.
The European Parliament (EP) has already reached a political consensus on these legislative instruments, poised to exert significant influence on financial service providers within the EU and other entities bound by these obligations.
What is EMLA?
EU Regulation on AML
On 22 February 2024, the EP in conjunction with the EU Council declared Frankfurt as the headquarters of the European Anti-money Laundering Authority (EMLA). This Authority assumes a pivotal role in ensuring consistent supervisory standards among EU Member States. Central to its mandate is the formulation of instruments and convergence tools aimed at fostering uniform supervisory methodologies and practices.
Direct and indirect supervision of selected obliged entities
The EMLA mandates direct supervision of high-risk financial entities. Initially, the EMLA will designate 40 Selected Obliged Entities for direct oversight. These entities must pose a high risk of AML and CFT in at least six Member States, with representation from each Member State on the list. Notably, the EMLA extends the concept of presence beyond establishment to encompass entities offering services, known as passport rights. Nevertheless, specific activities under the provision of services are yet to be determined and delineated by technical standards.
In contrast, indirect supervision, applicable to obliged entities other than the Selected Obliged Entities, will remain within the purview of Member States. The EMLA is empowered to arbitrate disputes between supervisory colleges operating across borders. Its envisioned role is to act as a central hub for harmonising regulatory efforts across diverse EU jurisdictions, promoting uniformity in supervisory approaches. Additionally, it aims to mediate and resolve conflicts among domestic authorities. In instances where supervisory reviews are conducted jointly by multiple Member States, the EMLA will publish a report outlining the outcomes of these collective assessments.
Rules and Guidance
EMLA is vested with general authority to enact technical standards. Supplementary regulations will be introduced to prevent circumvention of targeted financial sanctions, with the EMLA overseeing compliance by obliged entities.
Financial Intelligence Units (FIUs)
EU Regulation on AML
A core responsibility the EMLA undertakes is to assist Financial Intelligence Units (FIUs) in analysing suspicious transactions and detecting instances of AML. Accordingly, it is tasked with implementing technical standards, adopting binding templates, and devising various models for reporting suspicious transactions and activities from obliged entities to FIUs. Furthermore, joint analyses organised by the EMLA will oversee cross-border suspicious transactions, facilitate communication networks between FIUs, and conduct reviews to enhance their efficacy.
The EMLA’s General Powers
EU Regulation on AML
In the realm of direct supervision, the EMLA has considerable empowerment. It can, for instance, issue binding decisions, as well as administrative sanctions and pecuniary penalties against directly supervised Selected Obliged Entities. It also enjoys full authority in imposing fines up to 10% of an entity’s total turnover with administrative sanctions. (Or €10 million, whichever is greater).
Regarding reporting mechanisms, a dedicated channel akin to the Whistleblower Directive will be established to address breaches as they occur. Moreover, all AML-related competencies will be transferred to EMLA. The AMLA Regulation also stipulates that EMLA may establish cross-border partnerships for information sharing, enabling Member States to exchange complementary information about certain customers.
6AMLD
Strengthening the existing AML framework
The 6AMLD introduces provisions for organising institutional AML/CFT systems at Member State level. A key aspect of 6AMLD is the harmonisation of what constitutes a money laundering offence across the EU.
Accordingly, the 6AMLD enumerates 22 predicate offences constituting ML, encompassing cyber crime ML, certain tax crimes, and other environmental crimes. It broadens the scope of offences falling under the definition of ML to include “aiding and abetting”. Furthermore, the 6AMLD will regulate cooperation between competent authorities, as well as the establishment and access to beneficial ownership information, real estate, and bank accounts.
Sanctions and Penalties
Under the 6AMLD, both natural and legal persons (such as companies/partnerships) are subject to penalties for ML activities. Penalties include exclusion from public benefits or aids, disqualification from commercial activity, judicial supervision, winding-up orders, asset freezing and confiscation, closure of establishments, as well as denial of access to public funding (including grants and subsidies), in addition to the existing imprisonment penalties. Notably, prison sentences have been extended to a maximum of 4 years. Member States retain the discretion to impose additional sanctions or measures as deemed necessary.
Cross-Border Cooperation
The 6AMLD introduces specific provisions regarding the sharing of information requirements between jurisdictions in cases of dual criminality, enabling prosecution in multiple Member States.
Subject Persons
Subject Persons must ensure the effectiveness of their internal governance and monitoring frameworks. Additionally, training must be provided to employees within these entities.
FIU Responsibilities
Under the 6AMLD, FIUs are granted immediate and direct access to financial, administrative, and law enforcement information, including tax information, frozen assets pursuant to targeted financial sanctions, fund transfers, national vehicle registrations, national weapons and arms registries, crypto transfers, aircraft and watercraft registrations, and registered customs data, among others. FIUs will continue to disseminate information to competent authorities and collaborate more closely with cross-border counterparts. As per the provisions of 6AMLD, FIUs may suspend or withhold transactions to conduct analyses, assess suspicion levels, and disseminate findings to relevant authorities.
With regard to suspension powers at the local level, FIUs are authorized to suspend or withhold consent to transactions for 10 working days, as well as suspend the use of bank accounts or crypto accounts for no more than 5 days.
Supervisors
The 6AMLD delineates the tasks and responsibilities of supervisory and other authorities. Member States are obligated to ensure that all obliged entities within their jurisdiction are subject to adequate and effective supervision by one or more supervisory authorities applying a risk-based approach. These authorities are required to report suspicions to FIUs.
Risk Assessment
The EC will conduct an EU-wide assessment of ML and CFT risks and issue recommendations to EU Member States on mitigative measures. Subsequently, Member States must conduct national risk assessments to address identified risks effectively.
AMLAR
Expanding the List of ‘Obliged Entities’
New entities are brought within the scope of the AMLAR, including dealers in precious metals and stones, dealers in high-value goods, credit or mortgage intermediaries (not classified as credit institutions), and investment migration operators facilitating third-country nationals’ acquisition of residence rights in exchange for investments. The list of obliged entities also expands to include crypto-asset service providers (CASPs). These must implement customer due diligence measures for transactions exceeding €1000. The provisional agreement acknowledges the high-risk nature of the football sector, extending obligations to professional football clubs and agents.
Cash Payments
The EU-wide maximum limit of €10,000 is established for cash payments. However, EU Member States retain the discretion to impose a lower maximum limit if desired. Furthermore, obliged entities must identify and verify individuals’ identity conducting occasional transactions in cash ranging between €3,000-€10,000.
Beneficial Ownership
Regarding Beneficial Ownership (BO), the Regulation stipulates that BO encompasses two components. The first is ownership and the second, control. Both elements are subject to thorough analysis to ascertain an entities’ BOs across various entity types. These include non-EU entities conducting business activities in the EU or acquiring real estate in the EU. Consequently, the threshold for BO ownership is set at 25%.
High-risk Third countries
Obliged entities are mandated to implement enhanced due diligence measures for occasional transactions in business relationships involving high-risk third countries whose deficiencies in their national AML and CFT regimes pose a threat to the internal market. In instances where the risk level is deemed high, it may necessitate the adoption of additional specific EU or national countermeasures. Depending on the case, either at the level of obliged entities or within the Member States themselves.
Conclusion
EU Regulation on AML
The EU’s latest AML regulations demonstrate a commitment to strengthening its financial system and ensuring consistent supervisory standards. The EMLA will play a crucial role in coordinating AML/CFT efforts, directly supervising high-risk entities, and assisting Financial Intelligence Units.
The expanded scope of obliged entities, harmonised money laundering offences, and enhanced cooperation mechanisms strengthen the EU’s ability to combat financial crimes. As the regulations are refined and implemented, financial service providers must adapt to the evolving compliance landscape to safeguard the integrity of the European financial system. If you are seeking Legal & IT support to get ready for any of the regulations above and become compliant, contact us today!
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