How is the EU going to stop money laundering and terrorist financing?

EU Commission steps up fight against money laundering and terrorist financing- Questions and Answers

Money laundering is a difficult crime to detect. Its consequences can have a severe impact on the EU’s economy and on its financial system. Therefore, the EU needs to have a multi-faceted approach to properly tackle money laundering and terrorist financing. Action is needed on several levels.

This is why the Commission has today put forward a series of measures aimed at closing any loopholes or weak links in the EU’s anti-money laundering rules.

Today’s Action Plan is built on six pillars, each of which is aimed at improving the EU’s overall fight against money laundering and terrorist financing, as well as strengthening the EU’s global role in this area. When combined, these six pillars will ensure that EU rules are more harmonised and therefore more effective. The rules will be better supervised and there will be better coordination between Member States’ authorities.

The six pillars are as follows:

• Effective application of EU rules: the Commission will continue to monitor closely the implementation of EU rules by Member States to ensure that the national rules are in line with the highest possible standards. In parallel, today’s Action Plan encourages the European Banking Authority (EBA) to make full use of its new powers to tackle money laundering and terrorist financing.

• A single EU rulebook: while current EU rules are far-reaching and effective, Member States tend to apply them in a wide variety of different manners. Diverging interpretations of the rules therefore lead to loopholes in our system, which can be exploited by criminals. To combat this, the Commission will propose a more harmonised set of rules in the first quarter of 2021.

• EU-level supervision: currently it is up to each Member State to individually supervise EU rules in this area and as a result, gaps can develop in how the rules are supervised. In the first quarter of 2021, the Commission will propose to set up an EU-level supervisor.

• A coordination and support mechanism for Member States’ Financial Intelligence Units:Financial Intelligence Units in Member States play a critical role in identifying transactions and activities that could be linked to criminal activities. In the first quarter of 2021, the Commission will propose to establish an EU mechanism to help further coordinate and support the work of these units.

• Enforcing EU-level criminal law provisions and information exchange: Judicial and police cooperation, on the basis of EU instruments and institutional arrangements, is essential to ensure the proper exchange of information.The private sector can also play a role in fighting money laundering and terrorist financing. The Commission will issue guidance on the role of public-private partnerships to clarify and enhance data sharing.

• The EU’s global role: the EU is actively involved within the Financial Action Task Force (FATF) and on the world stage in shaping international standards in the fight against money laundering and terrorist financing. We are determined to step up our efforts so that we act as a single global actor in this area. In particular, the EU will adjust its approach to third countries with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes that pose significant threats to our Single Market. The new methodology issued alongside this Action Plan today provides the EU with the necessary tools to do so. Pending the entry into force of this revised methodology, today’s updated EU list ensures better alignment with the latest FATF (Financial Action Task Force) list.

What about the effective implementation of current EU rules?

The Commission closely monitors the implementation of all EU rules in its Member States. For example, infringement proceedings were opened in February 2020 against all those Member States that failed to notify transposition of the 5th Anti-Money Laundering Directive.

In parallel, we continue to verify that Member States have fully and correctly transposed the 4th Anti-Money Laundering Directive. The Commission has also started checking how Member States are implementing this Directive in practice. This is done in the context of the European Semester cycle. The Commission has also contracted a study by the Council of Europe, which has extensive experience in such checks. This study will feed into the report on effectiveness that the Commission is required to submit by 2022 under the Anti-Money Laundering Directive.

The Commission expects the European Banking Authority (EBA) to use its new powers to improve the effectiveness of supervisory action in the financial sector by conducting on-site examinations to assess AML framework across the EU.

Will this Action Plan lead to a new Regulation? What rules will be harmonised in the future?

This will be subject to a thorough analysis to ensure that we reach as high a level of harmonisation as possible. Current EU rules do function but Member States tend to apply them in a wide variety of different manners. Diverging interpretations of EU law therefore lead to loopholes in our system, which can be exploited by criminals. To combat this, the Commission will propose a more harmonised set of rules in the first quarter of 2021.

A number of areas where divergence should be minimised were highlighted, namely the list of obliged entities, customer due diligence requirements, internal controls, and reporting obligations.

Is current supervision sufficient or should an Agency at EU level be created?

Following recent EU reforms, the European Banking Authority (EBA) has been empowered to act quickly and decisively in the fight against money laundering and terrorist financing. It is now equipped with concrete tools to ensure the exchange of information between anti-money laundering and financial supervisors.

The latest amendments of the Anti-Money Laundering Directive also give national authorities more powers to act where banks, or financial and non-financial entities, breach their anti-money laundering obligations. These amendments also improve the exchange of information between authorities.

Nevertheless, as outlined in a Commission Report on the assessment of recent alleged money laundering cases, some structural weaknesses in the EU’s anti-money laundering framework persist, even after all the new measures have been fully implemented.

These weaknesses may endanger the security and reputation of the EU’s financial system. Therefore, it is essential that the EU’s anti-money laundering rules can also be supervised at an EU level.

The role and scope of this EU-level supervision – as well as the supervisory body that should be tasked with carrying out this role – will be proposed following a thorough assessment of all options, also based on the feedback we will receive in the open public consultation launched today.

The EU-level supervisor will be established as part of a comprehensive new policy to fight money laundering and terrorist financing. The Commission has set the political objective to achieve this within this mandate, and we count on the support of the European Parliament and the Council to ensure that the legislative work will progress as swiftly as possible.

Will all operators be supervised by this EU-level supervisor?

This matter will be thoroughly analysed. As the Action Plan notes, there are several options regarding the scope of EU-level supervision, ranging from a narrow to a broad scope.

Each of these options has pros and cons, and the Commission’s proposal will be based on a careful assessment of all options, also based on the feedback we will receive in the open public consultation launched today, ensuring that the future supervisory framework is of the highest quality and leaves no weak links nor loopholes in the system.

What about the national Financial Intelligence Units (FIU)?

Financial Intelligence Units(FIUs)in Member States play an important role in identifying transactions and activities that could be linked to criminal activities. However, several technical difficulties in the functioning of the secure communication channels (FIU.net) have created difficulties.

Several Financial Intelligence Units fail to comply with their obligation to exchange information with other Financial Intelligence Units. In addition, some Financial Intelligence Units have not managed to engage in a meaningful dialogue by giving quality feedback to private entities, as required by the Anti-Money laundering Directive. The Action Plan sets the ground for the creation of an EU support and coordination mechanism for these Units.

The aim of this mechanism is to remedy the weaknesses that were identified in how Financial Intelligence Units work. This support and coordination mechanism would support cross-border cooperation and analysis. It would also streamline how information is exchanged between Member States’ FIUs and the FIUs of third countries. Finally, this support mechanism will operate as the host and as a secure communication channel for the FIU.net.

The private sector can play a critical role in fighting money laundering and terrorist financing. What will the Commission do to support its involvement?

Private operators are the gatekeepers of our financial system and our economy. They are the first ones to detect whether a transaction or activity might be suspicious. With their day-to-day experience, they can certainly contribute to fighting money launderers and those who fund terrorist activities.

The Commission fully recognises the benefits of the public and the private sector working together in this area. At the same time, it is important that these partnerships develop in a sound manner. To this end, the Commission will issue guidance, including sharing of good practices, and will consider whether to request the opinion of the European Data Protection Board in this work.

Will the list of private operators subject to anti-money laundering/terrorist financing requirements be expanded?

We will analyse whether the current scope of operators subject to these rules is adequate. Recent reviews of international standards suggest that, as a minimum, virtual asset service providers should be requested to comply withthe relevant rules.

This is also an area where we can learn from Member States’ experiences. Some countries have expanded the list of professionals subject to these rules to include, for example, crowdfunding platforms. All these examples should be analysed, also based on the feedback we will receive in the open public consultation launched today, to arrive at a harmonised list of obliged entities.

Daniel FERRIE