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Finanstilsynet explains European Commission AML proposal

Status of the EU money laundering package

On 20 July 2021, the European Commission made a comprehensive proposal for a new money laundering package. Negotiations between the EU countries on the proposal are now well under way. This newsletter describes the proposal and expectations for the future process. At the end of the newsletter you will find links to where you can read more about the proposal and the process.

Why was the proposal made?

According to the Commission, Europol estimates that around one per cent. of the EU’s annual economic activity (GDP) is linked to suspicious financial activities. This corresponds to approx. a trillion kroner. Not least because of this, there is a need for strong efforts to prevent and combat money laundering and terrorist financing. 

At the same time, the Commission states that the measures must be seen in the light of a number of money laundering cases that have involved credit institutions in EU countries in recent years. In July 2019, the Commission published an analysis of a number of these cases. It was the so-called “post-mortem” analysis. See the link to this at the bottom of the newsletter. 

The new package will strengthen the EU’s efforts to prevent and combat money laundering and terrorist financing. There are already common EU rules in this area, but the Commission’s new proposal not least entails increased harmonization of the rules, so that we in the EU have stronger and more harmonized standards for the prevention and combating of money laundering and terrorist financing. The common set of rules is collectively referred to as a so-called EU single rulebook. 

At the same time, the proposal must ensure that EU rules are fully in line with international standards. International standards are not least the standards adopted by the International Anti-Money Laundering Organization, FATF. Denmark is a member of the FATF. There is a link to FATF standards at the end of the newsletter.

The Commission states that the overall purpose of the overall money laundering package is to address three specific issues: 

  1. lack of clear and consistent rules in the field of money laundering, including due to the unequal implementation of EU rules by EU countries; 
  2. inconsistent supervision across the internal market and insufficient coordination between national regulatory authorities in cross-border cases;
  3. insufficient coordination and exchange of information between national financial intelligence units (FIUs) and between the FIUs and the national money laundering authorities, inter alia; due to a lack of central FIU coordination authority at EU level.

What does the package contain?

The package contains proposals for a total of four new acts (EU bill):

  1. Proposal for a new regulation on a common EU money laundering authority, AMLA
  2. Proposal for a new money laundering regulation
  3. Proposal for a new Money Laundering Directive
  4. Proposal to amend the Money Transfer Regulation.

Proposal for the establishment of a Joint Anti-Money Laundering Authority (AMLA) through a separate regulation The

purpose of the proposal is to establish a new Joint EU Money Laundering Authority. 

The specific tasks for the authority will be:

  • to prevent the use of the EU financial system for money laundering and terrorist financing
  • to identify and assess risks of money laundering and terrorist financing across the internal market and the risks and threats to the EU that arise outside the EU;
  • to ensure high-quality money laundering supervision across the EU by imposing uniform requirements
  • to contribute to the uniformity of national money laundering supervision in EU countries where it is needed
  • to contribute to the harmonization of, on the one hand, how cross-border suspicious transactions are detected and, on the other hand, the activities of FIUs to support and coordinate the exchange of information between FIUs and between FIUs and other competent authorities.

The authority thus becomes a key element in a more integrated European money laundering supervision system. It must consist of the authority itself and the national money laundering supervisory authorities, in Denmark not least the Danish Financial Supervisory Authority, but also the other supervisory authorities in the area (in Denmark it is the Danish Business Authority, the Danish Gaming Authority and the Bar Council). 

The authority itself must directly supervise the largest and most complex credit institutions. This must be done with the involvement of the national regulatory authorities. It has not yet been determined which credit institutions will be involved, but it will, among other things, could be credit institutions established in seven or more EU countries. 

At the same time, the authority must carry out indirect supervision of the entities that are not subject to direct supervision by the authority. Among other things, it will This is done by the authority coordinating and following the money laundering supervision of national authorities and thus supervising the national supervisory authorities. 

The authority, like the national money laundering authorities, must supervise and function on the basis of the proposal for a new money laundering regulation and the proposal for a new money laundering directive, cf. below. 

2. Proposal for a new money laundering regulation (“Anti-Money Laundering Regulation” – AMLR – “single rule book”) 

Parts of the existing money laundering directives need to be transposed into a regulation. Unlike a directive, a regulation has a direct effect in the EU countries and therefore basically implies a higher degree of harmonization. 

The proposal for the Money Laundering Ordinance generally sets out the requirements for the obliged units’ customer knowledge, etc., requirements for transparency of real owners in companies and foundations, etc. as well as measures to limit the use of bearer shares and cash. 

The proposal contains a number of provisions from the two current money laundering directives (ie the 4th and 5th money laundering directives), and a number of new provisions. Among other things, more specific requirements for the customer knowledge and customer monitoring that the required units must carry out.

The new provisions aim to increase harmonization and uniform enforcement of EU rules. The Regulation also empowers the new anti-money laundering supervisory authority to lay down detailed rules in a number of areas, including the obliged entities. Proposal for a new Money Laundering Directive (AMLD6)  

The 

proposal for a new directive – the sixth in a row, hence the abbreviation – is largely based on the two current money laundering directives. However, the new directive contains significant new requirements. Among the new requirements are the following:  

  • Detailed requirements for the content of supranational (ie pan-European) and national risk assessments of money laundering and terrorist financing. 
  • Reporting data to the EU Money Laundering Authority; it is the national supervisory authorities that have to make reports of supervisory data.
  • Suitability and integrity requirements for management members and beneficial owners. This means, among other things, that the supervisory authorities must regularly ensure that the requirements for the suitability and integrity of the members of the management of obliged units are met. In addition, the supervisory authorities must be able to remove a person from management who has been convicted of money laundering or who is not deemed suitable or honorable.
  • Register of beneficial owners with a number of additional requirements to the already existing requirements.
  • Separation of a number of existing rules in the directives as a result of the proposal for a new regulation in the field of money laundering.

4. Proposal to amend the Money Transfer

Regulation The proposal is intended to extend the scope of the Money Transfer Regulation to include transfers of cryptocurrencies made by providers of cryptocurrencies (so-called CASPs). The proposal must implement a recommendation from the FATF in EU legislation. 

What will be the implications of the proposals for the committed entities?

These are proposals made by the Commission, which are now being negotiated by the EU countries in the Council, cf. below on the further process. During the negotiations, the proposal may undergo various changes, and this may, of course, mean that the consequences outlined below will be different. 

The proposals can have both financial and administrative consequences for business and the public sector in the form of the supervisory authorities. This is partly due to increased requirements for internal policies, business procedures and controls for the obliged units. The burdens can particularly affect small businesses, which today in practice often have less extensive policies, business procedures and controls.

The Government’s detailed position on the proposals is reviewed in the so-called Basic and Subsidiarity Memorandum. There is a link to this at the end of the newsletter. One of the government’s main priorities is that companies and authorities must be able to use new technology to a much greater extent in the work of preventing and combating money laundering and terrorist financing. This should streamline efforts, but it should also ease the burden on businesses.

What will be the consequences for the companies’ customers?

The proposal does not entail direct requirements for customers. So it is with the rules today. However, through the obligations imposed on companies, customers may find that companies find it necessary to obtain more information about customers than they do today. 

What is the further process of the proposal?

The proposal for the package was presented by the Commission on 20 July 2021. EU countries are currently negotiating the proposals in a Council working group. When there is agreement in the Council working group, the Council, the European Parliament and the Commission must agree. Only then can the proposal be finally adopted. See link below on the EU decision-making process. 

On the basis of the plans available from i.a. the French Presidency, the Danish Financial Supervisory Authority currently assumes that the negotiations in the Council can be concluded as early as 2022 – at least for parts of the package. However, the subsequent negotiations with the European Parliament mean that a final agreement will hardly be possible before 2023.

The Commission has proposed that the rules enter into force three years after their adoption. The somewhat long deadline is due to the fact that the new European Money Laundering Authority, the AMLA, must have time to draw up a number of detailed rules, so-called regulatory technical standards, which are a kind of executive orders or administrative acts, and that all rules must be in place, so that they can take effect at the same time. 

The Danish FSA therefore estimates that the overall set of rules will enter into force at the earliest around the turn of the year 2025/26.

When the entire package has been negotiated, the directive part must be implemented in Danish law. Regulations are directly applicable in Danish law. The Danish FSA expects that it will be necessary to rewrite the Money Laundering Act when the directive is to be implemented. Work on this will begin as soon as the directive is adopted.

If you want to know more:

Through these links you can read more about i.a. the proposals and the background to them:

1. Background to the Commission’s proposals:
Anti-money laundering and countering the financing of terrorism legislative package | European Commission (europa.eu)

2. The Danish language versions of the proposals:
i. The AMLA Regulation: resource.html (europa.eu) and resource.html (europa.eu)
ii. Money Laundering Regulation: resource.html (europa.eu) and resource.html (europa.eu)
iii. Money Laundering Directive resource.html (europa.eu) and resource.html (europa.eu)
iv. The Money Transfer Regulation:resource.html (europa.eu) and resource.html (europa.eu)

3. briefing of the Parliament’s Europe Committee on the proposals:
i. The Government’s Basic and Subsidiarity Note on the AMLA Regulation ( COM (2021) 0421 – Appendix 1: Basic and proximity note on new EU money laundering authority)
ii. Government Basic and Subsidiarity Memorandum on the remaining parts of the money laundering package ( COM (2021) 0422 – Appendix 1: Basic and Subsidiarity Memorandum on the Money Laundering Ordinance, the Money Transfer Ordinance and the Money Laundering Directive (eu.dk))
iii. See also overall summary of the package from the Folketing’s Europe Committee: EU note – 2021-22 – E 4: The Commission’s package for combating money laundering (ft.dk)

4. EU decision-making process:
Legislation (europa.eu)

5. Existing legislation in Denmark in the area of money laundering:
Rules for money laundering (finanstilsynet.dk)

6. Financial Action Task Force ‘(FATF) standards:
Documents – Financial Action Task Force (FATF) (fatf -gafi.org)

7. The Danish FSA’s report on increased use of technology in the area of money laundering (AML / TEK).
Seven bids for strengthening the fight against money laundering (finanstilsynet.dk)

8. The Commission’s post-mortem analysis:
https://ec.europa.eu/info/sites/info/files/report_assessing_recent_alleged_money-laundering_cases_involving_eu_credit_institutions.pdf.

Link:

Finanstilsynet Notice

Categories: Anti-Money Laundering European Commission (EC) Updates Legislative & regulatory drafts and proposals

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