AML in the EU: Progress on Regulatory Harmonization

The European Union (EU) Council and Parliament have reached a provisional agreement on crucial aspects of an anti-money laundering (AML) package designed to safeguard EU citizens and the financial system from money laundering and terrorist financing. 

The EU AML Package Unpacked

The agreement, if fully approved, will bring about significant changes for several sectors.

Highlights of the new EU AML package include:

Crypto Sector Expansion

Regulations will encompass the majority of the crypto sector, imposing due diligence requirements on all crypto-asset service providers (CASPs). This involves verifying customer information and reporting suspicious activities for transactions above €1,000.

Increase in the Definition of an Obliged Entity

Businesses in the football sector, as well as traders dealing in luxury goods such as cars, airplanes, yachts, precious metals, stones, and artworks, are now considered obligated entities.

Correspondent Banking and Cross-Border Measures

Enhanced Due Diligence measures are introduced for cross-border relationships within the crypto sector to bring it in line with traditional FIAT currencies.

Due Diligence Measures

Credit and financial institutions are mandated to conduct enhanced due diligence for high-net-worth individuals involved in transactions with significant assets.

Cash Payment Limit

An EU-wide limit of €10,000 for cash payments is established to curb money laundering, with obliged entities required to identify individuals conducting occasional cash transactions between €3,000 and €10,000.

Beneficial Ownership Updates

• Harmonized and transparent rules on beneficial ownership are set at a 25% threshold.
• Rules around ownership structures are clarified to prevent hiding behind multi-layered ownership structures, ensuring transparency and facilitating law enforcement.
• Central beneficial ownership registers require verified information, and entities linked to sanctioned persons must be flagged. Access to these registers is granted to the public, including the press and civil society. Foreign entities owning real estate are required to register beneficial ownership with retroactivity from January 1, 2014.

High-Risk Third Countries

Obliged entities must apply enhanced due diligence for transactions involving high-risk third countries based on assessments by the Financial Action Task Force (FATF).

Financial Intelligence Units (FIUs)

FIUs will have immediate access to various information sources, ensuring close cooperation in cross-border cases while upholding fundamental rights.

Supervision

Each member state will ensure that obliged entities in its territory are subject to effective supervision. Supervisors will report suspicions to FIUs, and new supervisory measures for the non-financial sector will be introduced.

Risk Assessment

Both EU and national risk assessments remain essential tools, with the Commission conducting an EU-level assessment and member states performing national risk assessments.

What Does the New AML Package Mean for EU Regulated Businesses?

The provisional agreement on the anti-money laundering regulation exhaustively harmonizes rules throughout the EU, closing potential loopholes. The finalization of texts and their presentation to member states' representatives for approval in the Committee of Permanent Representatives and the European Parliament will be the next steps before formal adoption and publication in the EU’s Official Journal.

The agreement signifies a robust and comprehensive effort to combat AML measures within the EU. It addresses the critical need to bolster the financial defenses of EU member states against illicit financial activities, underlining a commitment to fostering transparency, harmonization, and collaborative efforts. 

By expanding the scope of obliged entities - especially within the crypto sector - and incorporating stringent due diligence measures, the agreement seeks to create a formidable defense against potential loopholes exploited by criminals. The inclusion of high-risk sectors such as professional football clubs, luxury goods traders, and the harmonization of rules on beneficial ownership, including the retroactive registration of foreign entities owning real estate, adds layers of preventive measures.

A notable aspect of the agreement is the introduction of an EU-wide cash payment limit, a strategic move to curb money laundering and make it more challenging for criminals to exploit cash transactions. The provision granting public access, including the press and civil society, to beneficial ownership registers further emphasizes the commitment to transparency and public accountability. 

Overall, the agreement establishes a cohesive framework that not only strengthens the resilience of individual member states but also promotes a unified front in the battle against the complex web of financial crimes threatening the EU's integrity.

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