The European Union (EU) recently decided to bolster efforts to combat money laundering and the financing of terrorism. The supranational body is looking to deploy a regulatory update to combat financial crime activity which focuses on how to properly monitor ultimate beneficial owners (UBOs). In support of this, the EU has also unveiled plans for a powerful new body, the Anti-Money Laundering Authority (AMLA) to oversee high-risk financial crime threats.
The EU has acknowledged the urgent requirement to strengthen endeavors in countering money laundering and the financing of terrorism. Members of the European Parliament (MEPs) from the Economic and Monetary Affairs and Civil Liberties, Justice and Home Affairs committees have made substantial strides in addressing these issues. These strides aim to enhance the EU's Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) policy through improving Know Your Customer (KYC) checks against UBOs by altering thresholds and making other changes.
Regulation Establishing the European Anti-Money Laundering Authority:
- AMLA is introduced as an entity with supervisory and investigative powers to ensure compliance with AML/CFT requirements.
- AMLA will monitor risks and threats both within and outside the EU, directly supervising specific credit and financial institutions based on risk levels.
- Initially, AMLA will supervise 40 entities with the highest residual risk profile, present in at least two member states.
- AMLA can mandate companies and individuals to provide documents, conduct on-site visits with judicial authorization, and impose sanctions for material breaches.
- The agency's competence may extend to creating lists of high-risk non-EU countries and mediating disputes between national financial supervisors.
- AMLA will ensure stronger oversight of non-financial sector supervisors and handle whistleblower complaints.
There have been other key measures implemented further strengthening the EU’s efforts in combating money laundering and the financing of terrorism. Including a series of critical measures aimed at strengthening the EU's AML/CFT policy.
The prevention of money laundering and terrorist financing is at the forefront of legislative efforts, with several key measures being proposed. Various entities, including banks, asset and crypto asset managers, real and virtual estate agents, and high-level professional football clubs, will be mandated to conduct thorough customer identity verification, gather ownership information, and ascertain company control to understand who the UBO is of any given company onboarded.
Furthermore, these entities will need to carry out detailed risk assessments tailored to their specific sectors, with the resulting information to be transmitted to a centralized register. To combat illicit transactions, MEPs are recommending strict limits, setting caps at €7,000 for cash payments and €1,000 for crypto-asset transfers conducted without proper identification.
MEPs are also advocating for the elimination of citizenship by investment schemes, often referred to as "golden passports," and the imposition of robust anti-money laundering (AML) controls on residence by investment schemes, commonly known as "golden visas." These proposals represent a comprehensive approach to strengthen the European Union's efforts in preventing money laundering and the financing of terrorism.
AMLA and Financial Intelligence Units
Within each European Union (EU) member state exists a Financial Intelligence Unit (FIU), these play a pivotal role in the collective effort to prevent, report, and combat money laundering and terrorist financing. FIUs are entrusted with the responsibility of overseeing and coordinating AML/CFT efforts within their respective jurisdictions.
Moreover, to foster a collaborative approach to tackling financial crimes, FIUs are expected to engage in information sharing. This sharing of vital intelligence extends to cooperation not only among the FIUs themselves but also with competent national authorities, the Anti-Money Laundering Authority (AMLA), Europol, Eurojust, and the European Public Prosecutor's office. Such inter-agency cooperation is instrumental in strengthening the EU's ability to detect and combat illicit financial activities effectively.
The disclosure of information regarding beneficial ownership is a crucial component of the ongoing efforts to enhance transparency and combat financial crimes. Under these new provisions, national Financial Intelligence Units (FIUs) and other competent authorities are granted access to comprehensive data on beneficial ownership, encompassing details pertaining to bank accounts, land or real estate holdings, and high-value assets such as yachts, planes, and cars exceeding the €200,000 threshold. Beneficial ownership is defined as having a 15% plus one share or voting rights, or 5% plus one share in higher-risk industries susceptible to money laundering or terrorist financing. This is a major change from current EU legislation and the recommended 25% FATF standard.
AMLA’s establishment creates a strong pillar of support for local FIUs. It also results in simpler checking of UBO information as multiple registers can be engaged at once to verify information across multiple nations. An act that could rapidly improve investigation speeds when responding to suspicious activity reports.
Creating Ultimate Beneficial Owner Registers
To facilitate the accessibility and usability of UBO information, the establishment of Beneficial Owners' Registers is in-flight. These registers maintain digital records, available in EU official languages alongside English, ensuring a wide accessibility. The registers will include both current and historical data, with authorized parties, including FIUs, the Anti-Money Laundering Authority (AMLA), competent authorities, self-regulatory bodies, and obliged entities, having the right to access this information. Non-compliance with the requirement to provide accurate and adequate data to these registers will result in the imposition of sanctions.
Public registers of beneficial ownership bring significant benefits to the fight against financial crime and ensuring compliance with regulatory demands as the registers increase transparency. This information will help authorities and stakeholders identify the true owners of legal entities and prevent the misuse of corporate structures for illicit purposes.
Entities responsible for managing central registers are urged to employ suitable technology solutions to facilitate efficient verifications and ensure the integrity of the disclosed data. These measures collectively represent a concerted effort to bolster transparency and accountability in financial dealings across the European Union.
Following a recent Court of Justice ruling, individuals with legitimate interests, such as journalists, reporters, civil society organizations, and higher education institutions, should have access to the register. Access rights are valid for at least two and a half years, with member states having the authority to renew, revoke, or suspend access if abused. Legitimate interest should apply without discrimination based on nationality or country of residence.
Harmonized Rules and UBO Registers Increase Compliance Efficiency
A centralized AML/CFT authority and harmonized rules can significantly enhance the effectiveness of AML/CFT efforts in the EU. International Collaboration could be a big win globaly. While striking the right balance between privacy and transparency is important, public UBO registers increase transparency, making it harder for illicit actors to hide behind complex corporate structures.
Understanding how to incorporate UBO data into compliance workflows will greatly improve compliance capability across the financial sector. Financial institutions that are prepared for the incoming changes to UBOs are set to be in good standing with AMLA and should be aware that in-depth knowledge of clients will become more and more important when examined by regulators.
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