EU COMMISSION ADOPTS PROPOSALS TO BOLSTER AML REGIME

The European Commission this week adopted several key proposals to better thwart terror groups by increasing corporate transparency, subjecting virtual currency to anti-money laundering rules, lowering the identity threshold for prepaid cards and increasing international information sharing among financial intelligence units.

The amendments to the country’s Fourth Anti-Money Laundering (AML) directive are the first foray to implement a February Action Plan created to bolster the fight against terrorist financing, boost tax transparency and tackle tax abuse.

The commission’s moves are informed by the terror attacks in Brussels, Belgium and Paris that killed more than 160 people, and the knowledge that these groups have used anonymous prepaid cards in attacks, while in some cases being supported by donors working through anonymous shell companies. The group also specifically cited the Panama Papers as an impetus for change.

As part of the initiative, the time frame for country transposition of the Fourth Directive, itself finalized in May 2015, has been shortened from June 2017 to the end of this year. The commission is also coming out with a list of risky “third countries” that will require banks to give these regions more scrutiny for ties to financial crime.

The proposals “will help national authorities to track down people who hide their finances in order to commit crimes such as terrorism,” said First Vice-President Frans Timmermans in a statement.

Member States will “be able to get and share vital information about who really owns companies or trusts, who is dealing in online currencies, and who is using pre-paid cards. Making public the information on who is behind companies and trusts should also be a strong deterrent for potential tax-evaders.”

The commission is encouraging member states to also amend their own laws to be in line with the updated proposals, though they still must be adopted by the European Parliament and Council of Ministers.

One of the major changes that will be celebrated by civil society groups, journalists and the general public is a change to allow planned beneficial ownership registries to be open to the general public, rather than only law enforcement and financial institutions.

Currently, under the fourth directive, the information about the beneficial ownership of companies and trusts is already accessible to “competent authorities and obliged entities” in view of facilitating the performance of their “customer due diligence obligations,” according to the commission, in a related fact sheet.

The commission, however, changed its tune.

The group now proposes to “also provide public access to certain essential beneficial ownership information held in registries regarding companies and trusts that engage in economic activities with a view to gain profit.”

Though, for “privacy reasons, access to information in relation to trusts not engaged in economic activities, such as family trusts set up to finance studies, will “only be granted to persons and organizations that can demonstrate a legitimate interest,” an ill-defined term that will only gain clarity as groups push the boundaries of what information is available to which organizations.

“Today, we are putting forward stricter transparency rules to cut terrorist financing and step up our fight against money laundering and tax avoidance,” said Věra Jourová, the EU’s Commissioner for Justice, Consumers and Gender Equality.

“The update of the Fourth Anti-Money Laundering Directive will prevent any loopholes in Europe for terrorists, criminals or anyone trying to play with taxation rules to finance their activities. Better cooperation to fight these issues will make the difference.”


Here is a snapshot of the amendments proposed to the Fourth EU AML Directive, which are specifically crafted to address terrorism, tax dodging and anonymous shell companies:

Countering terrorism financing:

  • Enhancing the powers of EU Financial Intelligence Units and facilitating their cooperation: the scope of information accessible by the Financial Intelligence Units will be widened, and they will have access to information in centralized bank and payment account registers and central data retrieval systems, which Member States will have to establish to identify holders of bank and payment accounts;
  • Tackling terrorist financing risks linked to virtual currencies: to prevent misuse of virtual currencies for money laundering and terrorist financing purposes, the Commission proposes to bring virtual currency exchange platforms and custodian wallet providers under the scope of the Anti-Money Laundering Directive. These entities will have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges;
  • Tackling risks linked to anonymous pre-paid instruments: the Commission also proposes to minimize the use of anonymous payments through pre-paid cards, by lowering thresholds for identification from €250 to €150 and widening customer verification requirements;
  • Stronger checks on risky third countries: The Commission proposes to harmonize the list of checks applicable to countries with deficiencies in their anti-money laundering and countering terrorist financing regimes. Banks will have to carry out additional checks on financial flows from these countries. The list of countries, mirroring the FATF list, will, for procedural reasons, be formally adopted on 14 July.

Stricter transparency rules to prevent tax avoidance and money laundering:

  • Full public access to the beneficial ownership registers:Member States will make public certain information of the beneficial ownership registers on companies and business-related trusts. Information on all other trusts will be included in the national registers and available to parties who can show a legitimate interest. The beneficial owners who have 10 percent ownership in certain companies that present a risk of being used for money laundering and tax evasion will be included in the registries. The threshold remains at 25 percent for all other companies.
  • Interconnection of the registers: the proposal provides for the direct interconnection of the registers to facilitate cooperation between Member States.
  • Extending the information available to authorities: The Commission has proposed that existing, as well as new, accounts should be subject to due diligence controls. This will prevent accounts that are potentially used for illicit activities from escaping detection. Passive companies and trusts, such as those highlighted in the Panama Papers, will also be subject to greater scrutiny and tighter rules.