EU committees approve AML amendments on corporate transparency, access, virtual currencies

By Brian Monroe
March 2, 2017

Two key European Union Parliament committees have approved amendments to the bloc’s chief law to fight financial crime and terror financing, granting more access to newly captured corporate beneficial ownership data, snaring virtual currencies, and more.

The updates to the European Union’s (EU) Fourth Anti-Money Laundering (AML) Directive are part of broad review and revision of rules to better counter money launderers, corrupt political powerbrokers and terror financiers, an initiative informed and given more urgency by the Panama Papers Scandal last year, revealing the dangers of anonymous ownership structures, and recent terror attacks in EU member states.

In this latest round of proposals wending their way to reality, the Economic and Monetary Affairs and Civil Liberties committees approved a bevy of updates to increase corporate transparency and allow more individuals access to the information, subject virtual currencies and trusts to the same AML obligations as financial institutions and make it harder for criminals to use prepaid cards anonymously.

The Members of European Parliament (MEPs) on these committees voted overwhelmingly, 89 to 1, for the amendments, which more broadly would also improve coordination among member states in the fight against financial crime, streamline the AML checks institutions make across the EU and foster better information sharing among states’ intelligence units.

Though the initiatives passed these hurdles with extensive bipartisan support, parliament still must now approve the measure in a MEP plenary session later this month to begin three-way talks with the EU Commission and Council for final approvals and later member state transposition.

If enacted, EU citizens would be able to access beneficial ownership registers of companies without demonstrating a “legitimate interest” in the information. The law presently restricts access to journalists and lobbyists.

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.

“Complex company structures and shelf companies make it easy for people to hide money,” said Judith Sargentini (Greens/EFA, NL), a co-rapporteur on the file. “Through a public register for companies and trusts, the European Parliament wants to shed light on these structures and thereby combat them.”

Part and parcel of capturing more beneficial ownership information is subjecting more secretive entities that could hide criminals to AML rules.

That’s why in these amendments, the scope of the directive has also been expanded to cover trusts and “other types of legal arrangements having a structure or functions similar to trusts,” according to parliament. Previously, those were excluded from the directive on privacy grounds.

Virtual currencies, wallets captured

In tandem, the real and virtual worlds have collided on the side of AML to shine more light into dark corners of both realities.

Virtual currency platforms and custodian wallet providers have also been brought within the scope of the directive.

The reasoning is that, “although virtual currencies account for only a small share of global financial transactions – around 70, 000 virtual currency transactions are made daily, according to the European Central Bank – some EU member states and the European Banking Authority say they pose risks,” according to parliament.

Prepaid card ID threshold drops

The committees, cognizant that recent and historical global terror attacks – particularly more regional lone wolf attacks, have been funded through prepaid cards bought at lower transaction thresholds that didn’t require identification details – are pushing to lower the figure.

“To discourage the use of anonymous pre-paid instruments, such as pre-paid cards, as a low-cost, convenient way to transport the proceeds of crime, MEPS backed to lower the threshold at which identification requirements kick in from €250 to €150,” according to parliament.

“The [behavior] of criminals has not changed – they use anonymity to launder their illicit proceeds or finance terrorism,” said Co-rapporteur Krišjānis Karins (EPP, LV), in a statement.  

“So, we have to make sure that the legislation addresses the threats to our citizens and financial sector.  This also means tightening up the rules regulating virtual currencies and anonymous prepaid cards.”

Here is a snapshot of several key 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.