• In expansive European Union anti-money laundering update, some big changes to improve fight against financial crime, including a compliance super regulator that can pressure large, international banks – and member state regulators, a ban on anonymous crypto wallets and a limit of paying more than 10,000 euros in cash, for anything.
• Those are some of the just-announced updates by the European Union (EU) Commission, which is upgrading rules and regulations, regulators and is working to better illumine the dark corners of criminal finance by evaporating beneficial ownership opacity and shining the light on the real individuals engaged in virtual currency transactions.
• The genesis of the updates: refreshed recommendations to focus on effectiveness from global watchdog groups, terror attacks in and out of the bloc and, in large measure, to multiple banking scandals that saw hundreds of billions of dollars in suspicious funds from more dubious jurisdictions flow through member states.

By Brian Monroe
bmonroe@acfcs.org
July 22 , 2021

A financial crime compliance super regulator that can pressure large, international banks – and member state regulators to work together and see the big picture. A ban on anonymous crypto wallets. A limit of paying more than 10,000 euros in cash – on anything.

Those are some of the just-announced updates by the European Union (EU) Commission, which is upgrading rules and regulations, regulators and is working to better illumine the dark corners of criminal finance by evaporating beneficial ownership opacity and shining the light on the real individuals engaged in virtual currency transactions.

To read the full release, click here.

The bevy of measures “greatly enhance the existing EU framework by taking into account new and emerging challenges linked to technological innovation,” according to a commission statement.

Such improvements will address the risks of illicit finance moving through virtual currencies, create more transparency and integration for funds into, out of and between member states and also better uncover and report on global terror groups with an international footprint – and potential to stage attacks in the bloc.

“These proposals will help to create a much more consistent framework to ease compliance for operators subject to AML/CFT rules, especially for those active cross-border,” according to the commission.

The package consists of four legislative proposals:

• A Regulation establishing a new EU AML/CFT Authority;
• A Regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership;
• A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States;
• A revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU).

Banking scandals, terror attacks precede, hasten EU AML updates

The genesis of the updates come from refreshed recommendations to focus on effectiveness from global watchdog group, the Financial Action Task Force (FATF), terror attacks in and out of the bloc and, in large measure, to multiple banking scandals that saw hundreds of billions of dollars in suspicious funds from more dubious jurisdictions flow through member states.

At the still-rumbling epicenter of the scandal is Danske Bank, which is under investigation in several countries, including the United States, tied to more than 200 billion euros ($220 billion) of transactions through its branch in Estonia between 2007 and 2015.

Many of those transfers the bank has openly admitted were suspicious in nature and tied to higher risk regions, including Russia.

Other banks linked to Danske and the Russian funds flows, including Swedbank, SEB and others have paid nearly half a billion dollars in AML penalties and seen top executives and board members sacrificed at the altar of progress in a show of force and fealty to please regulators and pledge obeisance to investigators.

At the supranational level, the Danske scandal has caused European Union financial oversight bodies and regulators, at the country and bloc level, to engage in a game of naming, blaming and shaming.

Through the political, enforcement and regulatory communities, accusations and recriminations swirled at all levels on how and why the Danske Bank scandal could occur in the first place and fester for so long under the noses of examiners.

In 2019 and into 2020, the EU pushed more forcefully to create a dedicated pan-bloc AML oversight and enforcement body that would put regional regulators in the hot seat and better attempt to see fincrime vulnerabilities happening across multiple member states.

Such a stratagem would address the tactics of large, sophisticated organized criminal groups, corrupt oligarchs and terror networks.

These illicit cabals purposefully spread transaction trails through the real and virtual worlds and across multiple banks, jurisdictions and payment types, like prepaid cards and money remitters, to make seeing their full financial mosaic as difficult as possible.

EU AML Update Snapshot: A bloc-wide super regulator, new crackdown on virtual value blind spots, broad ban on large cash payments  

So what is changing under this new, incoming AML regime? The big updates:

EU AML Authority (AMLA)

A new EU Authority will be the AML central authority, will engage in:

• Strengthening coordination: coordinating national supervisors, so the private sector correctly and consistently applies EU rules.
• Bolstering communication, cooperation: enhancing cooperation among Financial Intelligence Units (FIUs), so as to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.

EU single rulebook for AML/CFT

More detailed, clearer, and directly applicable rules, which will apply more consistently and will be better enforced throughout the EU.

EU AML/CFT rules will apply fully to cryptocurrencies

All Crypto Asset Service Providers will have to apply EU rules, to stop crypto-currencies being using to launder money.

Entities subject to EU AML/CFT rules

More harmonized EU rules mean a more level playing field and reduced compliance costs.

Bolstering corporate ownership transparency

Clarifies and expands current EU AML/CFT legislation, including the concept of beneficial ownership and the requirement for all corporate and other legal entities to obtain and hold adequate, accurate and current beneficial ownership information.

National supervisors will have their powers clarified

Cooperation and exchange of information across the EU. will be strengthened. AMLA will play a key role in supporting the work of national supervisors.

Member State Financial Intelligence Units

Will have stronger and clearer powers, underpinned by a harmonized approach for reporting suspicious transactions or activities. AMLA will support communication and cooperation between FIUs.

EU-wide limit of €10,000 on large cash payments

Large cash payments are an easy way for criminals to launder money, since it is very difficult to detect transactions. That is why the Commission has proposed an EU-wide limit of €10,000 on large cash payments.

From the EU Commission Q and A. To read the full section, click here.

Not just capturing details on shadowy owners, sharing with law enforcement

While those initiatives are all powerful updates in their own right, the effort to breach beneficial ownership bastions has the potential to both torpedo a longstanding criminal sanctuary, but also supercharge the data available to regional and international investigative agencies.

So what is being proposed as regards beneficial ownership and registers?

The updated EU commission provisions on beneficial ownership information “clarify and expand” those in the current EU AML/CFT legislation, including the concept of “beneficial ownership and the requirement for all corporate and other legal entities to obtain and hold adequate, accurate and current beneficial ownership information.”

The proposals include stronger rules to clarify not only the obligations for legal entities and trustees “to identify and verify their beneficial owners, but also their requirement to report that information to national beneficial ownership registers.”

They also introduce duties for non-EU legal entities linked with the EU to register their beneficial ownership in the EU’s beneficial ownership registers, a challenge for countries with strong privacy restrictions or a dearth of already-in-place sharing and cooperation agreements in place.  

The proposal still allows the “collection of data in accordance with national systems, but will increase the adequacy, accuracy and timeliness of beneficial ownership data available in the registers,” chiefly by swimming together ownership data through country-based, interlinked registries.  

The move to capture more information and ensure its accuracy comes tethered to more powers for the authorities ensuring implementation compliance.  

The entities in charge of the “national beneficial ownership register will receive more powers in order to verify that the information submitted to the beneficial ownership register is accurate, adequate and up-to-date, including on-site checks.”

At the same time, the EU will make it harder to have figurehead, symbolic individuals as the final repository for accurate ownership details.

How?

By taking aim at nominee shareholders and nominee directors.

“Nominee arrangements may facilitate the concealment of the identity of the beneficial owner(s), because a nominee might act as the director or shareholder of a legal entity while the nominator is not always disclosed.”

As a result, nominees “under the new system would also required to report their status and the persons on whose behalf they are acting.”

Taken together, the tacit message from the EU commission to banks in Europe is one that should not be ignored: Get your countercrime compliance houses in order because there is a new sheriff in town.

The new reality: regulators will be looking more aggressively at your program and if they don’t like what they see, be prepared to react, and act, quickly – or face harsher sanctions and less leeway than in years past.

At the same time, country regulators could be more willing than ever to levy public, statement-making fines – penalties in recent years that have risen into the billions of dollars for broad and systemic AML and sanctions failures – fearing the reaper as well.