To make the European Union AML regulations and Countering the Financing of Terrorism (AML/CFT) stronger, the European Commission introduced a new EU AML proposal on July 20, 2021. The European Union AML directives consist of four legislative proposals. These proposals, more often known as AML Legislative Package, have been published to streamline compliance processes by creating a harmonious and consistent framework of AML/CFT rules throughout the EU.
These changes in the EU AML proposal will help you tackle the issues related to the detection of suspicious activities and transactions, and it’ll also eliminate the existing loopholes that criminals exploit. As stated in the EU’s Security Union Strategy for 2020-2025, by enhancing the country’s AML/CFT framework, it is possible to provide Europeans with a chance to protect themselves against fraudulent activities.
The European Union came into the global spotlight after its members launched an investigation into Denmark’s largest bank, Danske Bank that supported suspicious transactions worth 200 billion euros through its small Estonian brand for 8 years. In the past, the EU had to rely on national authorities for the implementation of AML policies in such situations.
To fix this challenge, the formation of a new Anti-Money Laundering Authority (AMLA) has been made the focus of the new AML proposal. The main purpose of AML is to address the current weak points of the AML/CFT regulation within the EU. AMLA will act as the central authority that coordinates between national authorities to ensure that anti-money laundering regulations are applied throughout the country.
The second proposal suggests the transfer of provisions from AMLD5 to a regulation that is applicable for all the EU Member States. This proposal is included in the process to address the European Commission’s concern while the AMLD4 has widespread application and the directive is currently fragmented.
Having a single rulebook for AML/CFT will help in creating harmony. For example, it will provide elaborate rules on CDD (Customer Due Diligence), Beneficial Ownership verification, and authority tasks of financial supervisors and FIUs. It’ll help existing centralized bank account registers become interconnected and provide access to law enforcement agencies. This will enhance the fraud investigations and recovery of stolen assets, but will also create transparency in the AML frameworks.
When it comes to the crypto industry, AML/CFT rules in the EU are only applicable to specific types of service providers. The fragmentation allows criminals to exploit the loopholes to their advantage. The European Union’s report states:
“The lack of such rules leaves holders of crypto assets exposed to money laundering and financing of terrorism risks, as flows of illicit money can be done through transfers of crypto assets.”
The new European Union Anti Money Laundering proposal aims to bring the cryptocurrency sector under the scope of AML regulations. All the service providers are thus mandated to perform due diligence on their customers. Additionally, anonymous cryptocurrency will be prohibited. These suggestions have been added to ensure complete traceability of cryptocurrency transactions, allowing for timely prevention and detection of money laundering. Due to the initial anonymous nature of cryptocurrencies, it quickly became a hub for money laundering.
The last proposal of AML regulation suggested that the 6th Anti-Money Laundering Directive will annul the current AMLD4. This directive will contain new guidelines that will be transported into the national law, such as the AML rules on national supervisors and FIUs in the member states.
To put it simply, the new Directive will update the relevant provisions of AMLD4, and add some other amendments to it. The AMLD6 also includes the clarifications on the powers and tasks of FIUs and financial supervisors, entities that manage UBO information, the introduction of new tools to streamline risk-based supervision, cross-border interconnection of bank account registers, and so on. All these amendments are considered vital for European Commission to tackle money laundering and terrorism funding.
Future of AML Regulations
The new EU AML proposal will be discussed by the European Parliament and council. The consultation period is set to end on 7th October 2021.
Once the directive has been finalized, and the new AML framework has been approved, the AMLA is expected to become functional from 2024.