The European Union launched an ambitious and multi-featured action plan for tackling money laundering. This plan sets out concrete measures for banks, financial institutions, credit unions, and other businesses operating in the financial industry. These set of rules and regulations are built to ensure better enforcement, supervision, and coordination of the European Union’s rules on anti-money and fighting terrorism financing. Let’s dive deeper into the EU’s Money laundering action plan.
Timeline of EU’s Money Laundering Action Plan
On May 7th, 2020, the European Commission (EC) published its action plan to further streamline the EU’s fight against money laundering fraud and terrorist financing. The legislative plans to roll out this action plan were timelined around July 2021. The action plan targets six main problem areas, each of which is aimed at shutting down and eliminating loopholes and weak links in the already existing rulebook against ML/FT. One of these pillars is streamlining and strengthening the already existing rulebook.
The current EU legal framework already offers comprehensive regulatory guidelines to all the EU Member states. These regulations outline how to tackle money laundering and financial terrorism. The current approach is diversifying regulation implementation across all EU member states. This fragmented legislative anti-money laundering environment leads to additional costs, burdens, and regulatory mistakes for businesses that provided services globally. The aim of a singular rulebook is to simplify the process for all entities involved, not increase costs and burden.
Based on this, the EBA published a new report that highlights how the EU’s framework should be fixed and changed to tackle vulnerabilities and loopholes in the existing system.
Minimum Harmonization and Open Standards
To limit the fragmentation in the interpretation and application of rules, the EU considers it essential to convert specific parts of AMLD into applicable guidelines for all banks and members. Opting for regulation instead of a directive will ensure a consistent approach to AML/CFT compliance and enforcement. A regulation should outline rules and guidelines related to:
- List of obligated entities
- Tasks of FIUs
- Structure and tasks of supervision
- Customer due diligence
- Electronic identification and verification
- Record keeping
- Internal controls
- Reporting requirements
- Beneficial ownership verification
- Central bank account mechanisms
- Limit large cash payments
- Freezing powers for FUIs
- Sanction lists
Adoption of New Rules and Regulations
According to the EC, harmonization can also be achieved by utilizing empowerment to adopt detailed rules and regulations through delegated or implemented acts to keep up with the changing environment.
A similar approach was introduced in 2001 to improve the regulatory procedures and implementations in the financial services industry. The process has a 4-step approach, with committees of national experts working on different parts of new legislation.
The four levels are:
- The European Parliament and the Council adopt the framework suggested by the EC in form of a directive or regulation.
- These directives or regulations contain guidelines for level 2. This includes the adoption of a regulation by delegated acts or implementing acts. During the second stage of the approach, the EC is backed by consulting bodies that include several EU countries’ reps.
- At level 3, committees of national supervisors are responsible for advising the EC on the adoption of levels 1 and 2 and for issuing guidelines and recommendations for implementing the rules. This is how the uniform and consistent application of new legislation within EU Member states is completed.
- At level 4, the EC is required to monitor the implementation of compliance by the member states, and for warning about differences in impact between the countries. In case there are major differences in implementation, the EC can issue amendments to regulations.
Six Pillars of Money Laundering Action Plan
The EU is committed to building a better and stronger framework for fighting and preventing ML/TF. To enhance the current rulebook, the EU devised a methodology for identifying weak points and loopholes.
1. Ensuring Proper Implementation of Existing Framework
For winning a fight against money laundering and terrorism financing, the European Commission expects the member states to follow the rules. The EC will be monitoring the compliance closely to find those who don’t comply with guidelines. Since the implementation of the plan, 3 member states have been reported to the Court of Justice of the EU and they’ve paid hefty fines for non-compliance.
2. Establishing a Single Rulebook for AML/CTF
The EC has developed a single set of rules that all member states must follow to prevent ML/TF. Some of the biggest rules include digital customer identification, due diligence, and provision on beneficial ownership registers and central bank account mechanisms.
3. Constant Supervision by the EU
One major plan in the EC’s plan is to make sure that all member states are monitored by them. Monitoring the application and implementation of rules at a national level isn’t enough. The EC will now provide help and support and relevant information to member states to improve implementation.
4. Building a Support and Cooperation Structure for FIUs
The fourth pillar of this new action plan includes offering more support to the financial intelligence units (FIUs) under the new plan. The primary goal of the commission is to improve cross-border information sharing, investigation of potential fraud, streamline the process, and much more. The EC will also take over the management of the FIU.net tool to improve user-friendliness.
5. Enforcing EU-Level Criminal Law Provisions
This pillar aims to make cross-border criminal investigation easier and more efficient. It encourages sharing of information between FIUs, law enforcement, and the private sector, and enhances public-private partnerships. Further support will be provided when information sharing raises data protection and privacy concerns.
6. EU’s Global Role
While the new action plan aims to improve the workings of member states, they also aim to be more serious about their global responsibilities. It works closely with the Financial Action Task Force (FATF), and they’ll be guaranteeing that each member state follows the regulations as strongly as possible.
Final Take: EU’s Money Laundering Action Plan
With these 6 pillars, the EU plans to enhance its overall process of improving safeguards against money laundering and terrorism financing. The commission is also launching several other tools to make the changes and implementation as easy as possible. The EU Commission aims to implement all the changes by the end of 2022.