Anti-money laundering: Council and Parliament strike deal on stricter rules

The Council and Parliament found (18 January 2024) a provisional agreement on parts of the anti-money laundering package that aims to protect EU citizens and the EU’s financial system against money laundering and terrorist financing.

The provisional agreement on an anti-money laundering regulation will, for the first time, exhaustively harmonise rules throughout the EU, closing possible loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.

• Obliged entities

Obliged entities, such as financial institutions, banks, real estate agencies, asset management services, casinos, merchants – play a central role as gatekeepers in the anti-money laundering and countering the financing of terrorism (AML/CTF) framework as they have a privileged position to detect suspicious activities.

The provisional agreement expands the list of obliged entities to new bodies. The new rules will cover most of the crypto sector, forcing all crypto-asset service providers (CASPs) to conduct due diligence on their customers. This means that they will have to verify facts and information about their customers, as well as report suspicious activity.

According to the agreement, CASPs will need to apply customer due diligence measures when carrying out transactions amounting to €1000 or more. It adds measures to mitigate risks in relation to transactions with self-hosted wallets.

Other sectors concerned by customer due diligence and reporting obligations will be traders of luxury goods such as precious metals, precious stones, jewellers, horologists and goldsmiths. Traders of luxury cars, airplanes and yachts as well as cultural goods (like artworks) will also become obliged entities.

The provisional agreement recognises that the football sector represents a high risk and expands the list of obliged entities to professional football clubs and agents. However, as the sector and its risk is subject to wide variations, member states will have the flexibility to remove them from the list if they represent a low risk. The rules will apply after a longer transition period, kicking in 5 years after entry into force, as opposed to 3 years for the other obliged entities.

• Enhanced due diligence

The Council and Parliament also introduced specific enhanced due diligence measures for cross-border correspondent relationships for crypto-asset service providers.

The Council and Parliament agreed that credit and financial institutions will undertake enhanced due diligence measures when business relationships with very wealthy (high net-worth) individuals involve the handling of a large amount of assets. The failure to do so will be considered an aggravating factor in the sanctioning regime.

• Cash payments

An EU-wide maximum limit of €10 000 is set for cash payments, which will make it harder for criminals to launder dirty money. Member states will have the flexibility to impose a lower maximum limit if they wish.

In addition, according to the provisional agreement, obliged entities will need to identify and verify the identity of a person who carries out an occasional transaction in cash between €3 000 and €10 000.

• Beneficial ownership

The provisional agreement makes the rules on beneficial ownership more harmonised and transparent. Beneficial ownership refers to persons who actually control or enjoy the benefits of ownership of a legal entity (like a company, foundation or trust), although the title or property is in another name.

The agreement clarifies that beneficial ownership is based on two components – ownership and control – which both need to be analysed to identify all the beneficial owners of that legal entity or across types of entities, including non-EU entities when they do business in the EU or purchase real estate in the EU. The agreement sets the beneficial ownership threshold at 25%.

Related rules applicable to multi-layered ownership and control structures are also clarified to make sure hiding behind multiple layers of ownership of companies won’t work anymore. In parallel, data protection and record retention provisions are clarified to make the work of the competent authorities easier and faster.

The agreement provides for the registration of the beneficial ownership of all foreign entities that own real estate with retroactivity until 1 January 2014.

• High-risk third countries

Obliged entities will be required to apply enhanced due diligence measures to occasional transactions and business relationships involving high-risk third countries whose shortcomings in their national anti-money laundering and counter-terrorism regimes make them represent a threat to the integrity of the EU’s internal market.

The Commission will make an assessment of the risk, based on the financial action task force listings (FATF, the international standard setter in anti-money laundering). Furthermore, the high level of risk will justify the application of additional specific EU or national countermeasures, whether at the level of obliged entities or by the member states.

Anti-money laundering directive

Beneficial ownership registers

According to the provisional agreement the information submitted to the central register will need to be verified. Entities or arrangements that are associated with persons or entities subject to targeted financial sanctions will need to be flagged.

The directive grants the entities in charge of the registers the power to carry out inspections at the premises of legal entities registered, in case of doubts regarding the accuracy of the information in their possession.

The agreement also establishes that in addition to supervisory and public authorities and obliged entities, among others, persons of the public with legitimate interest, including press and civil society, may access the registers.

In order to facilitate investigations into criminal schemes involving real estate, the text ensures that real estate registers are accessible to competent authorities through a single access point, making available for example information on price, property type, history and encumbrances like mortgages, judicial restrictions and property rights.

• The responsibilities of FIUs

Each member state has already established financial intelligence unit (FIU) to prevent, report and combat money laundering and terrorist financing. These FIUs are responsible for receiving and analysing information relevant to money laundering and terrorist financing, notably in the form of reports from obliged entities.

According to the agreement, FIUs will have immediate and direct access to financial, administrative and law enforcement information, including tax information, information on funds and other assets frozen pursuant to targeted financial sanctions, information on transfers of funds and crypto-transfers, national motor vehicles, aircraft and watercraft registers, customs data, and national weapons and arms registers, among others.

FIUs continue to disseminate information to competent authorities tasked with combatting money laundering and terrorist financing, including authorities with an investigative, prosecutorial or judicial role. In cross border cases, FIUs will cooperate more closely with their counterparts in the member state concerned with the suspicious activity report. The FIU.net system will be upgraded to enable the fast dissemination of cross-border reports.

According to the provisional agreement, applying fundamental rights is confirmed as an integral part of the FIU’s work and taken into account when making decisions.

The agreement sets out a firm framework for FIUs to suspend or withhold consent to a transaction, in order to perform its analyses, assess the suspicion and disseminate the results to the relevant authorities to allow for the adoption of appropriate measures.

According to the agreement, each member state will ensure that all obliged entities established in its territory are subject to adequate and effective supervision by one or more supervisors. Supervisors will apply a risk-based approach.

Supervisors will report to the FIUs instances of suspicions. Similar to provisions in the AMLA regulation, new supervisory measures for the non-financial sector, so-called supervisory colleges, are introduced. AMLA will develop draft regulatory technical standards defining the general conditions that enable the proper functioning of AML/CFT supervisory colleges.

Risk assessment

According to the provisional agreement, both EU and national risks assessments remain an important tool. The Commission will conduct an assessment at EU level of the risks of money laundering and terrorist financing and draw up recommendations to member states on measures that they should follow. Member states will also carry out risk assessments at national level and commit to effectively mitigating the risks identified in the national risk assessment.

Next steps

The texts will now be finalised and presented to member states’ representatives in the Committee of permanent representatives and the European Parliament for approval. If approved, the Council and the Parliament will have to formally adopt the texts before they are published in the EU’s Official Journal and enter into force.