Europe's anti-money laundering legislative package

Aug. 12, 2021

Cooperation between SCHUFA and ClariLab with BMS-CS

The European Commission's (EC) legislative package and the publication of new legislative proposals on 20 July 2021 aim to strengthen the fight against money laundering and terrorist financing.

Europe's anti-money laundering legislative package consists of four legislative proposals, which are listed below:[1]

  1. A regulation to combat money laundering and terrorist financing
  2. A regulation to create a new EU authority called AMLA (Authority for Anti-Money Laundering and Countering the Financing of Terrorism)
  3. The 6th Money Laundering Directive, which is intended to replace the existing directive
  4. A revised version of the Money Transfer Regulation.

The legislative proposals should be viewed as a whole and are all interconnected. In this blog post, we will focus on the first part of the aforementioned legislative proposal within the European legislative package: the regulation on combating money laundering and terrorist financing.

What is the goal of the European Commission?

The European Commission's overarching goal of harmonizing anti-money laundering measures across Europe is already included in its action plan.[2] The action plan was announced in May 2020. It defines a total of six pillars designed to strengthen the fight against money laundering. The second pillar of the action plan consists of creating a uniform EU regulatory framework. A regulation, which, unlike a directive, is binding in its entirety and has direct effect, is essential for this.

The regulation governs, among other things, the internal guidelines, controls and procedures of obliged entities, their due diligence obligations with regard to customers, issues concerning beneficial owners, and measures such as how to deal with anonymous instruments.

The latter includes, for example, a cash limit of €10.000. [3], which has not existed in Germany before. Federal Financial Supervisory Authority (Bafin) However, starting on August 9, 2021, it has set a threshold of €10.000 for banks for cash transactions within a business relationship.[4]  While she hasn't defined a cash limit, she is requiring banks to verify the origin of the funds. The German government has yet to comment on a cash limit. In contrast to Germany, Austria has announced its rejection of a general cash limit.

In addition, the regulation expands the number of entities subject to due diligence obligations. From now on, due diligence obligations will also be extended to the entire crypto sector.

What is AMLA? 

Using Regulation on combating money laundering and terrorist financing should the new EU agency AMLA be created, These serves is more Implementation two columns of the action plan. Pillar three consists there specifically from the creation of an EU-level supervisory body to combat is Money laundering and terrorist financing. Pillar four is based on the establishment of a support and cooperation mechanism for Financial Intelligence Units (FIUs).  

The EC (European Commission) cites several reasons why, instead of the supervisory authorities that have so far operated exclusively nationally, Additionally, a European authority is to be created. Thus, due to various practices and available resources, the quality and effectiveness of combating money laundering and terrorist financing is limited. The zcompetent authorities could only cooperate inadequately with domestic and foreign stakeholders and also the methods used to identify risks, They vary depending on the EU member state. 

What Tasks has AMLA? 

The tasks of the authority, with which these and other problems are to be addressed, are divided into four different areas: 

  1. Selected obliged entities for whom AMLA is to conduct supervisory reviews, among other things, and thus directly supervises them. 
  2. Financial supervisory authorities, for which AMLA is intended, for example, to ensure that they have sufficient resources. AMLA is also meant to facilitate communication between the authorities. 
  3. Non-financial regulatory authorities, for which AMLA is to act as a coordinating body. 
  4. Financial Intelligence Units (FIUs) are to be supported by AMLA, among other things, by developing appropriate methods for joint anti-money laundering efforts. Depending on its remit, the new authority will have the power, where provided for by regulation, to implement regulatory standards or to issue guidelines to obliged entities, supervisory authorities, and FIUs. 

Consequently, in order to implement its tasks, competencies that previously lay with the European Banking Authority (EBA) are to be transferred to the new authority AMLA. 
AMLA will be established in 2023 and its oversight is scheduled to begin in early 2026. 

To enable AMLA to perform its tasks accordingly, supporting provisions have been included in the new sixth directive, which additionally aim to ensure the efficient integration of AMLA.

The regulation on the transmission of information in money transfers from  Joh 2015 

In May 2015, the European Parliament adopted Regulation 2015/847 on the disclosure requirements for money transfers. It entered into force on June 26, 2017, and stemmed from a set of FATF (Financial Action Task Force on Money Laundering) recommendations from 2012. In summary, it aims to prevent the “[…] the stability of the money transfer system and confidence in the financial system will be seriously damaged if criminals and their intermediaries attempt to conceal the origin of proceeds from crimes or to transfer money for criminal activities or terrorist purposes.“[1] To prevent this, the aim is to make money flows traceable – by including and documenting the person initiating and the beneficiary of a transfer. This makes it possible to ultimately find out which persons illicit money has flowed through in order to launder it – that is, to conceal its origin [2]. 

Because the concealment of money flows does not stop at national borders, but rather begins there. In order to take this guiding principle into account, but also to avoid significantly impairing the functioning of payment systems at the European Union level, Regulation 2015/847 establishes uniform rules for the Union regarding which information must be transmitted during money transfers. This would prevent significant harm to the internal financial services market from more than 20 different national solutions [3]. 

The regulation addresses the various actors involved in a money transfer, such as the payer's payment service provider (PSP), the payee's PSP, and any other intermediary PSPs. For example, the payer's PSP has access to the payer's name, account number, and other personal information (address, date of birth, etc.). and to be transmitted by the beneficiary as part of a money transfer. The beneficiary's PSP must, in turn, check this information for completeness. Furthermore, it is stipulated how to handle missing information [4]. 

Proposed law to recast the regulation on the transmission of information in money transfers 

The revised 2015 regulation is one of four legislative proposals in the anti-money laundering package. The background to this is that the transfer of virtual assets such as Crypto-Currencies not covered by the original regulation [5]. That's the way it is the weiterhin possible financial flows which on thism Way be transferredto conceal. Consequently, the draft law therefore assumes so-called CASPs (Crypto-Asset Service Provider) or VASPs (Virtual Asset Service Providers) are also held accountable., by also Information provided during the transfer virtual Assets analogous to den Submit and store PSPs have [6]. There are differences. largely of a technical nature: For example, the client's CASP must have a clear Transaction number or possibly one Wallet number instead of an account number transmit, if no conventional bankaccounts were used in the context of a transaction [7]Similar to a bank account, CASPs offer digital wallets for managing Kcrypto-Assets. So it is using CASPs a flow of money also via Kcrypto-Transfers are once again fully traceable. 

The differences between traditional money transfers and Kcrypto-Transfers 

While the electronic transfer of cash requires a PSP with the appropriate licenses, the transfer of crypto assets is possible directly from one person to another without an intermediary. This is the revolutionary characteristic of blockchain technology. Although a CASP greatly increases convenience, it is not technologically essential. The draft legislation to revise the regulation refers to service providers and excludes direct transfers between persons [8]. The challenge of traceability more direct Payment flows will therefore remain in place for the time being.   

The German version of the existing regulation from 2015 can be found here. here.  

Sources

[1] Recital 1 Regulation (EU) 2015/847  

[2] Recital 9 Regulation (EU) 2015/847  

[3] Recital 3 Regulation (EU) 2015/847 

[4] Articles 4-12 Regulation (EU) 2015/847 

[5] p. 3 COM (2021) 422 final 

[6] p. 6 COM (2021) 422 final 

[7] Article 14 paragraph 3 COM (2021) 422 final  

[8] Article 2 paragraph 4 COM (2021) 422 final

Photo credit: Photo by Sean Pollock on Unsplash

Roczniewski