From directive to regulation: Reform in money laundering law

Money laundering has a firm grip on Germany. According to the Federal Ministry of Finance, around 100 billion euros are laundered annually in Germany.

But money laundering is a global problem. The EU Commission has also recognized this and is aiming to reform the legal framework for money laundering with the so-called EU-AML package.

For the first time, there will be an EU-wide regulation on the prevention and combating of money laundering. This will tighten regulations and standardize measures. We present the planned changes.

Current quo: Development of the money laundering directive

In recent years, the fight against money laundering has intensified. While a full ten years passed between the adoption of the third (2005) and fourth Anti-Money Laundering Directives (2015), only about three years elapsed between the fifth (2018) and the sixth (2020).

The 5th Anti-Money Laundering Directive (5AMLD) strengthened regulations for combating money laundering and terrorist financing. Virtual currencies such as Bitcoin, Ethereum, and Ripple were included in this directive. Furthermore, customer due diligence requirements were tightened.

Overview of the 6th EU Anti-Money Laundering Directive

The 6th EU Anti-Money Laundering Directive (6AMLD) entered into force on 3 December 2020 and refines the regulatory requirements introduced in the 5th EU Anti-Money Laundering Directive. The key points are:

• Closing loopholes in national laws by harmonizing anti-money laundering requirements in the EU.
• Expansion of the list of predicate offenses for money laundering to 22 items, including the inclusion of cybercrime (Note: This expansion primarily affects EU countries whose measures are not yet comprehensive enough. In Germany, the list of predicate offenses has already been significantly expanded by Section 261 of the Criminal Code.)
• "Aiding and abetting" is now also considered an offense of money laundering – meaning you are also liable to prosecution if you do not carry it out yourself.
• Introduction of a harsher penalty (minimum prison sentence with a maximum term of four years)[2]

The planned EU AML regulation

To further harmonize money laundering law in the EU, the European Commission presented the so-called EU-AML package in July 2021. This package contains four legislative proposals designed to improve the fight against money laundering in Europe.

For the first time, there will be a regulation instead of just a guideline for states and those obligated to act.

A directive and a regulation are legal instruments of the European Union (EU), but they have different legal effects and implementation mechanisms.[3]

Directive

A directive sets a binding objective or result for the EU member states. The member states are obliged to transpose the objectives and principles of the directive into national law.

However, they can choose the specific form and methods of implementation. They therefore have a certain degree of flexibility in implementation to take national circumstances into account. In the event of a lack of implementation or incorrect implementation, the European Commission can initiate legal proceedings against the member state.

regulation

A regulation is directly applicable in the member states and has direct effect. This means that it automatically applies and is binding in every member state without national implementation.

Introduction of AMLA

The new regulation does not repeal the 6AMLD; rather, it complements it. This means that certain provisions, such as supervision and the transparency register, will continue to be left to the implementation of the member states.

With the introduction of the regulation, the AMLA (European Anti-Money Laundering Authority) will also be established. It will be responsible for supervising and ensuring compliance with anti-money laundering regulations – in particular those arising from the new regulation and the 6th Anti-Money Laundering Directive.

Objectives of the EU AML Regulation

The EU-wide regulation aims to create, for the first time, a valid, uniform set of rules for anti-money laundering legislation (Single Rule Book). The requirements are intended to be clear and consistent, thus preventing national loopholes and lax implementation.

This should simplify compliance with money laundering regulations for obligated entities. This is to be achieved in particular through the standardization of KYC-Requirements must be met so that – as is currently the case – each country no longer interprets and implements the regulations itself.

The structure of AMLA is also intended to contribute to achieving better effectiveness in the application and implementation of the regulations.

Will it actually be easier for those obligated to pay taxes?

Sources

[2] Summary of the EU Anti-Money Laundering Directives – ComplyAdvantage

[3] Types of EU legislation (europa.eu)

[4] Interview with Dr. Jacob Wende (Regpit) and Ilka Brian

Photo credit: Photo by Markus Spiske on Unsplash