On 18th January 2024, the European Council (“EC”) and European Parliament (“EP”) reached a political agreement on the proposed:
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- Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“AMLR”); and
- Directive on the mechanisms to be put in place by the Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (“AMLD6”).
The AMLR and AMLD6 were part of the European Commission’s package of legislative proposals to strengthen the EU’s rules on anti-money laundering and countering the financing of terrorism (“AML/CFT”), which were presented back on 20 July 2021.
The AMLR will encompass rules and requirements pertaining to the private sector, i.e., applicable to obliged entities, while the AMLD6 will include provisions towards the organisation of institutional AML/CFT systems at the Member States’ national level. The below are the main salient points pertaining to both the AMLR and AMLD6.
AMLR
Increase in the list of “obliged entities”
The list of obliged entities has increased to cover most of the entities operating within the crypto sphere. All crypto asset service providers will therefore be required to undertake due diligence on their customers when they undertake a transaction amounting to €1,000 or more. Measures to be adopted in relation to self-hosted wallets are also catered for in the provisional agreement reached.
In addition, traders of luxury goods, including precious metals and stones, watches, cars airplanes and yachts, as well as professional football clubs and agents will also be subject to AML-CFT requirements. With respect to professional football clubs and agents, the Regulation will provide discretion to each Member State to determine whether the latter should be deemed as obliged entities and therefore be subject to AML/CFT requirements, depending on the level of ML/FT risk they represent.
Enhanced due diligence (“EDD”) measures
The AMLR will include additional EDD measures for: (i) crypto-asset service providers when conducting cross-border correspondent relationships; and (ii) credit and financial institutions when dealing with a large amount of assets for high net-worth individuals.
Cash payments
A limit of €10,000 will be set for any cash payments made, whereby Member States will have the flexibility to even lower this threshold. Furthermore, obliged entities will be now required to identify and verify persons carrying out an occasional cash transaction amounting in between €3,000 and €10,000.
Beneficial ownership
The rules relating to beneficial ownership have been drafted in a more harmonised and transparent manner. The provisional agreement clarifies that beneficial ownership concept is based on the notion of ownership and control, both of which need to be assessed by obliged entities when identifying and verifying beneficial owners. In this respect, the beneficial ownership threshold will be set at 25%.
The provisional agreement also sets beneficial ownership rules relating to non-EU entities when they do business in the EU or purchase real estate in the EU. The agreement provides for the registration of the beneficial ownership of all foreign entities that own real estate with retroactivity until 1 January 2014.
Furthermore, rules relating to multi-layered ownership and control structures are further clarified to limit the disguise of beneficial owners behind multiple layers of ownership structures.
High-risk Third Countries
Obliged entities will be required to apply EDD measures when undertaking occasional transactions and/or business relationships having links with high-risk third countries whose AML/CFT shortcomings pose a threat to the integrity of the EU’s internal market.
Furthermore, the EC’s assessment of high-risk jurisdictions will be based upon the listings determined by the Financial Action Task Force (“FATF”).
AMLD6
Beneficial ownership registers
The AMLD6 will specify certain duties of the entity in charge of the beneficial ownership register within the Member State, including, verification of the information submitted to flag any entities or arrangements having links with sanctioned individuals or entities. Competent authorities maintaining the register of beneficial owners in the respective Member States will have 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 AMLD6 also guarantees the access to the beneficial ownership registers to, amongst others, persons of the public with legitimate interest, the press and civil society.
Furthermore, real-estate registers should be accessible to competent authorities via a single access point to facilitate access for data during property-related criminal investigations.
Financial Intelligence Units (“FIUs”)
The AMLD6 will specify the main responsibilities of the FIUs within Member States which inter alia include prompt 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 and customs data. Closer co-operation between the FIU counterparts is expected with the upgrade of the FIU.net system thereby enabling faster dissemination of cross-border reports.
Furthermore, the AMLD6 will enable 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.
National Supervisors
Each Member State will need to ensure that all obliged entities established under its laws will be supervised by an adequate and effective supervisor, which in turn will apply a risk-based approach supervision and report any ML/FT suspicions to the local FIU.
Furthermore, new AML/CFT supervisory colleges will be introduced for the non-financial sector, whereby the general conditions for the functioning of such colleges will be determined via regulatory technical standards developed by the Anti-Money Laundering Authority (“AMLA”).
Risk Assessments
Both the supranational risk assessment (“SNRA”) and the national risk assessments (“NRA”) remain a fundamental tool to mitigate ML/FT threats and vulnerabilities within the EU’s internal market. The European Commission will continue to draw up the SNRA including recommendations and measures to Member States, whilst Member States themselves will also draw up the NRA to assess their exposure to ML/FT threats and vulnerabilities and effectively mitigate the risks observed.
Moving Forward
The AMLR and AMLD6 will now have to be finalised and presented to member states’ representatives in the Committee of permanent representatives and the EP for approval. Once approved, the EC and the EP will adopt the legislative texts and ultimately will be published in the Official Journal of the EU and enforced.
Once the relevant texts are finalised and published subject persons are encouraged to consider the updates included in the legislative texts, especially the AMLR, to ensure that the adopted policies, procedures, systems and controls are in line with the AMLR.
Author: Mario Zerafa, Jonathan Camilleri