Commission increases its fight against money laundering and terrorism financing

The EU Commission increases its fight against money laundering – will this pave the way for a new supervisory authority?

The European Commission (“EU Commission”) wants to increase its efforts against money laundering and the financing of terrorism and published a set of measures on 7 May 2020.

This set of measures included:

• the action plan for a new comprehensive EU policy to prevent money laundering and the financing of terrorism,
• a more refined and transparent method to identify high-risk third countries,
• an updated list of high-risk third countries.

Background

Not least due to the introduction of the Fourth and Fifth Anti-Money Laundering Directive there are already strict EU anti-money laundering rules. However, as directives have to be transposed into national law, some EU member states do not apply the rules in a uniform manner. Already back in July 2019, the EU Commission pointed out structural deficits regarding the fight against money laundering and terrorism financing and presented numerous measures to address this.

Action plan

The action plan that was published was based on the six pillars and its concrete measures are intended to be implemented over the next twelve months:

• Effective application of the EU rules by the member states by implementing the EU rules
• Proposal for a uniform and more harmonised set of EU rules by the Commission
• Establishing a supervisory body at EU level
• A mechanism to coordinate and support the central reporting bodies in the member states
• Enforcing applicable criminal law provisions and information exchange at EU level
• A stronger EU as a global player

New EU supervisory authority

In the first quarter of 2021, the EU Commission will propose the establishment of a supervisory body at EU level. It remains to be seen whether this will constitute a new supervisory authority or whether the supervision remains the responsibility of the European Banking Authority (EBA). Since 1 January 2020, the EBA has taken on the leading role in coordinating and monitoring the prevention of money laundering and the financing of terrorism at EU level (see also our contribution on this). However, EU vice president Valdis Dombrovskis said when the measures were presented that if the EBA was to be given this task, it would need to improve.

According to a media report, BaFin favours a central body that is separate from the EBA. BaFin director Thorsten Pötsch, who is responsible for transactions and anti-money laundering, is said to have stated at the BaFin annual press conference: “For various reasons, we are in favour of a different central body. The EBA is a pure banking authority.”

Updated list

Pursuant to the Anti-money Laundering Directive (AMLD), the Commission is legally obliged to identify high-risk third countries whose rules on combating money laundering and terrorism financing contain strategic deficits. As a result of the modified method, the new list is now more aligned with the lists published by FATF.

The following countries were added to the list: The Bahamas, Barbados, Botswana, Ghana, Jamaica, Cambodia, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe.

The following countries were deleted from the list: Ethiopia, Bosnia-Herzegovina, Lao People’s Democratic Republic, Guyana, Sri Lanka and Tunisia.

The list still needs to be ratified by the EU member states and the EU Parliament.

Consequences of the list for financial institutions

According to the EU Commission, the mere fact that a country has been included in the list will not trigger any sanctions and will not restrict trade relations or development aid; however, banks and other obliged persons must apply increased vigilance with respect to transactions with countries included on the list.

Next steps

The EU-Commission has released the action plan for public consultation. Authorities, interested parties as well as citizens have until 29 July to submit contributions.

The Commission is assessing whether the action plan will lead to new regulation. In light of the planned review of the EU rules on combating money laundering and terrorism financing, it intends to carry out an impact assessment and present legislative proposals in early 2021. The results of the public consultation will be taken into consideration for this impact assessment.

Evaluation

The EU Commission’s efforts to harmonise the implementation of rules to combat money laundering and terrorism financing in the EU member states are highly laudable. We believe a uniform legal framework is essential to improve the fight against money laundering and terrorism financing at EU level. Additionally, harmonised rules would avoid regulatory arbitrage and create a level playing field at EU level. We also believe that the creation of a central agency or supervisory authority at EU levels is important in order to monitor adherence to the harmonised rules and efficiently remedy any shortcomings. It is to be expected that national supervisory authorities will continue to play a key role in combating money laundering and terrorism financing. We will closely monitor the developments in this area and keep you informed here on PayTechLaw.

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