Reminder on the EU’s AML package
The EU’s AML package focuses on four key components:
As a reminder, the European Council and the European Parliament agreed in mid-December, to the creation of an EU AML Authority (“AMLA”), whereas this specific update focuses on the AML Regulation and Directive agreements.
Key points – AML regulation
Increased scope in entities
The list of “obliged entities” would grow with new entities being added:
- Firstly, the list would include a significant part of the crypto sector, notably by mandating all Crypto Asset Service Providers (“CASPs”) to implement customer due diligence. More specifically, CASPs would be required to perform due diligence for transactions exceeding or equal to €1,000.
- Other entities being added include traders of luxury goods (e.g., precious metals, luxury cars, art) as well as professional football clubs and agents.
- For football clubs and agents, member states will have the flexibility to remove them from the list of obliged entities if they represent a low risk, and a longer implementation period of five years as opposed to three for the other obliged entities.
Compliance functions
The Regulation introduces two roles namely:
- The compliance manager responsible for implementing the entity’s policies, controls, and procedures and for receiving information on significant weaknesses in such policies and procedures. The compliance manager will be responsible for reporting to the board of directors on such matters; and
- The compliance officer appointed by the board of directors and entrusted with the day-to-day implementation of the AML policies and procedures of an entity.
Enhanced due diligence
Under the agreement, credit and financial institutions will undertake enhanced due diligence measures when business relationships with high net-worth individuals involve the handling of a large amount of assets.
The Regulation also mandates AMLA, to develop draft regulatory technical standards on the information necessary for the performance of customer due diligence.
Cash payments
To combat money laundering activities, an EU-wide limit on cash payments of €10,000 would be set, with the possibility for Member States to set lower thresholds. Additionally, 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 agreement clarifies that both elements of beneficial ownership – ownership and control – would need to be examined to identify all beneficial owners, including non-EU entities when they do business in the EU or purchase real estate in the EU.
The AML Regulation also seeks to make beneficial ownership more aligned and transparent while setting the threshold for beneficial ownership at 25%. In addition, additional clarity is being provided for the determination of the exercise of control ‘via other means’.
Nominee shareholders and nominee directors will be required to maintain adequate, accurate, and updated information on the identity of their nominator and the beneficial ownership thereof and will be required to disclose them to other legal entities.
Importantly, the agreement requires legal entities incorporated outside the Union or express trusts or similar arrangements administered outside the Union to be include in a central register when
- They enter a business relationship with an EU entity which is an obliged entity;
- They acquire real estate in the European Union.
The agreement provides for the registration of the beneficial ownership of all foreign entities that own real estate with retroactivity until January 1 2014.
Finally, the agreement clarifies rules relating to preventing entities from hiding behind multi-layered structures, with data protection, and record retention requirements being amended to ensure authorities can work more quickly and more efficiently.
High-risk third countries
Obliged entities will be required to apply enhanced due diligence measures for occasional transactions and business relationships involving high-risk third countries.
Additional specific EU or national countermeasures, whether at the level of obliged entities or by the Member States, could be implemented for high-risk countries.
Key points – AML directive
Beneficial ownership registers
Under the agreement, information submitted to central registers will need to be verified, with persons or entities subject to financial sanctions needing to be flagged.
The agreement also includes provisions for greater access to beneficial ownership registers:
- Entities in charge of registers would have the power to carry out inspections at the premises of a registered entity;
- In addition to supervisory and public authorities, persons of the public with a (demonstrated) legitimate interest (e.g., press and civil society) could access beneficial ownership registers; and
- Real estate registers would be accessible to authorities through a single access point, with information on price, property type, history, and encumbrances like mortgages, judicial restrictions, and property rights being made available.
Responsibilities of Financial Intelligence Units (“FIUs”)
FIUs are set to have immediate and direct access to financial, administrative, and law enforcement information (e.g., tax, frozen funds and assets, transfers of funds, and crypto-transfers).
The agreement also includes provisions to closer cross-border cooperation and reporting amongst FIUs, as well as the ability for FIUs to suspend or withhold consent to a transaction while it assesses it.
Supervisors
The agreement also introduces new supervisory measures for the non-financial sector, with AMLA being tasked with dragging regulatory technical standards for those.
Risk assessment
The EU Commission will conduct an assessment of money laundering and terrorist financing risks at the EU level and provide recommendations to Member States.
Next steps
The texts will now be completed and presented to Member States’ representatives in the Committee of Permanent Representatives and the European Parliament for approval. Upon approval, 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.
How can we help
We can help you stay compliant with the latest regulations and protect your business from financial crime. Get in touch for further information on:
- AML due diligence
- AML audit
- AML training
- AML support in regulatory visits
- Policies and procedures
- Compliance officer/ compliance manager (“MLRO”)’ in key EU financial hubs
- Crypto/ virtual asset/ VASP-CASP licensing
- Crypto AML compliance support
- Crypto compliance training
