Preventive Legislations ML/FT- Major Countries/Regions : European Union(EU)

The Series of AMLDs

 The first Anti Money Laundering Directive(AMLD 1), issued in 1991, predates the transformation of the original ‘European Community’ into the EU in 1993

Historically, AML had seen episodic inter-governmental action by European governments in the 1980s, but the Commission saw it as a prime area where it could create additional value by taking a multilateral approach.

FATF had issued its first set of 40 Recommendations in April 1990, and they were a significant influence of the content of the first (and subsequent) AMLDs. The foundational aspect of 1AMLD was the requirement for member states to criminalize money laundering, but it also began the process of placing specific AML obligations on elements of the private sector deemed best placed to act as ‘gatekeepers’ for the financial system. Much as with the 40 Recommendations, 1AMLD targeted banks as the primary ‘obligated entities’ in the private sector (termed ‘credit and financial institutions (FIs)’ in the AMLD).

The directive required members states to legislate to ensure that such obligated entities undertook consistent Customer Due Diligence (CDD) and Know Your Customer (KYC) (KYC) procedures at onboarding, as well as at regular intervals thereafter, and – importantly kept records of the relationship up to five years after it had ended.

It also required that the obligated entities monitor the activity of its clients to ensure that their transactions matched CDD obligations, as well as identifying ‘suspicious’ transactions and reporting them to national authorities via a suspicious activity report a ‘Suspicious Activity Report’ (a requirement which itself also had roots in the US Banking Secrecy Act (BSA) of 1970).

These two obligations, although not specifically requiring a technological response, effectively created what we now know as the ‘Transaction Monitoring’ requirement. Although many obligated entities sought to meet this through manual checks at first, it soon became clear that the volume of transactions going through retail and commercial banks needed some kind of automated answer. To start, however, such platforms were extremely rudimentary, and based on basic rule sets to detect ‘suspicion.’

The AMLD series	Coverage	Lapses identified
AMLD 1 – Apr 1990	The beginning of AML with Banks at the core of controlling financial flows	Organized Crime Groups not particularly addressed
AMLD 2 – Dec 2001	Covered for FATF 40 recommendations 1996; Money service Bureaus collectively known as NBFCs, Designated non-Financial Business & Profession including Lawyers brought under the AML laws	Terrorism not addressed
AMLD 3- 2005	‘War on Terror’; Risk Based Approach to AML  practices where in CDD become a spectrum from Simple Due Diligence to Enhanced Due Diligence; Penalty for breach of AML directives	Need for more integration among Sectors/Members
AMLD 4-june 26, 2017	Main objectives have been defined under the 4AMLD: ·         Increase transparency of beneficial owner (UBOs), by developing national and central registers storing this information; ·         Broadening the scope of obliged entities (such as gambling services), meaning that more companies have to comply with AML requirements; ·         Regulating e-money products such as prepaid cards, by implementing thresholds and forbidding anonymous funding of those payment services; ·         Need for the implementation of a risk-based approach for obliged entities, by considering different factors such as country (allegedly through Transparency International Index), type of business, transactions or delivery channel; ·         Mandatory character of sanctions that EU members have to enforce for designated entities/persons not respecting AML requirements.
AMLD 5-2018	New areas that were insufficiently or not covered in the previous directive, such as crypto-currency, high-value transactions, high-risk third countries and art transactions. Therefore, crypto exchanges are since the ratification of the 5AMLD in national legislations considered as obliged entities, and must now comply to AML regulations.
AMLD 6-Dec 03, 2020	Single Rule package

Cooperation of FIUs

The Member States of the European Union have identified the fight against financial crime (money-laundering, corruption, euro counterfeiting, counterfeiting of goods, trafficking in high-value goods and serious economic crime) as a top priority. The European Council of Tampere  was devoted to Justice and Home Affairs issues and it stated, “Money laundering is at the very heart of organized crime. It should be rooted out where ever it occurs. The European Council is determined to ensure that concrete steps are taken to trace, freeze, seize and confiscate the proceeds of crime”. Several EU Action Plans on the prevention and control of organized crime have asked the Commission and the Member States to develop a multidisciplinary approach towards the phenomenon of corruption.

Money-laundering is at the heart of practically all criminal activity. It has been given strategic priority at European Union (EU) level. A decision was adopted by the EU Council of ministers concerning arrangements for cooperation between financial intelligence units of the member states. The Europol convention was extended to money laundering in general, not just drugs related. A framework decision on money laundering, dealing with the identification, tracing, freezing and confiscation of criminal assets and the proceeds of crime has also been adopted. The EU member states have signed the protocol to the convention on mutual assistance in criminal matters between the member states. A second anti-money laundering directive was agreed, widening the definition of criminal activity giving rise to money laundering to include all serious crimes, including offences related to terrorism. A framework for decision on the execution in the EU of orders freezing property or evidence was also discussed among members, the scope of which is to be extended to terrorist-related crimes.

For the first time ever, the Ministers of the EU Council of Finance and Justice and Home Affairs met at a joint meeting in October 2000 and decided on arrangements for cooperation between financial intelligence units of the Member States and a Council Act of November 2000 amending the terms of the Europol Convention to extend the competence of Europol to money-laundering in general, not just drugs-related money-laundering. Since then, the EU has been actively pursuing the war against financial crime by fostering greater cooperation and engagement of Member States and through its Directives that are obligatory for the Member States to incorporate in their local laws on money laundering and financial crime.

The European Commission is a member of the Financial Action Task Force and participates fully in international bodies such as the OECD and the Council of Europe. The Commission has also negotiated on behalf of the EU in respect of the relevant money-laundering provisions of the United Nations Convention on Transnational Organized Crime.

 As a result of an integrated Europe wide framework and the ever increasing use of the internet for commercial and financial transactions, it has become imperative for the EU to track the financial transactions and bank operations of the citizens and institutions. This has led to protests from civil liberty groups, demanding removal of any infringement of their privacy. In conformity with EU Directive, all countries have legislation on personal data protection in place; they also have a supervisory authority in this field, entrusted with ensuring compliance to legislative provisions, which has the appropriate powers

Broad mandate of Europol

 

Europol has a broad mandate in the area of combating money laundering, and provides Member States with intelligence and forensic support to prevent and combat international money laundering activities. The main objective in tracing illegal assets and money laundering is to:

• Find the criminals involved;
• Disrupt their associates;
• Confiscate the proceeds of their crimes.

The Europol Criminal Assets Bureau (ECAB) assists Member States’ financial investigators in tracing the proceeds of crime worldwide, in cases where assets have been concealed beyond their jurisdiction.

The ECAB hosts the secretariat of the Camden Asset Recovery Inter-Agency Network (CARIN), which focuses on all aspects of confiscating the proceeds of crime. Comprising practitioners from 54 jurisdictions and 9 international organisations, CARIN can assist with enquiries regarding the tracing, freezing, seizure, management and confiscation or forfeiture of criminal proceeds or other assets belonging to a suspect.

The Financial Crime Information Centre (FCIC) is a secure web platform for law enforcement practitioners dealing with money laundering, asset recovery and financial intelligence. It allows its 1 200 members (in 2015) to share and retrieve knowledge, best practice and non-personal data on financial intelligence. It also serves as the communications platform for CARIN, AMON and other projects supported by Europol’s Financial Intelligence Group

Markets in Crypto-asset (MiCA) regulation: New regulations for stablecoin issuers in the EU will take effect in mid-2024, under the MiCA regulation. Other countries such as Hong Kong, Singapore, and the UK are also working on similar legislation. These regulations will increase scrutiny and require issuers to hold sufficient reserves, protect holders, and safeguard assets. The improved regulatory framework will promote transparency and accountability and boost institutional investor confidence.

The European Union’s New AML Package: 2023 marked a big step toward the full implementation of the EU’s new AML package, consisting of 

(1) A new AML regulation (AMLR), 

(2) The 6th Anti-Money Laundering Directive , 

(3) A regulation establishing a European Anti-Money Laundering Authority (AMLA) and 

(4) An update to the Wire Transfer Regulation (TFR). 

The TFR was fully agreed upon in May 2023, bringing crypto-asset service providers (CASPs) within the regulatory framework and requiring them to collect and share originator and beneficiary information (the ‘Travel Rule’). Further steps toward full implementation will be made in 2024.

The 6th Anti-Money Laundering Directive (AMLD6)

The 6th Anti-Money Laundering Directive (AMLD6), also known as (EU) 2018/1673, was passed on December 2, 2018 and came into effect on December 3, 2020. It was implemented by regulated entities by June 3, 2021. The directive aims to strengthen the EU's anti-money laundering (AML) rules and increase the responsibility of regulated entities in fighting financial crime. 

AMLD6 includes the following provisions:

·         Harmonized definition of criminal activity

Defines 22 offenses as criminal activity, including terrorism, human trafficking, and illicit trafficking in narcotics

·         Centralized automated mechanisms

Includes information on bank accounts, payment accounts, securities accounts, crypto-asset accounts, and safe deposit boxes

·         National provisions

Includes provisions on supervision, Financial Intelligence Units, and access for competent authorities to information such as beneficial ownership registers

·         Extended definition of aiding and abetting

Extends the definition of aiding and abetting in financial crimes 

AMLD6 also aims to enhance the EU's framework for AML/CFT, avoid regulatory divergence between Member States, clarify the role of public authorities in oversight of self-regulatory bodies, and set out the role of the new Anti-Money Laundering Authority (AMLA). On February 22, 2024, the European Parliament and the Council voted to choose Frankfurt as the home for AMLA, whose key objective will be to protect EU citizens and the EU's financial system against illicit money flows and terrorist financing. 

In 2024, the EU implemented the  strengthened AML/CFT framework, including a single rulebook directly applicable across member states, a harmonized supervision framework, and the establishment of the Anti-Money Laundering Authority (AMLA), effective July 2024. 

Regulation (EU) 2024/1624 of the European Parliament and of the Council of May 31, 2024 (AMLR) covers the prevention of the use of the financial system for the purpose of money laundering or terrorist financing, which will apply directly in the Member States beginning July 10, 2027.

1. The Regulation on Money Transfer Information

Regulation (EU) 2023/1113 of May 31, 2023 covers information accompanying transfers of funds and certain cryptocurrencies, which will apply directly in all Member States beginning December 30, 2024. By that date, the European Banking Authority shall issue guidelines specifying restrictive measures to implement the transfers of funds and crypto assets.

2. The AMLA Regulation

Regulation (EU) 2024/1620 of the European Parliament and of the Council of May 31, 2024 (AMLAR) established a new agency starting its operation to combat and prevent money laundering and terrorist financing, which will apply as of July 1, 2024.

3. The AML Regulation

Regulation (EU) 2024/1624 of the European Parliament and of the Council of May 31, 2024 (AMLR) covers the prevention of the use of the financial system for the purpose of money laundering or terrorist financing, which will apply directly in the Member States beginning July 10, 2027.

4. The AML Directive

Directive (EU) 2024/1640 of the European Parliament and of the Council of May 31, 2024 (AMLD6) covers the mechanisms that Member States should put in place to prevent the use of the financial system for the purpose of money laundering or terrorist financing, amending the Whistleblower Protection Directive (EU) 2019/1937 and repealing the Directive (EU) 2015/849 (AMLD4), which Member States will have to transpose into national legislation by July 10, 2027 (subject to several exceptions).

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