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The EU’s new AML/CFT reforms: latest news and implications for businesses

Author: Warren​ Coles
Date: April 2023

In July 2021, to underline its commitment to tackling money laundering, the European Commission announced that it would propose a new package of AML/CFT reforms as an update to the EU Directive 2018/1673, itself only issued in November 2018. While no timetable was set for the implementation, on 28 March 2023, the European Parliament announced that MEPs from the Economic and Monetary Affairs and Civil Liberties, Justice and Home Affairs Committees had adopted their position on three pieces of draft legislation.

With negotiations on the draft AML/CFT proposals to continue in April, the implication is clear: businesses need to start preparing now. With that in mind – What are the details announced so far? How can businesses best prepare?

Background to the new proposals

As mentioned above, the last EU Directive 2018/1673, was only issued in November 2018, at the time, creating a new foundation for the EU’s criminal law on money laundering. EU member states were required to transpose it into national law by 3 December 2020, with the private sector required to make any necessary changes by 3 June 2022. This directive is widely known in the financial services industry as the 6th Anti-Money Laundering Directive (6AMLD). With implementation still ongoing, the European Commission decided that further regulations were needed, and a ‘New 6AMLD’ was proposed to build on the previous five, focusing on, among other things, the AML/ CFT institutions required from national governments. To help close existing gaps in combatting money laundering, terrorist financing and evasion of sanctions in the EU, three key pieces of legislation agreed were as follows:

New AML/CFT proposals key details

According to the adopted text:

Money laundering and terrorist financing prevention

  • Entities, such as banks, assets and crypto assets managers, real and virtual estate agents and high-level professional football clubs, will have to verify their customers’ identity, what they own and who controls the company.
  • To support this, they will be required to assess in detail the different types of terrorist financing and money laundering activity specific to their sector, and add that information to a central register that will be established.

Financial Intelligence Units

  • Each member state of the EU needs to establish a financial intelligence unit (FIU) to prevent, report and combat money laundering and terrorist financing.
  • FIUs will be required to share information with each other and with relevant authorities as well as cooperate with AMLA, Europol, Eurojust and the European Public Prosecutor’s office.

Beneficial ownership information

  • National FIUs and other competent authorities should be able to access information on beneficial ownership, bank accounts, land or real estate registers.
  • MEPs wants member states to aggregate information on goods worth over €200 000 or goods stored in free zones that are attractive to criminals such as yachts, planes and cars.
  • MEPs agreed that beneficial ownership means having 15% plus one share, or voting rights, or other direct or indirect ownership interest, or 5% plus one share in the extractive industry or a company exposed to a higher risk of money laundering or terrorist financing.

Beneficial owners’ registers

  • All Beneficial ownership information in the established national central registers should include current and historical information for an agreed period, be in an EU official language plus English and be available digitally.
  • At the request of the entity in charge of the central register, corporate and legal entities will have to provide any information necessary to identify and verify their beneficial owners.
  • This information will have to be up to date and available to FIUs, AMLA, competent authorities, self-regulatory bodies and obliged entities.
  • If a corporate or legal entity does not provide accurate and adequate data to registers it will be sanctioned.
  • The entities responsible for central registers are entitled to employ adequate technology to carry out verifications.

Access to information

  • In the latest Court of Justice ruling, it was decided that those with legitimate interest, such as journalists, reporters, any other medias, civil society organisations, higher education institutions, would be given the right to access the register, including the interconnected central registers.
  • Their access right will be valid for at least two and a half years.
  • Member states will automatically renew access unless it is abused, where they have the authority to revoke or suspend.
  • The concept of legitimate interest would apply without any discrimination based on nationality, country of residence or of establishment.

New Anti-Money Laundering Authority (AMLA)

  • The newly established AMLA would be tasked with classifying credit and financial institutions according to their risk profile, and then supervising the 40 entities with the highest risk profile.
  • In the above case, they should be operating in at least two member states but at least one entity would be chosen from each state.
  • The AMLA would be given powers, and responsibility, to conduct on-site visits, require businesses to handover over information and impose fines of and impose sanctions of €500 000 – €2 million, or 0.5-1% percent of annual turnover, for material breaches – and up to 10% of the total annual turnover of the obliged entity in the preceding business year.
  • The AMLA would be given the role of mediator between national financial supervisors and the power to settle disputes, while also having the powers to ensure the single AML rulebook is implemented consistently across member states.
  • Finally, to oversee supervisors in the non-financial sector and handle whistleblower complaints.

What should businesses be doing?

Although, the fine print is not signed off on the broad principles and direction is clear. Businesses should therefore be starting to get together contingency plans to think about how this will affect them.

Where specific detail is available training programs can be put in place, but otherwise the overarching theme, and indeed specifics, is one of a more comprehensive attempt to combat money laundering with tougher rules, larger fines, stricter reporting requirements, and, in particular, the need for businesses to have information that is available digitally, regularly updated, accurate, auditable and easily shareable and accessible by the relevant authorities. In other words, entities of all kinds will have work much harder to meet obligations, inevitably needing to be more thorough, take on more staff, face higher compliance costs, and think of ways to make their procedures much more efficient and effective through technology.

Sources

New EU measures against money laundering and terrorist financing – News, European Parliament: https://www.europarl.europa.eu/news/en/press-room/20230327IPR78511/new-eu-measures-against-money-laundering-and-terrorist-financing

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Synalogik deliver innovative solutions that improve the efficiency and effectiveness of compliance and fraud investigations through innovative software and unparalleled access to consumer and business data. Our flagship product is our data aggregation and automation platform Scout® which is unique in its capability to aggregate data from Synalogik, open, closed, third party and proprietary sources, allowing investigators and analysts to automate complex enhanced due diligence and fraud investigations. In addition to our third-party integrations, Synalogik offer a comprehensive package of our own data, including loan application and lists of disposable emails and telephone numbers; organisations benefit from greater insight, speed of deployment, and the ability to meet compliance needs and protect themselves from fraudulent actors more cost-effectively.

In 2022, we secured a Series A investment from Bill Currie and former Tesco CEO Sir Terry Leahy and, among other awards, the Queen’s Award for Innovation. Our current customers include Hasting Direct, The Insolvency Service, Entain, Betway, Buzz Bingo, AIG and Marble Arch Insurance.

Warren​ Coles
Warren is a growth and digital marketing veteran with over twenty years' experience across SaaS and the wider technology area in general.