The ink may barely be dry on (most) Member States’ national legislation transposing the EU’s Fifth Anti-Money Laundering Directive but the European Commission is pressing ahead with ever-more ambitious plans to tackle money laundering and terrorism financing with the aim of ensuring EU anti-money laundering laws are enforced consistently across all Member States. On 7 May, the Commission adopted a new action plan, together with a parallel public consultation, with a view to delivering on the proposed actions by early 2021.
The new action plan is built on six specified pillars:
- Effective implementation of existing rules;
- A single EU rulebook;
- EU-level supervision;
- A support and cooperation mechanism for financial intelligence units;
- Better use of information to enforce criminal law; and
- A stronger EU in the world.
Despite the rollout of the Fifth Anti-Money Laundering Directive, an upgraded mandate for the European Banking Authority (EBA), new rules on access to financial information law enforcement authorities and a host of other measures, the Commission still sees significant divergences in the way in which the anti-money laundering and counter-terrorism financing (AML/CTF) framework is applied by Member States and weaknesses in its enforcement.
Perhaps the most significant proposal within the action plan is the introduction of an EU-level AML/CTF supervisory system. The Commission’s action plan stresses the need for high quality supervision over national authorities carrying out AML/CTF-related tasks and to enhance coordination with supervisors outside the EU. Although the Commission has not provided any detail, it is thought that this could be undertaken by the EBA or through the creation of a new dedicated body. Reliance upon the EBA would, per the Commission, necessitate significant reform of the body as well as a significant enhancement in its knowledge of, and competences in, AML/CTF laws. A new dedicated supervisory body would provide maximum flexibility but also likely require greater time to become operational as well as bringing higher costs and execution risks.
Much of the remainder of the action plan is geared towards addressing perceived weaknesses within the existing system. For instance, the Commission highlights the limited exchange of information between Financial Intelligence Units (FIU) and other competent authorities, the use of templates for reporting is limited and several FIUs lack the necessary IT tools to effectively process and analyse information. Whether through a new or existing agency, supervision could promote greater coordination of national FIUs as well as enhancing cooperation between FIUs and other authorities such as law enforcement and customs and tax authorities.
Another weakness highlighted by the Commission is the perceived significant divergence across Member States in implementation of the AML/CTF framework, the existence of a patchwork of rules and imposition of additional requirements going beyond those set out in EU law. According to the Commission, that divergence creates additional costs and burdens for those providing cross-border services and also allows businesses to ‘regulatory shop’ for jurisdictions with more relaxed rules. The Commission also believes that these divergences, combined with a lack of granularity in applicable rules at the national level, undermine the functioning of the AML/CTF framework and particularly affect the FinTech sector. Proposed solutions include making certain parts of the Anti-Money Laundering Directive directly applicable as well as considering a more harmonised approach to issues including the identification of politically exposed persons.
Finally, the Commission also notes the mixed results when it comes to all Member States effectively transposing and implementing the existing AML/CTF framework – and therein may lie one of the significant challenges with the plans envisaged by the Commission. At the time of writing, and four months after the passing of the deadline, a number of Member States have yet to transpose the Fifth Anti-Money Laundering Directive into law. The laggards include the Netherlands, Romania, Spain and Slovenia. The Commission notes that infringement proceedings have been brought against those Member States that failed to notify any transposing measures. It should be borne in mind, however, that the Commission notes that infringements against Member States for failure to fully transpose the Fourth Anti-Money Laundering Directive remain ongoing.
The EU AML/CTF framework will, of course, only be as good as its weakest link. Identifying divergences in implementation is one thing. The Commission may find that eliminating them – and simultaneously pushing a bold set of changes, particular during a time of crisis when much political attention may be elsewhere – may be something else.
The Commission has opened a public consultation in respect of its action plan; the closing date is 29 July 2020.