Elliot Berman
With the geographic selection of the AMLA’s Headquarters, many are celebrating these days. While accurate, there’s always more to the story. In this case, the news regarding the AMLA’s decision to set up camp in Germany, while important for local financial crime compliance professionals, isn’t the most crucial aspect of the European Union’s (EU) new anti-money laundering framework.
The EU Council and Parliament recently agreed to the framework. FCC professionals around the globe should be more focused on what the continued growth and trajectory of the AMLA means for the global financial crime compliance landscape.
Let’s look at some foundational elements related to this recent announcement to appreciate this progress fully. A primary focus of the new regulations is harmonizing the AML compliance approach across the 27 member countries.
What is the EU?
The EU, a political and economic union of 27 European member countries, has developed a single market through a standardized law system that applies to all member states. The euro (€), a currency adopted by and used in 19 of its 27 members, is referred to as the Eurozone. The EU has its own parliament, which EU citizens directly elect.
How has the EU approached its AML Framework up to this point?
The EU has developed its AML Framework through a series of regulations and directives. Directives provide general rules that must be incorporated into national law, while regulations are immediately enforceable in all member states. Starting in 1991, it has issued five Anti-Money Laundering Directives. The new framework will include the Sixth Anti-Money Laundering Directive.
The First Anti-Money Laundering Directive established a baseline for anti-money laundering obligations. It defined the crime of money laundering and imposed suspicious activity reporting obligations on financial institutions. Each subsequent directive extended the scope of compliance obligations and refined the methodology.
The first three directives were adopted over 24 years – 1991, 2001, and 2005. The last three have been adopted over nine years – 2015, 2021, and 2024 (subject to final adoption). This change reflects the growing complexity of the global economy, rapid increases in payment flows, and the growing sophistication of criminals.
The regulations are passed as national law by the EU member states.
The New Anti-Money Laundering Framework
This agreement is part and parcel of the EU’s new anti-money laundering system. It will improve the way national systems against money laundering and terrorist financing are organized and work together. This will ensure that fraudsters, organized crime, and terrorists will have no space left for legitimizing their proceeds through the financial system. – Vincent Van Peteghem, Belgian Minister of Finance
The latest package is designed to protect EU citizens and the EU’s financial system. As mentioned at the outset, a prime outcome of this framework is to harmonize AML compliance across the member states. The focus here is to close loopholes created, in part, by member state adoption methods with the prior directives, which in current have been exploited by money launders and terrorist financiers.
The new regulation
Many new regulations’ provisions align the EU more closely with current FATF guidance. These rules establish the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA), the central authority coordinating member state authorities to ensure the consistent application of EU rules. AMLA will directly supervise those financial sector entities exposed to the highest risk of money laundering and terrorism financing.
AMLA will also support financial intelligence units (FIUs) in improving their analytical capacity, making them a resource for law enforcement agencies, and facilitating cooperation between national FIUs. As most recently decided, the AMLA will be headquartered in Frankfurt and expected to be substantially operational in 2025.
The existing regulations apply to financial institutions, banks, real estate agencies, asset management services, casinos, and specific merchants: the new rules expand on “obliged entities” (those required to comply with sections of the regulations) to include:
- The crypto sector, including crypto-asset service providers (CASPs)
- Traders of luxury goods such as precious metals, precious stones, jewelers, and goldsmiths. Traders of luxury cars, airplanes, and yachts, as well as cultural goods and works of art
- Lawyers
- Professional football (soccer) clubs and agents, unless a member state determines they are low risk.
This list is not exhaustive.
These regulations create an obligation for enhanced due diligence for cross-border correspondent relationships for CASPs, financial service providers, and lenders when doing business with high net-worth individuals involving large amounts of assets.
A new €10,000 limit has been established for cash transactions. And while member states may choose to lower this threshold, obliged entities must identify and verify the identity of a person who conducts a transaction in cash between €3,000 and €10,000.
Existing requirements for identifying and reporting beneficial ownership information (BOI) have also been revised to harmonize the activity across the bloc.
A new requirement is established for obliged entities to apply enhanced due diligence measures to transactions and business relationships involving high-risk third countries that threaten the integrity of the EU’s internal market.
The New Directive
The directive will require member states to verify that BOI has been submitted to national beneficial ownership registers. Entities in charge of the registers will have the power to inspect the premises of registered legal entities to assess the accuracy of the information in their possession. The directive also expands access to the registers to persons of the public with a legitimate interest, including the press. Allowing public and press access to the information is a change from earlier drafts of the directive.
Each of the member states has a FIU. The directive expands FIU access to financial, administrative, and law enforcement information. It also requires close cooperation among FIUs in cross-border cases and authorizes the upgrading of information-sharing systems among them.
The directive requires that all obliged entities be subject to risk-based supervision. Supervisors will report instances of suspicions to the FIUs.
The Challenges Ahead
- Bringing AMLA into operation, including – establishing its physical location, hiring and onboard its staff, establishing its operating processes, and establishing its relationship with the national FIUs
- Successful changes to the national compliance regimes of the member states to carry out harmonization
- Synchronizing the intent of the new regulation and the directive with what is happening in real-time.
Final Takeaways
The new EU AML regime has been finalized. It does many things, including:
- Harmonizes compliance rules across the member states
- Expands the entities covered by the regulations
- Establishes AMLA as the central authority coordinating member state authorities and supporting their FIUs
- Align the EU more closely with current FATF guidance.
If you need help revising your existing program to meet the new framework, our team of seasoned financial advisors is ready to help. Fill out our contact form, and let's start the conversation.