Understanding The EU's AML Framework Impact On Beneficial Ownership Registers

In a recent article, we explored the European Union's extensive Anti-Money Laundering (AML) framework, which is designed to harmonize regulations across Member States and strengthen the fight against money laundering and terrorist financing. You can read previous analysis here.

These legislative measures will significantly impact Member States, requiring them to align their legal frameworks with the EU's updated guidelines.

Key Regulations in the Updated Framework

1. Regulation (EU) 2024/1620: Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA Regulation, AMLAR)

Effective from 1 July 2025, this regulation establishes the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) and introduces amendments to existing regulations. AMLA will be based in Frankfurt, Germany, and will oversee financial institutions identified as posing the highest risks for money laundering. Its role is to ensure consistent enforcement of anti-money laundering (AML) rules across the EU. AMLA will have the authority to impose financial penalties on obligated entities that breach regulations, whether such breaches occur intentionally or negligently.

2. Regulation (EU) 2024/1624 (AML Regulation, AMLR) : Prevention of Financial System Misuse

Enforcement Date: The regulation will come into effect on 10 July 2027.

• Focus on Football: Starting from 10 July 2029, new rules will require football agents and professional clubs to follow stricter anti-money laundering (AML) measures. These measures aim to improve transparency in high-value financial transactions, such as player transfers and sponsorship deals. Given football's global reach and large financial transactions, the new rules will make clubs and agents conduct more detailed checks, particularly when dealing with investors and intermediaries. This is intended to prevent misuse of funds and enhance accountability in an industry where financial transparency has often been a concern.

• Challenges for Smaller Clubs: While the new rules aim to curb illicit activities, they may impose significant administrative burdens, particularly on smaller clubs with limited resources.

Directive (EU) 2024/1640 (AML Directive 6, AMLD6): Key Changes

1. Beneficial Ownership Registers
   • Central Registers: Member States must establish central registers for legal entities and trusts by 10 July 2025.
   • Key Information Required:
     • Statements if no beneficial owner is identified, with details of senior managing officials.
     • Accurate, up-to-date information verified regularly.
     • Increased scrutiny for higher-risk entities.
   • Access: Competent authorities, tax authorities, AMLA, EPPO, OLAF, Europol, Eurojust, and obliged entities will have access. Individuals or entities with legitimate interest, including journalists and civil society organizations, will also be granted access, raising questions about balancing transparency with privacy concerns.

2. Verification and Legitimate Interest
   • Verification Process: Member States must verify the legitimate interest of applicants, using secure identity verification methods and responding within specific timeframes.
   • Access Control: Access may be granted for three years, with clearly defined conditions for refusal and revocation.

3. Exemptions
   • In exceptional cases, such as significant safety risks or minors, Member States may exempt certain information from disclosure. These exemptions will be thoroughly evaluated and reported annually.

4. Single Access Point for Real Estate Information
   • Access Point: Member States must create a single access point allowing authorities to quickly access real estate data, including ownership, transactions, and encumbrances. This point should provide electronic, machine-readable information, with the AMLA also having access for joint analyses. The access point must include property details, ownership information, encumbrances, and ownership history. Information must be accurate and updated regularly. Member States must notify the Commission about their access points by 10 October 2029, with a review scheduled by 10 July 2032.

5. Regulation (EU) 2023/1113 on information accompanying transfers of funds and certain crypto-assets and amending Directive (EU) 2015/849
   • Officially approved on June 27, 2023, and is set to be implemented on September 1, 2024, establishes comprehensive rules to enhance the European Union's framework for combating money laundering and terrorist financing. This regulation introduces stringent measures to address risks associated with both traditional and emerging financial sectors, including digital assets and cryptocurrencies. It aims to improve the transparency and effectiveness of the EU's anti-money laundering (AML) and countering the financing of terrorism (CFT) efforts by mandating robust due diligence procedures, comprehensive reporting requirements, and enhanced oversight of financial institutions and other obliged entities. The regulation is a key part of a broader legislative package designed to strengthen the Union's AML/CFT framework and ensure alignment with international standards.

Access to Beneficial Ownership Registers: What's New?

1. Access for Competent Authorities and Others
   • Competent authorities, including self-regulatory bodies, tax authorities, and AMLA, will have immediate and free access to interconnected central registers. Obliged entities, such as financial institutions, will have timely access for customer due diligence. Member States may charge fees for access, limited to covering maintenance costs.

2. Access for Individuals and Entities with Legitimate Interest
   • Who Qualifies:

   The following groups are considered to have a legitimate interest in accessing beneficial ownership information:

   • Journalists and media professionals involved in combating money laundering and terrorist financing.
   • Civil society organizations, NGOs, and academia focused on these issues.
   • Individuals or entities entering transactions with legal entities to prevent links to financial crimes.
   • Entities from third countries subject to AML/CFT requirements for customer due diligence.
   • Third-country counterparts of EU AML authorities involved in specific cases.
   • Authorities overseeing company registrations, conversions, mergers, and public procurement.
   • Program authorities managing EU funds and public authorities involved in recovery and resilience funds.
   • AML/CFT product providers, restricted to contracts with obliged entities or competent authorities.
   • Information Provided: Beneficial ownership information, including names, birthdates, nationalities, and the nature of the beneficial interest, as well as historical ownership information for the past five years.

Member States must ensure that other individuals or entities demonstrating a legitimate interest in preventing and combating money laundering, its predicate offenses, and terrorist financing are granted access to beneficial ownership information on a case-by-case basis. This approach emphasizes careful evaluation of each request to ensure access is granted only when genuinely necessary, allowing for targeted transparency without compromising privacy or security. The effectiveness of this case-by-case approach will depend on how rigorously it is applied, ensuring that only those with a legitimate purpose can access sensitive information.

Pros and Cons of Access for Journalists and Legitimate Entities

Pros:

1. Enhanced Financial Transparency: Journalists and investigative bodies can use beneficial ownership information to uncover financial misconduct and corruption, as demonstrated by the Panama Papers leak in 2016.
2. Improved Accountability: With access to this information, journalists and legitimate entities can hold businesses accountable, leading to a more transparent financial environment. Tracing ownership can help identify and mitigate risks tied to illegal activities..

Cons:

1. Potential for Misuse: From the other side access to beneficial ownership information can infringe on individuals' privacy, especially for those not involved in any illegal activities. This raises ethical concerns about the balance between transparency and personal privacy. Malicious actors could exploit the beneficial ownership information for harassment, extortion, or threats, raising concerns about its use beyond legitimate purposes

Balancing Transparency with Privacy and Security

Member States must carefully manage the balance between transparency and the protection of individuals' privacy and security. The new regulations include provisions to protect the identities of journalists and others accessing the data, as well as exemptions where disclosure poses significant risks.

The EU's updated AML framework represents a significant step toward enhanced financial transparency and accountability. However, these changes also bring challenges related to privacy, security, and potential misuse of information. As Member States implement these new requirements, the focus will be on whether they can maintain this delicate balance, ensuring transparency without compromising individual protection. The effectiveness of these measures will ultimately shape the future landscape of financial regulation in the EU.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.