June 2024 – The Council of the European Union has recently adopted a new set of Anti-Money Laundering (AML) rules, nearly three years after the European Commission unveiled its package of legislative proposals. The legislative package introduces significant changes to the EU's AML and Countering the Financing of Terrorism (CFT) landscape, including:
- A more detailed and synchronised approach as to implementing parts of the AML/CFT regulations such as in respect of client due diligence, internal policies and identification of beneficial owners;
- A requirement for each obliged entity to have a compliance manager (member of the management body/senior management);
- Extending the list of obliged entities to include (amongst others): traders of luxury goods and precious metals, real estate professionals advising in relation to leases in the amount of more than EUR 10,000 per month, football agents and professional football clubs;
- A restriction for the use of cash for large transactions in the context of exchange of goods and services exceeding EUR 10,000.
The full package of adopted regulations and directives was published in the EU Official Journal on 19 June 2024 and can be found here.
New obligations on traders of luxury goods and precious metals
One of the significant changes introduced with the new package is the extension of AML obligations to apply for traders of luxury goods and precious metals, including:
- High value goods: Items such as watches and jewellery exceeding EUR 10,000 in value and motor vehicles exceeding EUR 250,000.
- Client due diligence: Trades of such goods will now be obliged to conduct due diligence on their clients when the purchases exceed the obtained limits.
- Reporting obligations: Purchases exceeding the listed amounts must be reported to the national Financial Intelligence Unit.
These measures will be binding on traders of luxury goods and precious metals from 10 July 2027.
The regulators seek to address the high risk of these sectors and make it harder for criminals to launder money through the purchase of such items, given the large amounts of money that can change hands without proper oversight.
New obligations on crypto-asset service providers
The extension of the scope of AML rules introduces new obligations for crypto-asset service providers, including:
- Prohibition of anonymous instruments: The new legislation bans the use of anonymous instruments, such as anonymous bank and payment accounts and passbooks.
- Mitigation of risks in relation to self-hosted addresses: Crypto-asset service providers should apply mitigating measures in relation to the risks regarding self-hosted addresses. These can include verifying the identity of the beneficiary, requiring additional information in relation to the origin and destination of the crypto-assets and others.
Anonymity is one of the main benefits of some crypto providers, making it attractive for persons engaged with money laundering and terrorist financing. However, these new obligations make the use of such providers less advantageous and, therefore, more difficult to the misuse of crypto currencies for criminal purposes.
While the new obligations for crypto-asset service providers are well received as a measure aiming to further curb terrorism and cross-border crime, the size of the administrative burden borne by obliged entities in terms of implementing more AML internal policies and procedures remains to be seen as these measures will start to apply to such service providers as of 10 July 2027.
Enhanced transparency through new disclosure requirements
The new framework mandates the creation of detailed registers and strengthened disclosure requirements, including:
- Ultimate Beneficial Ownership (UBO) Register: The creation of such registers in all Member States will require entities to disclose beneficial ownership information, aiding the identification of individuals who ultimately own or control a business. The requirements concerning the UBO Register must be transposed into national laws by 10 July 2027.
- Single access point for information regarding real estate: This register will have the purpose of centralising all information in relation to real estate property and its ownership. Currently, most Member States do have such registers, however, in some cases these are not centralised (e.g. one register shows the ownership history and another shows the cadastral map). The changes related to these registers must be brought into force by being transposed into national laws by 10 July 2029.
- Bank account registers interconnection system and criminal investigations: A centralised register of bank account information will be established to facilitate the tracking of financial flows and detect suspicious activities in the context of criminal investigations.
In the same context, national authorities will be able to require credit and financial institutions to provide certain information about operations carried through bank accounts and even details of transfers of crypto-assets. The information in such registers will be made available also to National Authorities of other Member States in certain situations, provided for in the final texts. Member States need to transpose the relevant laws to enable National Authorities to access such information by 10 July 2029.
These registers are designed to increase the transparency of financial and property transactions by imposing additional disclosure obligations, making it more difficult for criminals to hide illicit gains.
AML Authority
The AML framework introduced a centralised control authority for the EU, located in Frankfurt, which will coordinate all national AML and CTF supervisors (not just those in the financial services sector) and conduct checks on the implementation of the new AML package of legislations. The relevant texts for the establishment of the AML authority will apply from 26 June 2024, whereas most of the provisions concerning its functions will apply from 1 July 2025.
The new control authority will be the main source of information: it will be publishing reports and guides on the detailed approaches mentioned above that can be accessed by the public.
It will also possess the right to impose sanctions on companies that are in breach of the regulations. Its rights will include supervising the riskiest financial entities and intervening in case of supervisory failures.
In conclusion, the newly adopted EU Anti-Money Laundering framework represents a significant advancement in combating financial crimes and enhancing transparency. The framework introduces synchronised approaches to identifying and implementing AML/CFT regulations, expands obligations to traders of luxury goods and crypto-asset service providers, and establishes comprehensive registers to track beneficial ownership and financial flows. The creation of a centralised AML Authority aims to streamline supervisory efforts and enforce regulations consistently across Member States. These measures collectively demonstrate the EU's commitment to fortifying defences against money laundering and terrorist financing, thereby upholding the highest standards of financial integrity and security.
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