EU Comes Out Swinging on Anti-Money Laundering

It appears that in the world of anti-money laundering (AML) regulation, developments are rolling along relentlessly — pandemic or not. For many years, global regulators were hyper focused on raising the bar on the prevention of money laundering and terrorist financing. In Europe, this has resulted in a steady stream of revisions and policy tweaks as the EU looked to appropriately calibrate its framework. Recently, it seems that the EU has decided to tear up the existing plan and has come out swinging with a hard hitting new Action Plan. Given this is the EU we’re talking about – where regulation is often laid out in broad strokes — an open consultation on the specifics is being used to garner views on the finer details. The public consultation period runs until July 29. 

The level of ambition in terms of scope and timeline was very evident in Executive Vice President Vladis Dombrovkis’ press conference to launch the action plan:

We need to put an end to dirty money infiltrating our financial system. Today we are further bolstering our defences to fight money laundering and terrorist financing, with a comprehensive and far-reaching Action Plan. There should be no weak links in our rules and their implementation. We are committed to delivering on all these actions – swiftly and consistently – over the next 12 months.”

The new six pillar plan, launched by the executive branch of the EU, the European Commission (EC), is a direct reaction to a string of revelations in recent years that showed that despite much progress there remained some cracks and loopholes in the EU banking system. Many of these loopholes were being exploited by bad actors.  An ongoing issue for the existing EU AML framework is that fragmented rulesets along national lines have left gaps to be exploited by bad actors on cross-border payments. 

The six pillars are:

  1. Effective application of existing EU rules. The plan urges member states to implement “the highest possible standards” and “encourages the European Banking Authority (EBA) to make full use of its new powers to tackle money laundering and terrorist financing.”
  2. Single rulebook. The EC will propose a more harmonized set of rules in the first quarter of 2021 to increase harmonization and ensure less divergent rule application.
  3. EU level supervision. In the first quarter of 2021, the EC will propose to set up an EU-level supervisor to replace the current individual member state supervisory framework.
  4. Greater coordination and support for financial intelligence units. In the first quarter of 2021, the EC will propose to establish an EU mechanism to help further coordinate and support the work of these bodies.
  5. Enforcement and information exchange. The plan looks forincreased collaboration and information sharing between police, judicial system, and private sector to enhance the exchange of information. The EC will issue guidance on the role of public-private partnerships to clarify and enhance data sharing.
  6. The EU’s global role. The EU is already actively involved within Financial Action Task Force (FATF). The plan commits to stepping up efforts, including an adjustment to its approach to non-EU countries with deficiencies. The EC is committed to a new methodology of country risk assessments to ensure better alignment with FATF lists.

The plan confirms some material shifts in both approach and framework of EU AML supervision that are worth drilling down on a little more:

Shift from directives to regulation

The implementation of the EU AML regulatory agenda to date has been by via directives (AMLD IV, AMLD V, etc.) rather than by regulation. There are important and material differences between rules under regulation and directive. Under EU Directives, each EU member state may interpret and implement the Directive in a manner that they see fit for their individual country laws. This inevitably leads to certain divergence and rule fragmentation. For instance, in the case of AML, it often leads to different countries implementing to different timelines.

Moving to regulation means the rules take direct effect with little room for interpretation or local nuance by local policymakers. This has been the general direction for EU regulation as it looks to drive greater levels of harmonization and consistency across the region. 

New AML agency

The action plan explores the creation of a new independent central authority to crack down on money laundering with direct powers and enforcement capabilities. This is an area of consultation and the question is posed whether extension of the European Banking Authority (EBA) responsibilities or a new body is preferable. 

Interestingly, Commissioner Dombrovkis comment that “if the EBA is to become the EU supervisor, both its track record and governance will have to improve” might be an indicator that a new supervisory entity is on the cards. It also mirrors comments made in European Parliament and elsewhere. It does seem very ambitious to have it up and running by the first quarter of 2021, with or without a global pandemic.  It also will be intriguing to see the interactions and segregation of duties among the new supervisor, current European Supervisor Authorities, national competent authorities and entities like Europol, who each currently play a role in money laundering enforcement. 

Immediate changes

Aside from the six pillar action plan, which has longer dated deadlines, the EC also unveiled a new list of foreign countries posing higher risk to companies dealing with clients there. And they have removed some other countries from this higher risk list (details below).

The new country list is more closely aligned with one drawn up by the Financial Action Task Force than before.  These revisions are now submitted to both the European Parliament and Council for immediate approval. Given the coronavirus crisis, the date of application for the new third countries is set to apply as of 1 October 2020, while the removal of countries will enter into force immediately after approval (20 days after publication in the Official Journal).

Countries which have been added:

  • The Bahamas
  • Barbados
  • Botswana
  • Cambodia
  • Ghana
  • Jamaica
  • Mauritius
  • Mongolia
  • Myanmar
  • Nicaragua
  • Panama
  • Zimbabwe

Countries which have been removed:

  • Bosnia-Herzegovina
  • Ethiopia
  • Guyana
  • Lao People’s Democratic Republic
  • Sri Lanka
  • Tunisia

This article was co-authored by BBH Senior Vice President Amy Morris.