The future of EU money-laundering laws: Will there be an AML Regulation?

The question posed in the title may seem surprising. Only four years ago another AML directive was published, marking the next stage of development of EU rules on money laundering and financing of terrorism (known as the 4th AML Directive or AMLD4). Its predecessor, AMLD3, was adopted 10 years before that. And just over a year ago significant changes in EU law were adopted, known as AMLD5, and the member states still have time to implement the latest changes into their national legal systems, with a deadline in January 2020.

Nonetheless, a discussion on the next stage in the legal battle with money laundering has already begun. There are many indications that instead of yet another directive, AMLD6, we are more likely to see the first-ever general EU regulation in this area—AMLR. This would be a major change, as unlike directives, which must be implemented in the national legal system, EU regulations are applied directly in the member states and generally result in a uniform regulatory framework across the EU, without the differences in interpretation that often characterise directives.

This is a concept that has been bruited in EU financial and regulatory circles for some time. Last month it was raised by Věra Jourová, European Commissioner for Justice, Consumers and Gender Equality, during a debate in the European Parliament, where she agreed with the view that stricter coordination of AML policy between the member states is needed, and said this would be furthered by adoption of a regulation. She did add that this was only her personal opinion. (Jourová will probably remain a commissioner under Ursula von der Leyen, but responsible for a different portfolio.)

More information is supplied by a document from the Finnish Presidency of the Council of the European Union, also published in the last few days, directed to representatives of the member states in the council, concerning strategic priorities for combatting money laundering and terrorist financing. There the Finnish Presidency recognised AML/CTF as a key area and called on the Council of the EU to set strategic priorities of the Union in this respect. It was proposed that on 5 December 2019 the council adopt preliminary decisions concerning:

  • The scope of further reforms, particularly in terms of maintaining the traditional approach where AML/CTF regulations primarily cover the financial sector, or possibly creating a separate regime for other industries
  • Inadequate effectiveness of the current AML/CTF regulatory framework, resulting from great differences in implementation across different member states—a solution for which could be, for example, greater harmonisation through adoption of a regulation
  • Consideration of the issue of inadequate supervision, e.g. by creating a special EU agency, and if so, identifying the tasks of such an institution and its management model
  • Ensuring effective cooperation between institutions handling AML/CTF in the EU, the member states, and third countries.

As may be seen, official EU documents now expressly refer to proposals including adoption of an AMLR and creation of new EU institutions handling AML issues, not to mention consideration of other methods for tightening cooperation in this area within the EU.

But why the need for adoption of a regulation—a complete overhaul of the existing approach? The council document cites problems with the effectiveness of the EU’s AML/CTF regime identified earlier this year by the Commission, including differing implementation of existing directives, different tasks and competencies of local AML/CTF authorities, large differences in sanctions applied, unclear oversight of cross-border activities, and insufficient cooperation between financial analysis units.

All of these issues are clear to the many people who handle AML matters on a daily basis. It is not hard to come across differences in the approach of different member states to the EU’s AML rules. Sometimes diametrically opposed conclusions are drawn, which is the most problematic when the given undertaking provides services throughout the EU. There is also no institution at the EU level that would even publish guidelines in these matters, ensure basic uniformity in approaches within the EU, and respond relatively quickly to new challenges connected with money laundering and financing of terrorism (particularly considering that the EU legislative process usually lasts years). In turn, implementation of the directive can be the subject of fairly creative approaches on the part of the member states, as has been evident recently for example on the issue of crypto assets. Moreover, examples of money laundering on a vast scale in large, highly respected European financial institutions in recent years must raise doubts about the effectiveness of the current regulations.

Undoubtedly the problems have been clearly identified and are familiar to the key decision-makers. This leaves the question of the time for introduction of a new regulatory framework. Key strategic issues will probably be decided within the next few months, such as the possibility of adopting an AMLR. It will be worth observing how the situation unfolds, because it may bring major changes for many businesses, especially financial institutions.

Jacek Czarnecki

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