European Commission Announces New Action Plan on AML and CTF

On May 7, 2020, the European Commission (Commission) published a six-point action plan (Action Plan) for a comprehensive EU policy on anti-money-laundering and countering terrorist financing (AML/CTF).

The Action Plan is an example of the Commission’s recent focus on harmonizing, at the EU level, rules that Member States impose to address AML/CTF risks at the national level but tend to have a broader impact across the EU economy (see, in that regard, in the area of foreign direct investment, our March 2020 Update). Companies should consider contributing to the ongoing public consultation and reviewing their internal compliance policies in anticipation of an expected increase in AML/CTF enforcement action, and related enforcement of economic sanctions, in the coming years.

The Action Plan sets out the Commission’s commitment to ensuring that existing AML/CTF rules are implemented more effectively across the EU and affirms the Commission’s ambition to lead in shaping and reinforcing AML/CTF standards internationally. The Action Plan will seek to deliver on these objectives with revisions to the EU AML/CTF framework by (1) adopting a single, EU-wide AML/CTF rulebook, (2) creating an EU body for AML/CTF and related economic sanctions supervision, (3) improving coordination on AML/CTF data analysis and (4) improving enforcement of EU AML/CTF rules.

Effective Implementation of Existing EU AML/CTF Rules

The Commission will pursue two short-term actions aimed at ensuring effective implementation of existing EU AML/CTF rules:

• The Commission commits to providing Member State-specific recommendations and technical support to ensure proper and full implementation into Member State law of existing EU AML/CTF rules. This commitment aims to address failures among some Member States to implement the EU’s Fourth Money Laundering Directive, as amended by the EU’s Fifth Money Laundering Directive (ML Directive).

• The Commission invites the European Banking Authority (EBA) — which coordinates and monitors AML/CTF efforts of EU financial institutions and national supervisors, to make full use of its powers — to ensure that national supervisors effectively implement AML/CTF measures.

A New Single Rulebook for AML/CTF in the EU

The Commission will propose a single, EU-wide rulebook for AML/CTF, planned for the first quarter of 2021. The single rulebook will replace certain parts of the ML Directive with a directly applicable regulation so as to address the divergent AML/CTF rules that currently apply across Member States. According to the Commission, the single rulebook should

• contain precise rules on key elements of the ML Directive, such as (1) reporting obligations, (2) requirements on customer due diligence, (3) internal controls and (4) beneficial ownership registers
  
  
• permit the Commission to adopt non-legislative acts to swiftly update AML/CTF rules in response to ongoing developments.

An EU Supervisory Body for EU AML/CTF Rules

The Commission will propose to set up an EU supervisory body, which will (1) monitor AML/CTF risks and (2) ensure consistent application and enforcement of AML/CTF rules. This addresses the Commission’s concern that Member States’ supervisory efforts vary in quality and effectiveness, which undermines, in particular, the EU’s capability to respond to cross-border money laundering and terrorist financing, and related economic sanctions issues.

While the Commission is still working on a detailed proposal, it is considering the following options for the supervisory body:

• Who: The EU could appoint the EBA or set up a new supervisory body. Appointing the EBA, however, would require a substantial reform of the EBA’s structure and governance process. The EBA’s decisions are made through its board, which is an assembly of Member States. As an AML/CTF supervisory body, the EBA will require more centralized and effective decision-making procedures.
  
  
• What: The EU body could supervise both the financial and non-financial sectors subject to the ML Directive across the EU. Alternatively, it may supervise only the financial services firms but potentially with some indirect supervisory powers in other sectors.
  
  
• How: The EU body could have direct supervisory powers, enabling it to review the internal policies and procedures of regulated firms and carry out on-site inspections. Alternatively, it may just coordinate and oversee the activities carried out by existing, domestic supervisory authorities. The EU body could also monitor and support the implementation of economic sanctions, such as asset freezes, across Member States.

Improved Coordination on AML/CTF Data Analysis

The Commission proposes to strengthen the coordination between Member States’ Financial Intelligence Units (FIUs). FIUs, which are independent bodies that operate at Member State level, analyze data reported to them by economic actors and customs authorities to identify transactions potentially connected to criminal activities.

Currently, the efficacy of these analyses is undermined by the limited information exchange occurring among FIUs and their failure to take joint actions. The Commission proposes to create an EU-level mechanism to support the work of FIUs and foster coordination among them, enabling collective efforts to identify suspicious cross-border transactions, to carry out joint analysis and to detect trends and factors relevant to AML/CTF. The new EU supervisory body mentioned above could exercise these functions.

Improved Enforcement of EU AML/CTF Rules

The Commission proposes to improve criminal enforcement of EU AML/CTF violations.

While Member States are competent to enforce AML/CTF, the Commission considers that enforcement efforts are hampered by, in particular, insufficient coordination among Member States. The Commission proposes to improve coordination through

• a rapid and trustworthy information exchange between enforcement authorities, on the one hand, and between private and public actors, on the other
  
  
• interconnectivity of central bank account mechanisms, which could speed up access to financial information by enforcement authorities and facilitate cross-border cooperation
  
  
• increased police cooperation; Europol’s new European Economic and Financial Crimes Centre, which will become operational this year, is identified as a key actor in building up intelligence and financial crime-fighting capabilities.

International Outreach of EU AML/CTF Efforts

The Commission confirms the EU’s ambition to be a prominent international actor in shaping and reinforcing AML/CTF standards while assertively protecting the EU’s financial interests.

In this regard, the Commission published a revised methodology for identifying high-risk third countries whose AML/CTF rules and practices are deemed a threat to the EU financial system. In applying this methodology to identify high-risk countries, the Commission will (1) examine factors such as each country’s practice in enforcing AML/CTF and in cooperating and exchanging information with foreign authorities, (2) work closely with Member State experts and (3) involve the European Parliament and the Council of the EU.

Two Key Takeaways

1. Influence future EU AML/CTF rules. The reforms proposed in the Action Plan could significantly affect business operations, inter alia, by reshaping (and expanding) applicable AML/CTF obligations. Businesses may wish to get involved in the decision making on revisions to the EU AML/CTF framework.
   As a first step, businesses may wish to consider taking part in the Commission’s consultation on the Action Plan (open until July 29, 2020). This provides an opportunity to comment on key matters set out in the Action Plan.
   
   
2. Get AML/CTF policies in order. The Action Plan expresses the Commission’s intention to ensure a more effective implementation and enforcement of AML/CTF rules. It also suggests the EU will increasingly rely on AML/CTF rules in the future, to infuse trust in its market and potentially to pursue additional foreign policy objectives (e.g., by monitoring and supporting the implementation of economic sanctions in Member States through an EU supervisory body).
   Businesses should thus prepare for closer scrutiny of their AML/CTF policies and procedures by competent (EU and national) authorities. This may require reviewing and updating such policies and processes as well as implementing new upcoming requirements, including any changes arising from the EU’s Sixth Money Laundering Directive, which is to be implemented by December 3, 2020. This Directive aims to harmonize Member States’ laws on what constitutes a money laundering offense and on the sanctions to be imposed for such offenses. The Directive also provides, in certain circumstances, for corporate entities to be guilty of criminal offenses where their staff commit such offenses.