New Sheriff in Town: Frankfurt to Host EU’s New Agency Against Dirty Money | Morrison & Foerster LLP
On February 22, 2024, Frankfurt won the joint vote to host EU’s central enforcer in the fight against financial crime. The new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (“AMLA”) will directly supervise Europe’s “high-risk” entities in the financial sector, and it will have powers to impose pecuniary sanctions and penalties. According to the European Parliament “AMLA will be a game-changer in cracking down on dirty money in the EU. It will supervise the riskiest financial entities, oversee the non-financial sector, and play a crucial role in stopping evaders from circumventing targeted financial sanctions.”[1] The European Parliament is scheduled to vote on its final approval later this month, and the AMLA regulation is expected apply from July 2025. Until then, the EU Commission will be charged to establish AMLA as the functioning agency.
According to the AMLA regulation[2], AMLA’s main tasks shall be (i) the central supervision of financial institutions regarding their compliance with provisions regarding anti-money laundering and countering the financing of terrorism (“AML/CFT”) and (ii) support and coordination of national authorities with an AML/CFT supervisory mandate and Financial Intelligence Units (“FIU”). To achieve its goal, AMLA will be provided with several competencies, such as:
- directly supervising and taking decisions toward selected obliged entities of the financial sector that bear a high money-laundering (“ML”) and financing terrorism (“FT”) risk (including pecuniary sanctions for non-compliance);
- coordinating national supervisory authorities and assisting them to increase their effectiveness in ensuring homogenous and high-quality supervisory standards, approaches, and risk assessment methodologies;
- drafting regulatory and implementing technical standards, guidelines, and recommendations, and providing advice.
AMLA will also have broad monitoring tasks, including regarding the implementation of asset freezes under EU restrictive measures (i.e., targeted financial sanctions). This reflects a continuing trend of convergence of AML and sanctions compliance and enforcement, which is also visible in the new AML/CFT Directive[3] that is also part of a broader package of new EU AML/CFT legislation.
Why Frankfurt made the cut
Nine candidates in total applied to host AMLA. Among them were cities like Brussels, Dublin, Madrid, Paris, Riga, Rome, Vienna, and Vilnius. In the vote, Frankfurt received the majority of votes. There are a few reasons for winning the vote against Madrid, which came in second place. First and foremost, Frankfurt is EU’s finance hub. It already hosts the European Central Bank, one of the world’s most important central banks. Frankfurt is also home of several multinational private financial institutions. This provides a generous talent pool from which the new EU agency can recruit. This is important because AMLA is expected to have more than 400 staff members, with most of them not being recruited yet. Another reason is that Frankfurt was able to present office buildings ready for moving in. That will help AMLA to become operative within a short amount of time. The agency is said to begin operations mid‑2025.
Reasons for the new EU agency
According to the EU, money laundering poses a serious threat to the integrity of the EU economy and financial system, and the security of its citizens. In simple terms, money laundering means that money generated by crime is fed into the legal economic cycle so that criminals can benefit from it. Another issue is that part of that money is allegedly being used to finance terrorism. Europol has estimated that around 1% of the EU’s annual Gross Domestic Product (in 2022: EUR15.9 trillion) is “detected as being involved in suspect financial activity”[4]. This means that in 2022, EUR159 billion was linked to suspicious activities. But recent major money laundering cases reported in the EU had a cross-border dimension. However, the detection of these financial movements is currently left to the national FIUs and to cooperation among them. While this reflects the operational independence and autonomy of FIUs, the EU sees deficiencies in joint approaches and cross-border cooperation for lack of common tools or resources due to the absence of a common structure. Thereby the capacity to detect money laundering and terrorism financing early and effectively is reduced.
Reform of the current AML/CFT regime
The EU’s current legal framework for AML/CFT mainly consists of the AML/CFT directive[5] (which had to be transposed into national law and has been amended several times) and the Funds Transfer Regulation[6] (which directly applies in each member state). The EU sees a fragmented approach to applying those rules that keeps being exposed to misuse for money laundering and terrorist financing (“ML/TF”). To tackle this issue, the EU introduced a whole legislative package to reform the current framework for combating ML/TF. Several legislative acts will interact in order to harmonize and fortify joint approaches against ML/TF among member states. Their focus is on obligations to install preventive measures as well as transparency requirements.
The AMLA regulation is only one part of the legislative package. Since the EU also aims to harmonize provisions against ML/TF and provide more traceability of certain money transfers such as crypto asset transfers, the AMLA regulation is accompanied by three other proposals to amend the applicable EU law on AML/CFT.[7] Those are (i) a new Regulation establishing a single rulebook for AML/CFT (which will contain more detail than the existing AML/CFT Directive, be directly applicable in the member state, and be applied and enforced by AMLA);[8] (ii) a new AML/CFT Directive[9] complementing the Regulation; and (iii) a recast of the Funds Transfer Regulation on information accompanying transfers of funds.[10]
Main tasks and powers of AMLA
The new AMLA regulation provides AMLA with several tasks and powers. While the competence of AMLA will be limited to the scope of EU legislation on AML/CFT, that legislation itself interacts and is coherent with other legislation in the financial services and criminal law areas on EU and national levels. Therefore, AMLA will not only have direct supervisory powers over selected heavyweights in the financial sector regarding their compliance with EU legislation on AML/CFT and coherent other legislation. AMLA will also indirectly supervise non-selected companies as well as national authorities and thus will have great significance both within and outside the financial sector. AMLA’s supervision will include crypto asset service providers as well as banks.
Direct supervisory powers: AMLA will directly supervise certain obliged entities in the financial sector that are considered to be the riskiest types of credit and financial institutions from an AML/CFT perspective. In this regard, AMLA shall ensure group-wide compliance with requirements laid down in any legally binding EU act that impose AML/CFT‑related obligations on financial institutions. For this, AMLA shall carry out supervisory reviews and assessments at individual entity and on a group-wide basis, participate in group‑wide supervision, and develop and maintain an up-to-date system to assess the risks and vulnerabilities of the selected obliged entities. Under direct supervision will be those companies with operations in at least six EU member states. Regular selection processes will determine which companies will be directly supervised. The selection processes will take place every three years. Parameters are size and significance of the company. The first selection process will include the riskiest 40 groups and entities. Within its scope, AMLA will check whether selected companies are in compliance with relevant AML/CFT provisions.
Pecuniary sanctions and penalties: Within the scope of direct supervision, AMLA will be authorized to issue binding decisions, administrative measures, and substantial pecuniary sanctions against individual selected entities for non-compliance with AML/CFT regulations or binding decisions issued to the individual entity. Pecuniary sanctions may amount up to 10% of the total annual turnover of the obliged entity in the preceding business year or EUR10million, depending on which is the higher amount. Therefore, companies under direct supervision will have to be prepared for a new enforcement agency with its own measures. The future will show to what extent AMLA handles cases differently compared to other authorities.
When it comes to criminal prosecution of individuals committing the crimes of money laundering or terrorism financing according to national criminal law, the jurisdiction remains with national prosecutors. AMLA has no competence to prosecute individuals in this regard. Instead, AMLA’s actions focus on compliance with provisions that require certain preventive measures. Nonetheless, AMLA’s actions might be closely watched by national prosecutors. Proceedings carried out by AMLA could trigger criminal investigations by national prosecutors if suspicious conduct becomes apparent.
Indirect supervisory powers: Companies that are not selected for direct supervision by AMLA will continue to be supervised at national level, but AMLA will act as a central hub coordinating the actions of national supervisors in different EU member states and ensuring consistency of supervisory practices. AMLA’s focus will be on the rapid exchange of information among supervisors to speed up procedures. To guarantee this, AMLA is said to develop up to 80 technical standards for national authorities and obliged entities. This figure gives an idea of the regulatory density that the obliged entities will face. AMLA will also coordinate the work of national FIUs. In order to be able to understand and supervise national processes, AMLA will have rights to request certain information from national authorities. Similarly, AMLA will have a supporting role outside the financial sector. In particular, it shall carry out reviews and investigate possible breaches in application of AML/CFT framework.
AMLA’s collaboration with other EU agencies
Aside from AMLA, there are other institutions at the EU level that are responsible for combating crime and with whom AMLA shall work in close collaboration if their jurisdictions overlap:
- European Public Prosecutor’s Office (“EPPO”): As the independent public prosecutor of the EU, the EPPO has jurisdiction for cases involving criminal investigations, prosecution, and judicial proceedings in relation to criminal offenses affecting the financial interests of the EU (for more information on the EPPO, see our Client Alert).
- European Anti-Fraud Office (“OLAF”): OLAF is responsible for investigations in administrative matters when there is suspicion of fraud and similar unlawful acts in connection with EU funds. Due to lack of its own prosecution powers, OLAF works closely with the EPPO.
- European Union Agency for Criminal Justice Cooperation (“Eurojust”): Eurojust links national judicial authorities of the EU member states as well as non-member countries and coordinates cross-border law enforcement to combat serious organized crime.
- Europol: Europol coordinates police investigations throughout Europe and can, in special cases, also conduct investigations itself.
Time will show how well the collaboration between AMLA and these institutions will work. In recent years, actions of EPPO showed that collaboration can work and law enforcement against financial crime can become more efficient.
Significance for practice
The existence of AMLA as the central supervisory authority will increase compliance requirements with regard to AML/CFT provisions. Companies under direct supervision as well as indirectly supervised companies and advisors will have to deal with the harmonization of the legal framework for combating ML/TF even more than they do now. The work in this field will become more international as soon as AMLA gets involved. The size of the agency and the EU’s determination to tackle financial crime could soon lead to reviews and assessments carried out by AMLA. A similar development was witnessed soon after EPPO became operative. Companies may want to closely analyze how they will be affected by AMLA’s work and the harmonized legal framework, and eventually prepare themselves to ensure compliance with AML/CFT provisions. Obliged entities with a certain size and significance in the financial market should prepare for the probability of being selected for direct supervision. Since direct measures and sanctions are also subject to AMLA, companies need to pay even more attention to risks, focus even more on data, and strengthen their analytical capabilities. Therefore, preventive measures in order to comply with AML/CFT regulations should be re-evaluated and adapted if necessary.
On the plus side, the ongoing harmonization of the legal framework and the supervision of compliance with the rules by AMLA can lead to legal certainty with regard to business operations throughout the EU. It makes sense to identify potential synergies in processes through greater European harmonization. AMLA’s new task to monitor and support implementation of EU-targeted financial sanctions may also be a first step toward more alignment of the enforcement of EU restrictive measures across the 27 member states.
Other key elements of the AML/CFT legislative package
AMLA is only one key element of the AML/CFT legislative package. The other elements are also far-reaching. For example:
- A limit of EUR10,000 will apply to cash payments throughout the EU. Lower limits might apply in different EU member states.
- Financial institutions must fulfill extended due diligence obligations for transactions and relationships with high-risk third countries and very wealthy private individuals. The due diligence obligations for providers of crypto assets in cross-border transactions will also become stricter.
- Soon, providers of crypto-assets and traders in luxury goods that are considered high‑risk will also be considered obliged entities. They must carry out due diligence on their customers and report suspicious activities to the authorities.
All of the above shows that the EU continues its path of harmonizing legal frameworks and approaches of authorities in the area of financial crime prevention, ensuring rapid exchange of information among them. Therefore, companies are advised to keep up and monitor developments in the EU, and adjust compliance measures where necessary.
Next steps
Now that the Commission’s legislative package to reform the EU’s framework for combating ML/TF has been provisionally agreed between Parliament and Council, it needs to be formally adopted before it can enter into force. Parliament is expected to vote on its final approval in the plenary session of April 22‑25. Once adopted, the AMLA regulation is said to apply from July 2025. Before then, the Commission is responsible for establishing the AMLA and for its initial operations.
[1] See official press release from the Parliament.
[4] Europol, “From suspicion to action: Converting financial intelligence into greater operational impact”, 2017.
[7] Communication from the Commission on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing 2020/C 164/06; C/2020/2800; OJ C 164, 13.5.2020, pp. 21–33.
[10] Final Proposal COM/2021/422 final.
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