EU Institutions Reach Political Agreements On Anti-Money Laundering and Countering the Financing of Terrorism Package | Mayer Brown

On January 17, 2024, the Council of the European Union (Council) and the European Parliament (Parliament) announced that a political agreement had been reached on (i) a new Regulation setting forth a single anti-money laundering and countering the financing of terrorism (AML) rulebook (AMLR) and (ii) a sixth AML Directive (AMLD 6).¹

This follows the announcement on December 13, 2023 of a political agreement on a Regulation establishing an EU-wide Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA).²

While the EU’s first legislation on AML dates back from 1990, it has been continuously revised to ensure its adequacy, effectiveness and ability to address novel challenges and related money laundering and terrorist financing risks. Following an Action Plan presented on May 7, 2020,³ the European Commission (Commission) presented its AML package on July 20, 2021.⁴ The package consisted notably of three legislative proposals aiming at a more coherent AML regulatory and institutional framework within the EU:⁵

• The AMLA Regulation, creating a new EU authority to improve supervision and cooperation;
• The AMLR, establishing a single rulebook to harmonize and reinforce rules;
• The AMLD 6, focusing on institutional provisions and implementing measures to be adopted by Member States.

The agreements reached by the Council and the Parliament, which follows several rounds of inter-institutional negotiations,⁶ imply that political negotiations on the entire AML package have now been completed on substantive issues, while discussions regarding the future seat of AMLA continue. The location of AMLA is expected to have a long-term impact on the financial services ecosystem in Europe, and the broader efforts by candidate cities to position themselves as sophisticated global financial centers.

What has been agreed for the AMLR?

The current AML framework is mostly set forth in the fifth AML Directive (AMLD5). Directives are not directly applicable and only provide for minimum rules which Member States are required to implement through national legislation. The adoption of the AMLR will remedy this by providing for a “single rulebook”, setting forth detailed substantive requirements that are directly applicable throughout the EU.

The AMLR will notably provide for EU-wide rules on (i) the scope of obliged entities, (ii) internal policies, controls and procedures of obliged entities, (iii) customer due diligence, (iv) beneficial ownership transparency, (v) reporting obligations, (vi) record-retention and (vii) measures to mitigate risks deriving from anonymous instruments.

Key elements of the political agreement reached between the Council and the Parliament can be summarized as follows:

• Extended scope of obliged entities – In addition to the current scope of obliged entities, the following bodies will be required to comply with AML rules:
  –  Crypto-asset service provider (CASPs), when carrying out transactions amounting to €1,000 or more;
  –  Traders of luxury goods, such as precious metals, precious stones, jewelers, horologists and goldsmiths;
  –  Traders of luxury cars, airplanes and yachts;
  –  Traders of cultural goods (e.g. artworks);
  –  Professional football clubs and agents, albeit with a longer transition period of five years, as compared to three years for other obliged entities, and subject to the possibility for Member States to exempt them if they represent a low risk (clubs below the top league and with yearly turnover below € 5 million over two years).
• Enhanced due diligence obligations for specific transactions –  Enhanced due diligences will have to be performed by: 
  –  CASPs for cross-border correspondent relationships;
  –  Credit and financial institutions for business relationships with  high net-worth individuals, with a total wealth exceeding € 50 million, involving the handling of a assets under management exceeding € 5 million; and
  –  All obliged entities for occasional transactions and business relationships involving high-risk third countries, based on an assessment to be conducted in light of the lists drawn up by the Financial Action Task Force (FATF). 
• Potential countermeasures related to high-risk countries – The high level of risk will justify the application of additional specific EU or national countermeasures, whether at the level of obliged entities or Member States.
• Limit and controls on cash payments – Cash payments will be further regulated as:
  –  A maximum limit of €10,000 for cash payments will be introduced, with an option for Member States to impose a lower threshold; and 
  –  Persons carrying out occasional transactions in cash between €3,000 and €10,000 will have to be identified and such identity verified by obliged entities. 
• Harmonization, clarification and reinforcement of beneficial ownership rules – The AMLR will provide for extensive rules regarding the identification and registration of beneficial owners: 
  –  Set threshold of beneficial ownership at 25% of shares, voting rights or other ownership interests;
  –  Clarification of the definition of beneficial owners, based on both ownership and control; 
  –  Rules on the identification of beneficial owners in case of multi-layered ownership and control structures;
  –  Registration of beneficial ownership for non-EU entities that carry out activities in the EU or purchase real estate in the EU (in the latter case, retroactively until 1 January 2024); 
  –  Revised provisions on data protection and document retention to permit access by competent authorities to information on beneficial ownership held by obliged entities;
  –  Requirement for obliged entities to regularly review information received on beneficial ownership and report discrepancies identified with information reported in beneficial ownership central registers.

What has been agreed for the AMLD6?

AMLD6 will provide for AML-related rules that could not adequately be included in a Regulation, as they require national transposition. This mostly concerns the institutional AML framework, with provisions relating to (i) supra national and national risk assessments, (ii) statistics, (iii) registers (beneficial owners, bank accounts, real estate), (iv) financial intelligence units (FIUs), (v) AML supervision, sanctions and whistleblowers and (vi) cooperation for AML purposes. 

Key points of the political agreement reached between the Council and the Parliament can be summarized as follows::

• Reinforced rules on beneficial ownership registers – Provisions will be made to ensure the reliability of and access to beneficial ownership registers:
  –  Requirement for authorities to verify the accuracy, adequacy and up-to-date nature of the information submitted to central registers;
  –  Requirement for authorities to screen and flag entities or arrangements associated with financial sanctions targets to detect potential circumvention attempts;
  –  Powers for authorities in charge of registers to carry out on-site inspections in case of doubts regarding the information provided;
  –  Access to registers will be granted to supervisory and public authorities, as well as obliged entities and may be granted to persons of the public with legitimate interest (e.g., press and civil society) for a period of three years;
  –  Access will be digital and national central registers will be interconnected at EU level;
  –  Registers will have to include historical information for up to 10 years, plus an additional five years in case of ongoing criminal investigations.
• Easier access to real estate registers for criminal investigations – Real estate registers will be accessible to competent authorities investigating criminal schemes involving real estate via a single access point, providing various data available. 
• Reinforced powers for FIUs – The role of FIUs will be reinforced through:
  –  Immediate and direct access to financial, administrative and law enforcement information;
  –  Enhanced cooperation between FIUs and other competent authorities, such as AMLA, Europol, Eurojust and the European Public Prosecutor’s Office;
  –  Enhanced cooperation between Member States’ FIUs in complex or cross-border cases through joint analysis, assisted by AMLA, with an upgraded FIU.net system;
  –  Increased powers to analyze and detect AML cases, together with a framework for FIUs to suspend or withhold consent to a transaction, account or business relationship, while it is being investigated;
  –  Requirements to apply fundamental rights as part of their work and decision-making, through the establishment of a Fundamental Rights Officer.
• Emphasized importance of supervisory authorities – The role, powers and obligations of supervisory authorities will be clarified as follows:
  –  All obliged entities will have to be subject to adequate and effective supervision, by one or more supervisors applying a risk-based approach;
  –  Harmonized rules on powers, measures and sanctions will be introduced;
  –  Supervisors will be required to report to FIUs on suspicious activities or transactions. 
• Strengthened cooperation between supervisors in the non-financial sector – Supervisory colleges will be introduced for the non-financial sector, based on regulatory technical standards defined by AMLA. 
• Confirmed relevance of risk assessments – Both EU and national risk assessments will be required under AMLD6, with the Commission now empowered to make recommendations to Member States. Member States will have to commit to mitigate risks they identified at the national level.

What has been agreed for the AMLA Regulation?

AMLA will be designed as a decentralized EU agency tasked with supervisory, oversight and advisory roles to enhance the effectiveness of the EU’s AML framework. Although AMLA will assume a direct supervisory role for a limited number of high-risk obliged entities, the aim is not to replace national supervisors or authorities. Rather, AMLA will seek to increase supervisory convergence, reinforce coordination and promote harmonized interpretations and best practices.

Key points of the political agreement reached between the Council and the Parliament can be summarized as follows::

• Supervisory powers in the financial sector – AMLA will assume both direct and indirect supervisory powers:

  –  Direct supervision over selected obliged entities: AMLA will directly supervise credit and financial institutions (including CASPs) that are considered high-risk and that operate in at least six Member States. Entities or groups subject to AMLA’s direct supervision will be selected based on periodic assessments, with up to 40 such entities or groups to be determined during the first selection process, based on geographic and risk criteria. At least one entity or group per Member State will fall under AMLA’s direct supervision.

  Direct supervision will seek to ensure that selected obliged entities have adequate internal policies and procedures in place, including with regard to targeted financial sanctions, asset freezes, and confiscations. Such supervision will be exercised through joint supervisory teams established in each Member State, but led by AMLA. The latter will be entrusted with supervisory and investigative powers, including the possibility to impose administrative measures, pecuniary sanctions and periodic penalty payments.

  –  Indirect supervision over other obliged entities: For non-selected obliged entities, supervision will remain essentially at the national level. AMLA will nonetheless oversee, assist and cooperate with national financial supervisors, thereby promoting supervisory convergence. AMLA will also be entitled to request supervisors to take actions in exceptional circumstances, with failure to take such actions possibly leading to AMLA assuming direct supervision over a non-selected obliged entity.
  –  Settlement of disagreements: AMLA will be competent to adopt binding decisions settling disagreements between financial supervisors in financial sector colleges or upon request of any financial supervisor.

• Reinforced whistleblowing mechanism in the financial sector – AMLA will be responsible for handling whistleblower reports from the financial sectors and will be entrusted to attend reports from employees of national authorities.
• Supporting role with respect to the non-financial sector – In the non-financial sector, AMLA’s role will be more limited, but not inexistent. AMLA will (i) support national supervisors, (ii) carry out peer reviews, (iii) investigate possible breaches of the AML framework and (iv) may adopt non-binding recommendations.
  To promote convergence, national regulators will be able to set up supervisory colleges for cross-border non-financial entities, where needed.
• Supporting role for and coordination between FIUs – AMLA will be entrusted to:
  –  Analyze suspicious transactions and detect AML concerns in support of FIUs;
  –  Be involved in joint analysis; 
  –  Manage FIU.net, the FIUs’ information exchange system;
  –  Ensure effective cooperation between FIUs and AMLA, notably through standards for reporting and information exchange.
• Promoting harmonized approaches towards the application of AML rules – AMLA will be entrusted to issue recommendations and guidance documents on various topics. In addition, AMLA will be required to establish and maintain a central database of information relevant for AML supervision.
• Governance structure – AMLA’s governance will be structured around:
  –  A general board made up of representatives from Member States’ supervisors and FIUs; and
  –  An executive board, responsible for governing AMLA, composed of a chairperson and five independent full-time members, without any veto rights for the Commission.

What are the next steps? 

The only remaining point to be agreed concerns the location of AMLA. At the request of the Council and Parliament, a call for application was launched by the Commission on September 28, 2023. Applications were received from nine Member States,⁷ with the Commission submitting its assessments of the application on January 10, 2024. Hearings with the applicants are scheduled for January 30, 2024 with a final decision to be taken by the Council and the Parliament, prior to being included in the AMLA Regulation.⁸

Once this last step is cleared, the texts of the AMLR, the AMLD6 and the AMLA Regulation will be finalized prior to being formally approved by the Council and the European Parliament. They will then be published in the Official Journal of the EU and enter into force on the 20th day following such publication.

However, the AMLD6 will have to be implemented into national laws within three years and, accordingly, the AMLR will also only apply after three years from its entry into force. In the meantime, AMLA should become operational and may start the process to identify the selected obliged entities that will be subject to direct supervision, as well as issue guidance and recommendations.

Legal texts on which the Council and the Parliament have agreed have not yet been published and, as often, the devil will certainly lies in the details. Current and future obliged entities will be required to take appropriate steps to design or adapt their processes in accordance with the new EU AML framework and should make full use of the transition period towards that goal.

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