Companies in the European Union will face tougher anti-money laundering rules after the Council of the European Union this week approved an overhaul of AML rules for the bloc.
Officials said the rules use the Financial Action Task Force (FATF) recommendations as a basis, but go beyond those measures in some circumstances. European Parliament already agreed to the proposal at the end of last year.
The new AML rules “will provide much greater transparency of the shadowy business structures that are at the heart of money laundering schemes, as well as schemes used by businesses to avoid their tax responsibility,” MEP Judith Sargentini of the Netherlands, said after parliament passed the measure in December.
Known as the Fourth Anti-Money Laundering Directive (AMLD), the EU regulation will cover a greater number of transactions by cutting the reporting threshold for cash payments from €15,000 to €10,000. That applies to traders of goods as well as providers of gambling services.
The directive mandates firms to take a risk-based approach in order to better focus their efforts. Tougher due diligence provisions mean banks and other obliged entities have to conduct enhanced due diligence in cases where risks are perceived as greater. However, banks can use a simplified due diligence process in low-risk cases under the new rules. Overall, bankers, lawyers, auditors, and others will be required to exercise greater vigilance for suspicious transactions.
New central registries will be created for beneficial ownership information on companies, accessible to authorities, financial intelligence divisions, banks and other obliged entities. Others able to demonstrate a “legitimate interest” will be able to access some of the stored data, including the name, month and year of birth, nationality, country of residence, nature and extent of beneficial interest held. That falls short of what transparency advocates had urged, but the EU directive allows Member States to establish public registers if they wish. Beneficial ownership of trusts will be listed wherever the trust generates tax consequences.
Austrian officials said the beneficial ownership requirements do not go far enough when it comes to avoiding “the abuse of trusts for the purpose of money laundering and terrorist financing,” according to Member State declarations made when the Council approved the measure. Instead of registering where tax consequences would apply, trusts should register in the Member State by whose laws they are governed. The directive’s wording “opens the floodgates to abuse,” Austria’s declaration warned, but in the end said it agreed with the political compromise reached.
Providers of gambling services will now be required to perform due diligence for transactions of €2,000 or more. The EU rules will allow Member States to exempt certain services in “proven low-risk circumstances” from some or all of the requirements, but those exemptions would be subject to a detailed risk assessment. Casinos will not be eligible for exemptions.
The directive also sets maximum fines of at least twice the amount of the benefit resulting from a breach in compliance or €1 million. Those fines are stiffer for credit or financial institutions, which face a maximum fine of €5 million or 10 percent of total annual turnover for cases involving legal persons, or €5 million for cases involving a natural person.
Member States will have two years to implement the new AML rules.