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The EU has a chance to fill the gaps in its anti-money laundering (AML) framework, but it requires full implementation, strong enforcement and cooperation, the co-rapporteur of the proposal has said.
The European Commission published a legislative proposal to overhaul its AML and counter-terrorist financing (CTF) rules on July 21, with the aim of streamlining and centralising its efforts to prevent financial crime.
Within the four-piece legislation, the EU proposes more harmonised and clearer AML rules, regulation of cryptocurrencies and the creation of an overarching AML regulator for the whole bloc.
Speaking at the 6th Annual EPIF Conference 2021, Finnish MEP Eero Heinäluoma said there is a need for a more harmonised AML package that is more effective, more efficient and proportionate than the current framework.
“Indeed, the regulatory framework over the last 30 years since the adoption of the first AML directive has not fully delivered in the least,” he noted.
Europol estimates that between 2 and 5 percent of global GDP is laundered each year. Out of this, between 2010 and 2015, 2 percent of the estimated proceeds of financial crime were frozen, and only 1 percent of the criminal profits were confiscated at EU level.
“This means that 99 percent of the estimated criminal profits were not confiscated and remained at the disposal of criminals,” he stressed.
Heinäluoma, who is a chief advocate for a single rulebook, pointed at the lack of implementation and enforcement of the rules as one of the main reasons for these bad results.
“Existing AML legislation which was adopted by the European Parliament and all member states need to be effectively implemented and fully enforced,” he underscored.
Although the European Union needs a structural content reform and a single rulebook, he stressed that a single rulebook can only be effective if the correct application is also supervised and enforced.
The AML package now represents “an important step in the right direction”, he said, adding that “this is definitely the key step toward avoiding regulatory fragmentation along national lines”.
Same rules for everyone, everywhere
Heinäluoma welcomed the inclusion of cryptocurrency firms into the package but pointed out that recent reports raise the question of whether further sectors should be included as well.
Since the end of October, the Pandora Papers have revealed numerous deficiencies in the global fight against money laundering.
To address weaknesses in beneficial ownership reporting, the AML package now includes a proposal to require non-EU legal entities that do business with EU entities, or acquire real estate in the EU, to register their beneficial owners in an EU register.
The papers also highlighted the role of intermediaries, such as lawyers and accountants, in facilitating financial crime.
“We will have to ensure they [the intermediaries] will be fully subject to stringent AML regime and legal professional privilege cannot be used to cover illegal practices,” Heinäluoma said.
Another lesson learned from the Pandora Papers is that the EU “is not an island in the whole AML story”.
A key item in the single rulebook will be the better determination of high-risk third countries.
In addition, the Finnish MEP noted that two-thirds of the shell companies in the Pandora Papers are located in the British Virgin Islands, which underlines that cooperation and alignment of standards in the area of taxation and AML are vital in this fight.
To achieve the ultimate objective of better and stricter enforcement of AML rules the EU needs to build up good cooperation with other parties.
Next steps
Looking forward, he said we will see policymakers discuss the proposal on the limitations on cash in length in the coming months.
He also said it was important to have an architecture that appropriately ensures information flows swiftly towards where it is needed. Therefore, the coming months will see policymakers holding discussions to make sure the scope of action is clear, the tools are well determined and the resources are sufficient.
At the same time, Heinäluoma warned against duplicating tasks and leaving out expertise that other agencies, such as Europol, have built up throughout the years.
As co-rapporteur, the Finnish MEP will first focus on the single rulebook proposal and asked for public input in this process.
“In this respect, I am convinced that the private sector has a pivotal role to play and that the new technologies could be helpful to reduce the number of false positives and the compliance costs also.”
The European Commission aims to have AML authority established by 2023 and start direct supervision of certain high-risk financial entities in 2026. The single rulebook, including technical standards, is expected to be in place and apply by the end of 2025.
