ICQ Log -  Financial Crime : Europe’s new AML Authority  

 EUROPE'S PATCHY ENFORCEMENT OF MONEY LAUNDERING LAWS IS FINALLY AND SLOWLY COMING TO AN END 

Last Updated: 10 September 2021

Stephen Rae, Publisher at AML Intelligence.com, provides updates on Europe’s new AML Authority (AMLA) including the powers the AMLA will possess, where it might be based and why it will take until 2026 for the organisation to be operational.  

The announcement in July that there is a new sheriff in town isn’t a surprise – albeit he or she hasn’t been identified yet and won’t be in place until 2023 or fully operational for a further three years.

Plus take a seat and watch on as Europe’s heavyweights fight over where the AntiMoney Laundering Authority (AMLA) will be based – Frankfurt, Rome, Amsterdam or even stay aligned with the EBA in Paris. Dublin too will be looking for the agency, EPP Vice President Frances Fitzgerald MEP said. Remember the dogfight when the EBA had to leave London and Paris, Dublin and Amsterdam slugged it out?

Commission officials point out that Member States have been given too much leeway to implement AML Directives which has led to wriggle room and a disappointing lack of co-ordination across the bloc. Throw in the Danske and Deutsche scandals where the US has so far been the only entity to impose fines and it has not been a good look for financial crime compliance (FCC) in Europe. “States have a lot of space to implement at the moment and this have been very diverse with a lot of fragmentation”, one Commission official says.

Clearly that is no longer good enough, not that it ever was. “Money laundering poses a clear and present threat to citizens, democratic institutions, and the financial system. The scale of the problem cannot be underestimated and the loopholes that criminals can exploit need to be closed,” European Financial Services Commissioner Mairead McGuinness said at the official announcement as she as she laid out the new AML regulations.

The new decentralised agency will oversee the work of national supervisory authorities and in a small number of cases directly supervise the biggest and riskiest fish. It cannot yet say how many of these there are, officials said. Think an operating model like the SSM at the European Central Bank says the official about how this will operate. 

Crucially the agency will enhance cooperation with the FIUs. That is long overdue. “The FIUs need better analytic capacity in a cross-border context,” a Commission official told me in a background briefing.

The AMLA will have the authority to impose fines of up to €10M or more significantly 10% of turnover – whichever is higher.

Of course the world will not stand still while Brussels waits almost five years to roll this new agency out – and the regulations do acknowledge the presence of the elephant in the room, virtual assets.

“Crypto asset service providers will become obliged entities. They will have to verify customer ID and understand what is the purpose of the transaction and continue to monitor transactions between those parties,” an official told AML Intelligence.com. Significantly however peer-to-peer crypto transactions will remain outside the scope of the regulations.

Europeans could still evade the disclosure rules through the darknet and using, for example, a Chinese crypto-asset supplier to transfer funds to somewhere like Russia.

It’s the same in relation to the outlawing of cash transactions above €10,000. Someone purchasing a car from a private individual can still pay more than €10K in cash and not declare it!

So, what will the operating model for the AMLA be? Think the Single Supervisory Mechanism (SSM) of the European Central Bank, suggest officials.

The ECB directly supervises the 114 significant banks of the participating countries. These banks hold almost 82% of banking assets in these countries. Banks that are not considered significant are known as “less significant” institutions. They continue to be supervised by their national supervisors, in close cooperation with the ECB.

At any time the ECB can decide to directly supervise any one of these banks to ensure that high supervisory standards are applied consistently This type of methodology will also be used to decide who the AMLA directly supervises – and which ones stay under Member State supervision. The AMLA will develop Low, Medium and High Risk categories for institutions to be applied by Member States and those who are working internationally and fall into the highest risk category will be directly supervised.

A number of factors will decide, including a bank’s cross border presence and whether it is intrinsically involved in other countries or just has some sub-branches.

“Let’s say a bank is operating in 10 Member States and is seen as risky in five of them. Then this cross-border element and its risk profile will mean it comes under direct supervision of AMLA. However, if it de-risks in three Member States after a few years, then this criteria could change and may not require direct supervision,” a Commission official explained.

The Backstop

The Authority will also have the power to get stuck in if it becomes aware of shady goings-on in a bank “where it is being abused for a money laundering purpose or there is an imminent risk that cannot be dealt with quickly at the national level.”

“There can be cases in any obliged entity where the risks have been underestimated. Once AMLA becomes aware of an issue it can ask the national supervisor to:

1. 1. Impose a Sanction;
   2. Make a specific decision and;
   3. Give it a timeframe to enforce the decision. If the national authority does not comply in the timeframe, the AMLA could call up supervision to be Union-led,” a Commission official added.

“The Authority will be the backstop in these circumstances,” the official asserted.

Was the EBA a Failure?

Asked by a reporter whether the EBA had overseen a catastrophic supervisory regime, Commission officials were quick to say they did not believe the EBA had done a bad job. They said many of its powers only came recently and anyhow there was a need for institutional reform. Hence the new decentralised agency.

There had of course been banking scandals but this was due to the fact that “at the national level supervision is not always the most effective or efficient,” an official observed. This was the reason there was not the need for direct EU supervision in some cases.

Why Will it Take Until 2026 for the Amla to be Operational?

1. The AMLA will have to draft technical standards in the area of supervision.
2. It will have a lot of convergence and co-ordination tasks that go beyond what the EBA does now. 3. In the non-financial sector it will be doing what the EBA does now in the financial sector.
3. It must take up the EBA’s current task.
4. It will have to co-ordinate FIUs. This work means that the Authority will derive its legal authority by 2023 which will allow for the recruitment of top management and leadership. Between 2023-2024 it will not carry out any actual tasks and in 2024 it will begin some tasks apart from direct supervision. Direct Supervision candidates will be taken up by 2026, aligned to the date of application of the Single Rule Book.

This work means that the Authority will derive its legal authority by 2023 which will allow for the recruitment of top management and leadership. Between 2023-2024 it will not carry out any actual tasks and in 2024 it will begin some tasks apart from direct supervision. Direct Supervision candidates will be taken up by 2026, aligned to the date of application of the Single Rule Book.

How Will AMLA Work with FIUs?

Commission officials point out that reporting of suspicious transactions in Europe is done in the same way in every country. Indeed the powers to access information are also different in Member States. Hence the AMLA will organise for the granting of minimum levels of access to information for FIUs so that they can receive good quality information.

FIUs will also be given technical and analytical support to help detect illicit assets, co-operate more closely with international partners in detecting cross border illicit flows.

Where Will the Amla be Located?

Member States will compete strongly for the location of the AMLA. Germany’s funds industry, BVI has already issued its rallying cry to the German government to fight for the watchdog.

“The German government has to fight for Frankfurt as the location of the new European authority,” Thomas Richter, BVI’s CEO, said in a statement. “A failure as occurred with the EBA should not be allowed to happen again.”

Similarly, Vice President of the EPP Frances Fitzgerald and fellow MEP Billy Kelleher are calling for the agency to be based in Ireland and demanded the Government of Ireland fight strongly for the prize.

Stephen Rae is the Publisher of AML Intelligence.com, the fastest growing global compliance and anti-financial crime site and newsletter, www.amlintelligence.com

Author: Stephen Rae

Publisher, AML Intelligence | Principal, KOBN European Leaders | Head of Europe, Callaway Climate Insights | Non-Exec Director | Former Group Editor-in-Chief, INM

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ICQ Autumn Edition 2021

This article was taken from the ACOI's ICQ Autumn Edition 2021