Anti-Money Laundering Europe (AME) hosted a Roundtable on AML/CFT developments in the EU and globally on Thursday 29 September 2022. The Roundtable gathered over 70 high-level stakeholders from the European Institutions, Europol, FIUs, banks and other financial institutions, legal and compliance specialists and the private sector. The event focused on the latest AML/CFT developments in, in the context of the European Commission's (EC) ambitious legislative package on AML/CFT rules and the importance of cooperation between the private sector and law enforcement as well as public-private partnerships.
The event was moderated by Paolo Panico, Chairman of the Society of Trust and Estate Practitioners (STEP) Europe Region, and the speakers included Gabriel Hugonnot, Policy Officer on Anti-Money Laundering Policy at the EC, Paulis Iļjenkovs, Head of Strategic Analysis division at Financial Intelligence Unit (FIU) of Latvia, Thomas McDavid, Sotheby’s Compliance Manager, Elaine Smyth, Associate Director, Professional Standards – Management Accounting, Chartered Institute of Management Accountants (CIMA) and Dr. Niklas J.R.M. Schmidt, TEP CBP, Member of the STEP Digital Assets Committee.
The event highlighted that regular dialogue and increased cooperation among various stakeholders and the regular exchanges of expertise and best practices is the way forward in tackling a transnational issue such as AML/CFT. Anti-Money Laundering Europe provides a forum for the exchange of views on financial crimes issues and welcomes stakeholders across all industry sectors to contribute to the discussion.
Five key takeaways
1. The EU is developing a comprehensive framework to address AML/CFT
The European Commission has put forward an ambitious legislative package to tackle ML/FT risks in July 2021 that consists of:
a new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA),
the 6th Anti-Money Laundering Directive (AMLD6)
the Anti-Money Laundering Regulation (AMLR)
the Regulation on transfers of funds and certain crypto assets (TFR)
Before the summer a general approach on AMLA was obtained, except from some provisions regarding the AMLA seat. Negotiations are still ongoing on the first three pieces of legislation by the co-legislators (European Parliament and Council of the EU) although a political agreement is expected to be announced in June 2023.
The legislative package is based on a Single Rulebook with a wide range of new provisions to replace the previous legal framework. The aim is to enact greater harmonisation of anti ML/FT practices, extend the requirements of the AMLR to other sectors exposed to risk at national level, in particular to CASPs and crowdfunding service providers and to set stronger supervisory mechanisms at national level with the AMLD. One of the novelties introduced is that beneficial ownership registers will be able to carry out checks at national level. The TFR has been redacted in close relations with MiCA Regulation. In June 2022, the Council of the EU and the European Parliament reached a provisional agreement that outlined the urgency to ensure traceability of crypto-asset transfers while deciding to align the timetable for application of this regulation with Markets in Crypto-assets Regulation (MiCA). The main changes introduced with the TFR are the inclusion of unhosted wallets in the scope of the Regulation and the removal of the 1.000€ threshold allowing for simplified information and verification requirements. Finally, the new AML Authority, will have two main areas of activity, first it will establish a single integrated system of AML/CFT supervision across the EU and it will provide a coordination and support mechanism for the European Financial Intelligence Units (FIUs). The new Authority may start its operations in 2024.
2. The single rulebook should not be a one size fits all
The AML/CFT legislative package will introduce a single rulebook with detailed and directly applicable provisions to be used by national supervisors for the purpose of increasing effectiveness and ensuring high supervisory standards. As the number of sectors subject to AML/CFT requirements increases and considering their diverse requirements; harmonization becomes even more complex, particularly for smaller practitioners. Therefore, the right balance between harmonization and maintaining AML effectiveness in the non-financial sector needs to be sought as well as managing additional burdens to businesses.
3. The private sector has a key role to play in financial law enforcement
The private sector acts as the first line of defense as it prevents the illicit activity from occurring in the first place. Sectors that have been regulated for decades demonstrate good practices and strong law enforcement because of a thorough knowledge of the law. Those sectors have also accomplished a perception shift where compliance is no longer seen as a barrier and blocker to business. Newly regulated industries need to invest time in establishing effective communication and cooperation mechanisms with the national competent authorities, the national FIUs as well as AML/CFT working groups, and cross-sector meetings working on those issues. They need to develop and run sophisticated and mature financial crime and screening programmes, despite the cost involved in those, as a means to maintain the reputation and integrity of the entire market and the respective industry sector.
Working closely with law enforcement would also mean finding new innovative ways of sharing data rapidly, securely, and safely on bad faith actors. Tech brings new ways of sharing data, in relation to NFTs and crypto and the idea of creating secure networks of information exchange between the private sector and law enforcement would take away the incentive and impede criminals to launder their money through traditional finance and the traditional markets.
4. Public-private partnerships are key to tackle ML/TF practices
Successfully combating economic crime can be achieved by public-private partnerships (PPPs) where government, law enforcement and the private sector work all together. The Financial Intelligence Units (FIUs) have a stake in both prevention and enforcement of money laundering and often act as interpreters between public and private sectors, who do not always “speak the same language”. In fact, information exchange should be two-sided: public-to-private and private-to-public with the aim to improve the quality of the reporting and address any technical and substantive deficiencies.
PPPs allow to exchange information on criminal offences and investigations as well as suspicious activity; share strategic analysis and work on indicators of money laundering and specific sector assessments. The main challenges encountered by PPPs are distrust and data protection issues, lack of commitment and conservative approaches.
5. Crime is becoming a smaller and smaller part of the crypto ecosystem
Contrary to wide perception by the public at large, money laundering and tax authorities that a high percentage of all crypto assets are fraudulent; it is easier to trace criminal practices using cryptocurrencies than with fiat currencies. This happens due to the inherent transparency of blockchains and the public record of transactions which is indelible. Therefore, law enforcement can significantly damage crypto-based crime and hamper criminals’ ability to access their financial digital assets by disrupting such services.
According to the Chainalysis 2022 Crypto Crime Report, transactions involving illicit addresses accounted for only 0.15% of the crypto asset transaction volume in 2021. This report found out that crime activities are declining in the crypto ecosystem due also to the expansion and significant growth of the market. Most crypto assets from illicit addresses ended up in a small group of services, which appear purpose-built for money laundering. Nevertheless, while the amounts of crypto involved in money laundering are high, still the amount of money laundering done by the fiat currency system is estimated being 10-fold higher.
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