On November 5, 2020, the Council of the European Union approved a new action plan to strengthen anti-money laundering and combatting terrorism financing across the EU. The Action Plan, “an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing,” appears to be motivated by the perceived failures in preventing the Danske Bank scandal (which we’ve blogged about here, and more generally, here, here, here, here, here, and here). In light of “[m]ajor divergences” and “serious weaknesses” in enforcement, it appears the Council believes the EU’s “anti-money laundering and countering the financing of terrorism” framework (“AML/CFT framework”) “needs to be significantly improved.” As we have blogged, the EU historically has issued numerous reports identifying systemic vulnerabilities to money laundering and suggesting process-based recommendations for how to address such threats. These recommendations typically have not addressed a basic issue: the actual prosecution of bad actors.
This new Action Plan contains some teeth. If its legislative proposals are enacted and implemented, it would allow the EU to close cross-border loopholes, update its rulebook, and strengthen the implementation and enforcement of the AML/CFT framework through EU-level supervision. Even if the more ambitious proposals do not pass legislative scrutiny, the Action Plan shows the EU is keenly focused on combatting the threat of cross-border money laundering and that it has many tools available at its disposal, some of which it is already using. Unified and coordinated implementation of the AML/CFT framework coupled with increased information sharing between members and between public and private partners should aid detection and enforcement efforts across the EU.
The Action Plan outlines six pillars to spur improvement:
- Implement the current framework effectively;
- Create an updated and more precise EU rulebook;
- Establish EU-level supervision of obliged entities or the financial sector;
- Facilitate better cooperation among Financial Intelligence Units (“FIUs”);
- Facilitate better EU-level “criminal law provisions and information exchange”;
- Address the threat of high-risk third countries and increase international presence.
The most notable proposal is a legislative one, suggesting supervision at the EU—rather than national—level over the AML/CFT system. The Council believes this is necessary to ensure “high-quality application” and “address supervisory fragmentation” in cross-border cases. The action plan provides two different legislative options for EU-level supervision. One gives the EU-level supervisor “exclusive or joint responsibility” for enforcement over obliged entities or certain types of activities. The other gives the EU-level supervisor direct control over the financial sector and indirect supervision over the non-financial sector. Under either approach, the supervisor may have the power to conduct “on-site inspections to assess the effectiveness of the AML/CFT framework” of its members. The Action Plan suggests supervision could be housed in the European Banking Authority (the “EBA”), which already possesses some EU-level supervisory power, or a newly created agency dedicated solely to supervision.
The other proposals strike a similar chord: an effective EU AML/CFT framework is only possible through a coordinated and unified approach between EU members. The necessary first step is the transposition of the current AML/CFT framework by all members. The EU is currently pursuing “infringement proceedings” against members who have not transposed EU rules. The EBA may also force transposition and implementation compliance through its investigatory powers to determine whether “a national supervisor has breached Union law in carrying out its tasks.” Finally, the Action Plan notes the Commission will continue its efforts “on interconnecting beneficial ownership registers.”
Even assuming transposition by all members, the Council notes there is still a “fragmented legislative landscape” that allows “regulatory shopping.” The problem, according to the Council, is that certain members have regulated entities or transactions not addressed in the EU rulebook. To address it, the Action Plan proposes legislation setting out a new rulebook that is more detailed and precise—leaving less room for interpretation by members—and regulating evolving technology and emerging international standards.
Once a unified set of rules is established, transposed, and implemented, coordination among members is key. One level of coordination the Action Plan believes is lacking is between the FIUs housed in each member. Even if FIUs are able to adequately receive and analyze information within their own borders, “the ever-increasing complexity of money laundering cases” leads to “missing links to identify cross-border cases.” The Action Plan proposes the creation of an “EU coordination and support mechanism,” which would take over the technical aspects of FIU.net and develop software to identify “suspicious transactions with a cross-border dimension.” Currently, FIU.net is run by Europol.
Another level of coordination is through unified bodies, like Europol’s European Economic and Financial Crimes Centre, the Anti-Money Laundering Operational Network, and the European Public Prosecutor’s Office. In addition to continuing support for these unified bodies, the Action Plan proposes an “EU-wide interconnection of central bank account mechanisms,” at least for law enforcement, must be “a matter of priority” and “public-private partnerships . . . should be encouraged to the extent possible.” In addition, the Action Plan suggests information sharing should “be clarified and enhanced” for some types of public-private partnerships.
Finally, the Action Plan focuses on external threats stemming from activities outside of the auspices of the EU. The Action Plan, thus, evaluates its role in international bodies and implementation of international standards. One aspect of this focus is on the Financial Action Task Force (“FATF”). The Action Plan proposes the Commission should speak on behalf of its members and should “play a prominent role” in “reinforcing” and “raising” “global standards.” The other aspect of this focus is on high-risk countries outside the EU. The Action Plan proposes the Commission should—independently from the FATF—develop a list of high-risk countries and should intervene with the European External Action Service to identify and fix AML/CFT shortcomings. It also suggests the Commission should be prepared to “apply appropriate measures independently of any FATF call as required by international standards” to pressure third countries to address AML/CFT problems.