Money laundering is a persistent and dangerous European problem
After multiple directives, several high-profile money laundering scandals, and numerous policy papers, the evidence is clear – money laundering remains an undiminished threat within the EU.
The European Commission summarises the consequences as follows: criminals and terrorists have a sustained means to jeopardise public security, the incidence of money laundering damages the reputation of jurisdictions, resulting in the withdrawal of financial services, which in turn has negative effects on investment, and damages the EU internal market.
In response, the Commission has recently published a series of proposals which together will address fundamental problems in Europe’s anti-money laundering (AML) regime. They are a new EU Anti-money Laundering Authority, a first Anti-Money Laundering Regulation, a sixth Anti-Money Laundering Directive, and new regulations to trace crypto-asset transfers. This article reviews the proposed EU Anti-Money Laundering Authority (AMLA), which is scheduled to come into existence on January 1, 2023.
These new measures will be good for Malta and EU business in general, as they will simplify cross border financial services, and through harmonisation of standards they will weed out businesses that aggressively seek AML style risks without adequate controls. While Malta’s ‘greylisting’ has put it in the spotlight for ineffective enforcement, the necessity of the new EU proposals illustrates that Malta is by no means the only jurisdiction which is challenged by this issue.
The new AMLA has a number of ambitious tasks and is given sweeping powers. The most risk-exposed pan-European financial institutions will come under its direct supervision. The new authority will indirectly supervise all other financial institutions through setting expectations, performing assessments, reviewing work programmes, and pressing for supervisory convergence in all member states.
Within the scope of this task is the conduct of periodic reviews on member state supervisors “to ensure that all financial supervisors have adequate resources and powers necessary for the performance of their tasks”. It will facilitate colleges of supervisors to contribute to the convergence of supervisory practices and promotion of high supervisory standards. This includes the coordination of thematic reviews across the EU. Its reach includes non-financial supervisory authorities and self-regulated bodies.
“The European Commission’s new measures will be good for Malta and EU business in general”
Over time, the authority’s presence will become increasingly influential on AML supervision by the MFSA and FIAU in terms of processes, resources, and effectiveness. Eventually every supervisory body will be measured, scored and benchmarked through a process that will probably leave less room for subjective intervention.
Perhaps the most eye-opening power is the provision in Article 30, which on the approval of the Commission allows the authority to take direct supervisory control of potentially rogue financial institutions if their national supervisor seems unable or unwilling to implement corrective action.
Within AMLA’s supervisory remit is the power to levy substantial administrative penalties on the firms under its direct supervision. The regulation sets out a formulaic approach to the imposition of penalties. The breach is first classified by its seriousness, then by the number of jurisdictions in which the breach has occurred, and then multiplied by set coefficients of aggravation and mitigation. Hence, a minimum €1 million penalty could swell to 10 per cent of group revenues if the financial institution had demonstrated several aspects of aggravating behaviour.
With respect to FIUs, and their duty to receive and investigate suspicious transactions, AMLA’s headline role is to coordinate and support the exchange of suspicious activity intelligence across the EU. This includes a formal process of inviting FIUs to conduct joint analysis; a review of methods and procedures; mutual assistance in the form of training, exchanges, secondments, and sharing best practices; and the hosting of the information exchange platform – FIU.net.
The net effect of the authority’s influence on EU supervisors and FIUs will be to level up standards, practices and resources. No jurisdiction would envy public disclosure of a lowly position on the authority’s league table for supervisory convergence or pan-European cooperation.
Perhaps one of the most influential powers of the new authority will be its obligation to draft ‘Regulatory Technical Standards’ (RTS) and ‘Implementing Technical Standards’ (ITS) for approval by the EU Commission. The new Anti-Money Laundering Regulation begins the process of creating a single European anti-money laundering rulebook.
The rulebook’s development and detail will be fleshed out through RTS and ITS. The Commission’s package and use of ‘regulations’ which are written directly into law without member state ‘transposition’ demonstrates strong collective political agreement that money laundering is a persistent and dangerous European problem which requires a firm European solution.
By Charles Cronin, September 19, 2021, published on Times of Malta