European Parliament publishes draft report on AML Regulation proposal

Introduction

On 15 March 2022, the European Parliament’s Economic and Monetary Affairs (ECON) and Civil Liberties, Justice and Home Affairs (LIBE) Committees published a draft joint report on the European Commission’s (Commission) proposal for a Regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (AMLR).

The proposed Regulation will replace the Fourth Money Laundering Directive ((EU) 2015/849) (MLD4). By turning MLD4 into a Regulation, the rules contained in the Regulation will be directly applicable throughout the EU without the need for EU Member States to transpose them into their respective national legal systems. In 2020, the Commission started infringement procedures against eighteen Member States for not having fully transposed the Fifth Money Laundering Directive (2018/843/EU).

AMLR proposal

The AMLR proposal is part of a legislative package on anti-money laundering (AML) and counter-terrorist financing (CFT) published by the Commission on 20 July 2021. The legislative initiatives aim to put in practice the goals of the May 2020 Commission Money Laundering Action Plan. The package consists of four legislative proposals:

The AMLR proposal (discussed here).
A proposed Regulation establishing a new EU AML/CFT supervisory authority (AMLA).
A sixth Directive on AML/CFT.
A revised Regulation 2015/847/EU on transfer of funds, extending its obligations to certain crypto-assets.

Draft report by co-rapporteurs

Co-rapporteurs Eero Heinäluoma (S&D, FI) and Damien Carême (Greens, FR) presented the draft report on the AMLR. The two Members of the European Parliament (MEPs) generally welcome the proposal, which they see as an essential step forward in the fight against money laundering and terrorist financing. At the same time, the co-rapporteurs propose the following key amendments.

Scope

The co-rapporteurs agree with the Commission’s proposal to extend the scope of obliged entities (entities within scope of the AML regime) to include all types and categories of crypto-asset service providers. Heinäluoma and Carême propose to further widen the scope of the AMLR to a number of additional entities. Amendment (AM) 29 adds wealth or asset managers to the list of obliged entities contained in Article 3 AMLR. In addition, AMs 36 to 38 add sports agents in the football sector, high-level professional football clubs and football associations that are members of the Union of European Football Associations (UEFA) to the list of obliged entities as well.

Politically exposed persons

The draft report broadens the definition of “politically exposed person” under Article 2(1)(25) to include heads of regional and local authorities, as well as groupings of municipalities and metropolitan regions (AM 26) and includes siblings of politically exposed persons to the list of relevant family members (AM 27).

CBI schemes

Heinäluoma and Carême consider national schemes that grant citizenship or residence rights in exchange for a financial investment (Citizen by Investment or CBI schemes) to pose serious security risks for EU citizens, including within the realm of money laundering. A new Article 6a is proposed to oblige Member States that have such schemes in place to ensure that public authorities processing applications carry out specific measures to prevent that such transactions are misused for money laundering or terrorist financing purposes (AM 40). A new Article 31c requires obliged entities, with respect to customers applying through a CBI scheme, to obtain additional information on the customer and the beneficial owner and to senior management for establishing or continuing the business relationship, on top of the due diligence requirements contained in Article 16 (AM 81).

Customer due diligence

The co-rapporteurs propose to add a new sub-paragraph to Article 15(1) to require obliged entities to apply customer due diligence (CDD) measures when they are involved in or carrying out an occasional transaction involving crypto-assets that amounts to EUR 1,000 or more (AM 48). This threshold is lower than the CDD threshold for occasional transactions in conventional currency, which is EUR 10,000 or more (Article 15(1)(b)).

In addition, the co-rapporteurs propose to define “high-net-worth individual” as “a natural person who owns at least EUR 1 million or the equivalent in national currency in liquid financial assets” (AM 28). In addition, they add a new Article 36a to introduce specific provisions for obliged entities that engage in transactions or business relationships with natural persons that fall under this definition and also present a higher risk factor listed under Annex III of the AMLR proposal (AM 83). Obliged entities should have procedures in place to identify such persons and should take additional measures, such as gaining approval from senior management to establish or continue business relationships with those customers, and take adequate measures to establish the source of wealth and the source of funds involved in business relationships or transactions with those customers (Article 36a(2)).

Third-country policy

The AMLR proposal contains rules on the identification of third countries with compliance weaknesses in their national AML/CFT regimes (Article 24) and of third countries posing a threat to the Union’s financial system (Article 25). The co-rapporteurs propose a number of amendments to add a number of criteria in the assessment of third countries under Article 25, including the given regime’s alignment with targeted sanctions and proliferation financing-related targeted financial sanctions (AM 66) and its requirements to mitigate and manage the risks of non-implementation and evasion of these sanctions (AM 67).

In addition to these new criteria concerning third countries, the co-rapporteurs propose a new Article 25a that would ultimately provide the Commission with powers to identify third-country credit institutions, financial institutions or crypto-asset services providers that pose a specific threat to the EU financial system and adopt measures to mitigate these risks. Before taking a decision to this end, the Commission is required to consult at a minimum the European Central Bank and the yet to be established AMLA.

Next steps

The draft report published by the co-rapporteurs will form the basis of discussions within the European Parliament, which has delegated the adoption of the report to a joint committee made up of the ECON and the LIBE committees. Following the presentation of the draft report in the ECON-LIBE Joint Committee, other committee members can file their own amendments to the proposal, where after discussions on a possible compromise will commence. NRF LLP expects these discussions to continue until summer, with a legislative report on the AMLR proposal expected to be adopted within the Joint Committee shortly before or after the summer recess. Following adoption of the report in the Joint Committee, the rapporteurs need to obtain a mandate from the European Parliament plenary to engage in trilogue negotiations with the Council, who is working on its own position on the legislative proposal in parallel. A final compromise between the European Parliament and the Council on the text of the AMLR is not expected until just before the end of 2022 or the beginning of 2023.

United Kingdom (and EU regulation)