How much cash is it reasonable for people to carry around? It’s a live question for European Union (EU) policymakers, who last week presented a plan to introduce a limit of €10,000 on cash payments as part of a significantly broader suite of measures that aim to get a grip on – indeed ultimately to stamp out – money-laundering.
“It’s very clear that if you have a system that allows bagfuls of cash to purchase luxury goods then questions have to be asked about the origin of that money,” said the European Commission’s financial services supremo Mairead McGuinness, reasonably, during a press conference to unveil the long-awaited anti-money laundering (AML) package.
Cash payment ceilings already exist in about two-thirds of the 27 EU member states, ranging from €500 in Greece to just over €10,000 in the apparently big-spending Czech Republic.
“We believe that limit [€10,000] allows the flexibility of family gifts or whatever – very generous family gifts, I would have thought – while acknowledging that cash, which is something we all want to continue to see citizens using, is not misused by criminals,” McGuinness explained.
The Irish financial services commissioner was speaking in the Commission’s Berlaymont press room on 20 July alongside Valdis Dombrovskis, one of the institution’s executive vice-presidents. The slogan ‘Stronger EU Rules to Fight Financial Crime’ was on the screen behind them, as well as the hashtag #EUStopsDirtyMoney (an evolution on #StopDirtyMoneyEU, used when Dombrovskis has previously delivered AML updates).
The new package arrives three decades after the bloc’s first AML directive. An action plan setting out the need for reform was adopted by the Commission in May last year as ‘dirty money’ has continued to flow. “The application of AML rules has suffered from a lack of sufficient detail at EU level. This means that transposition at national level can diverge far too easily. And that has resulted in weak links across the internal market. We want this to end,” McGuinness said a couple of months ago.
The European Court of Auditors has also weighed in from its Luxembourg HQ with a report whose title sums up its 83-page analysis: ‘EU efforts to fight money laundering in the banking sector are fragmented and implementation is insufficient’.
So, €10,000 cash limit aside, what’s planned? Attention will focus on a much-trailed new body: the EU Anti-Money Laundering Authority (AMLA) – totemic of a tougher and better co-ordinated EU approach, as we wrote last year.
AMLA will have two main tasks: AML/CFT (combating the financing of terrorism) supervision and supporting the pre-existing network of national Financial Intelligence Units (FIUs), including hosting FIU.net (whose history has not been straight-forward).
The authority is due to be established in 2023, start most of its activities in 2024, reach full staffing (about 250 people) in 2026 – and begin direct supervision of certain ‘high-risk’ financial entities in the same year. Direct supervision can, the Commission points out, only start once a harmonised EU rulebook (a separate but obviously intertwined priority) is completed – and applied.
When the stars align, AMLA will directly supervise financial ‘obliged entities’ that are active in a ‘significant proportion’ of member states and ‘have the highest risk profile in several’ of those member states (the chosen ones will be reviewed every three years). AMLA will also be able to request a Commission decision placing an obliged entity under its direct supervision, irrespective of criteria.
The whole shebang is inspired by the working methods of the Single Supervisory Mechanism for prudential supervision of banks.
In respect of who’s going to be paying for AMLA (probably not in bundles of cash), three-quarters of its funding will be funded by a levy on obliged entities themselves, with the rest coming from the EU’s own budget, according to a Commission Q+A document.
‘Cross-border obliged entities which fall under the direct supervision of the new AMLA will benefit from having a single supervisor instead of a number of different national supervisors, simplifying their compliance,’ the Commission says. ‘All obliged entities, including domestic ones with no cross-border activity, should benefit from improved supervision (thanks to efforts by [AMLA] to help bring all national supervisors up to the level of the best performers) and from better feedback from FIUs which will enable more targeted reporting of suspicious transactions and activities.’
Nicolas Véron, a senior fellow at both Brussels think-tank Bruegel and the Peterson Institute for International Economics in Washington DC, told #DisruptionBanking last year that the key question would be the direct powers the new authority would have: specifically, for example, the imposition of financial penalties. The 121-page proposal for a regulation that would establish AMLA states (p48, article 21) that ‘administrative pecuniary sanctions’ are indeed within its remit. So, AMLA will be fine to issue fines (the actual amount will be up to a maximum of €10m or 10 per cent of annual turnover, whichever is higher).
“I think the overall framework is pretty good,” says Véron, speaking to #DisruptionBanking from Paris after the 20 July announcement. “But the criteria for ‘direct supervision’ are too rigid and restrictive, although they can be adapted over time.”
The new authority will assume AML responsibilities currently held by the European Banking Authority (whose clout could instead have been expanded). The EBA has only made one positive finding of a breach of EU law related to AML/CFT since 2010, and has not carried out a related investigation on its own initiative, the recent ECA report noted.
The Paris-based authority was putting a brave face on last week:
“No bureaucracy likes to lose turf, but I think the more thoughtful people there [at the EBA] will actually welcome the likely usefulness of AMLA,” says Véron. He adds:“250 people is not enough – I wish it was double that. But bearing in mind the EBA used to only have two people focused on AML until recently, it’s a change of dimension.”
Other pre-existing EU institutions or bodies will continue to have a stake in the AML fight, of course: at a bureaucratic level, for example, DG Fisma’s unit responsible for AML/CFT oversight has 17 full-time equivalent staff, having expanded in recent years (according to the ECA report); while, at a law-enforcement level, there’s Netherlands-headquartered Europol and the newly established Luxembourg-based European Public Prosecutor’s Office.
AMLA, though, is undoubtedly the cherry on a fairly sizeable new EU AML/CFT cake.
Importantly, there’s a whole lot more heading from mixing bowl into the oven, with the package containing three further legislative proposals: regulation on AML/CFT containing directly-applicable rules, including in the areas of customer due diligence and ‘beneficial ownership’; a sixth EU directive on AML/CFT containing provisions that will be transposed into national law, such as rules on national supervisors and FIUs; and a revision of a 2015 regulation on transfers of funds to trace transfers of crypto-assets (unsurprisingly well covered by media reports, given the current popularity of crypto currencies).
In other specific proposals, the EU will be ‘black’- and ‘grey’-listing so-called ‘third-countries’ in line with recommendations made by the Financial Action Task Force (FATF), the Paris-headquartered global AML/CFT watchdog. The EU will apply measures proportionate to the risks posed by the country (and will also be able to list countries not listed by FATF, but that are seen to pose a threat to the EU’s financial system based on an ‘autonomous assessment’).
“Money laundering fuels serious crime and terrorism and all countries need to step up and take effective action,” a FATF spokesperson told DisruptionBanking. “The FATF supports measures that result in the full and effective implementation of global standards to tackle the laundering of illicit funds and terrorist financing.”
Individual nations also continue to invest in their own AML activity: recent developments, for example, have included Germany bolstering its AML laws, and multi-institution initiatives in Belgium and Lithuania. The Commission has its eye on Luxembourg for less edifying reasons.
For the EU’s AML package, it’s over to the European Parliament and Council to review (McGuinness hopes for “as quick as possible progress”).
One emerging question is where AMLA will be located. “Member states will be positioning themselves,” reflects Véron. “The horse-trading and politics will be fun to watch but I don’t think its location is particularly significant in respect of its ability to be effective.”
Ironically it could be like the battle to host the EBA (which had to relocate from London because of Brexit) all over again: the media in McGuinness’s home country, Ireland, are already probing on the possibilities. Scandinavia or the Baltic nations would make an apposite choice (surely Dombrovskis would love it to be his native Latvia). Malta is – gulps – a grey area.
“Co-legislators will decide on the place of the seat of the AMLA,” a Commission spokesperson tells us. “The process of discussing this point will start as soon as they start negotiations on the Commission proposal.”
Let the intra-EU diplomatic love-bombing begin (no cash backhanders, please).
Author: Ian Hall
‘Talking dirty: the EU talks tough on AML’: click here for Ian’s article in October 2020
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