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Commission assesses risks and implementation shortcomings in fight against money laundering and terrorist financing: Questions and Answers

Met dank overgenomen van Europese Commissie (EC), gepubliceerd op woensdag 24 juli 2019.

Why is the Commission publishing reports on money laundering and terrorist financing?

Money laundering and the terrorism financing remain a major concern for the integrity of Union's financial system and the security of its citizens. Over the last years, the EU has developed a solid regulatory framework for preventing money laundering and terrorist financing, in line with international standards adopted by the Financial Action Task Force. However, these rules need to keep pace with the growing integration of financial flows technological developments and potential loopholes that can be exploited by criminals. To be efficient, they also need to be implemented in a consistent and effective manner.

Today, the Commission is presenting a Communication summarising a set of reports relating to the implementation of the Union's legal anti-money laundering/ counter terrorism financing framework. The findings aim to point to where implementation can be improved and to foster new discussions with relevant stakeholders to further improve the EU's work in this field.

  • 1. 
    Supranational Risk Assessment Report (SNRA)

What is the aim of the Supranational Risk Assessment Report?

The assessment of the risks of money laundering and terrorist financing affecting the internal market and relating to cross-border activities is a requirement of the 4th Anti Money Laundering Directive. The Commission's report analyses the risks related to money laundering that affect the internal market as a whole, to avoid blind spots and to respond to evolving trends in money laundering and terrorist financing.

The report follows the international standards applicable to money laundering and terrorist financing, also applied by the Financial Action Task Force, which recognises the need for countries to identify, assess and understand the risks to adopt appropriate measures against these risks. This second report follows on from the first report in 2017.

This year's edition focuses on the money-laundering risks associated with each relevant sector and assesses the implementation of previous recommendations. The Commission identified 47 products and services as potentially vulnerable to money laundering or terrorism financing in the internal market, up from 40 in the 2017 report. These 7 additional products and services are part of four new sectors that that were not assessed in the 2017 edition: privately-owned automated teller machines (ATMs); professional football; free ports; and investor citizenship and residence schemes (‘golden passports/visas').

What are the conclusions of the report?

The Commission in its Supranational Risk Assessment Report calls upon Member States to:

  • implement the recommendations from this report urgently: improving cooperation among supervisors, providing updated guidelines on internal governance andproviding further guidance on beneficial ownership identification for investment funds providers;
  • implement the fourth Anti-Money Laundering Directive, in line with the Council conclusions of 4 December 2018; and
  • transpose the fifth Anti-Money Laundering Directive by 10 January 2020.

What are the next steps?

Under the fourth Anti-Money Laundering Directive, the Commission has to issue a Supranational Risk Assessment Reportevery two years. The next SNRA will therefore be released in 2021 and will assess progress made on the latest recommendations.

  • 2. 
    Report on publicly known anti-money laundering cases involving EU banks

Why has the Commission adopted this report?

To guarantee the integrity of the Union's financial system, the Commission places the prevention and fight against money laundering very high on its agenda. Recently, some publicly known cases in various Member States have shown that the EU anti-money laundering/terrorist financing regime might not be well enforced. .

The European Parliament has issued a number of calls to examine these cases, and on 4 December 2018, the Council adopted conclusions on an Anti-Money Laundering action plan, inviting the Commission to conduct “a post-mortem review of the recent alleged money laundering cases involving EU credit institutions.”

The report published today highlights the identified shortcomings in the implementation of the anti-money laundering and terrorist financing framework, points to the lessons learnt and encourages discussion on further improvements. This report is part of the broader action taken by the Commission and the Parliament and Council in the field, including the Commission's September 2018 Communication on strengthening the Union framework for prudential and anti-money laundering supervision, as well as recent regulatory and institutional developments (adoption of the 5th Anti-Money Laundering Directive, the 5th Capital Requirements Directive, the ESAs review).

Which shortcomings have been identified, and what are the main findings of the report?

The analysis has identified four categories of shortcomings:

(i) ineffective or lack of compliance with the legal requirements for anti-money laundering / counter terrorism financing systems and controls;

(ii) governance failures in relation to anti-money laundering / counter terrorism financing;

(iii) ) misalignments between risk appetite and risk management;

(iv) ) ineffective supervision of group anti-money laundering / counter terrorism financing policies.

The Commission also found that Member States do not apply the rules in the same way, which makes it difficult to prevent money laundering and terrorist financing.

The report concludes that:

(i) banks failed to comply with core requirements of the Anti-Money Laundering Directive, such as risk assessment, customer due diligence, and reporting of suspicious transactions and activities to Financial Intelligence Units.;

(ii) public authorities only intervened after significant risks had occurred or when faced with repeated compliance and governance failures. Bank supervisors' reacted in different ways in terms of timing, and the measures taken. Cooperation between national supervisors and the European Central Bank merits further improvement.

However, the recent legislative initiatives (European Supervisory Authorities review Regulation, new Capital Requirement Directive rules, the fifth Anti-money laundering directive) have addressed a large part of the problems identified. Full and timely implementation of the new legislation will however be key.

How did the Commission conduct its assessment?

Most of the events studied in this report took place between 2012-2018, with some exceptions. Events were chosen to ensure a comprehensive picture of anti-money laundering-related shortcomings, across different types of credit institutions and covering a range of different supervisory responses, as well as considering the impact of the cases.

The findings in this report do not necessarily characterise each of the cases studied, nor do they have equal weighting in all cases where they apply. In addition, some of the cases were assessed because they point to the fact that problems identified by national authorities were effectively and quickly addressed.

What has already been done at EU level to improve implementation?

The EU's anti-money laundering framework has been substantially enhanced with the fourth Anti-Money Laundering Directive which had to be transposed in Member States by June 2017, while the fifth Anti-Money Laundering Directive makes further enhancements and should be transposed by January 2020. The new framework will amongst others: clarify the need for risk assessments and the role of the supervisors, enhance supervisory powers, contribute to more supervisory converge, increase exchanges of information between administrations (see factsheet).

In September 2018, the Commission decided to improve the anti-money laundering supervision and its effective coordination among different authorities across all Member States. With the European Supervisory Agencies reform, the anti-money laundering responsibilities in the financial sector will be entrusted specifically to one of the three European Supervisory Authorities, namely the European Banking Authority (EBA), as it is in the banking sector that money-laundering and terrorist financing risks are the most likely to have a systemic impact. The new rules strengthen the EBA's role and give to the EBA the necessary tools and resources to ensure effective cooperation and convergence of supervisory standards.

The European Banking Authority (EBA) has been provided with a more explicit and comprehensive mandate to ensure that risks of money laundering and terrorist financing in the Union's financial system are effectively and consistently incorporated into the supervisory strategies and practices of all relevant authorities (see Q&A). In the context of the same reform, the EBA has also recently been mandated to develop guidelines detailing various aspects of the cooperation requirement. It must be notified by authorities when weaknesses in the governance model, business activities or business model are identified and can provide reasonable grounds to suspect money laundering or terrorist financing.

What are the possible next steps?

The December 2018 Council conclusions set out eight future short-term non-legislative actions to improve the supervision of anti-money laundering activities and encourage cooperation between competent authorities. The Commission concluded that the tasks of the various relevant authorities involved in the fight against money laundering and terrorist financing should be clearly spelled out and appropriately attributed, while ensuring that no activities involving money laundering/terrorist financing risks are left unsupervised. The Commission will continue to offer its support to the European Supervisory Authorities, the Single Supervisory Mechanism and to national prudential and anti-money laundering supervisory authorities to deliver on the other items of the action plan.

At international level, cooperation with key third country authorities should be more structured and systematic, ensuring concerted positions in the cooperation with third countries.

In the future, consideration could be given to further harmonise the anti-money laundering / counter terrorism financing rules both as regards the obligations of credit institutions as well as the powers, duties and tools necessary for effective supervision. In particular, turning the Anti-Money Laundering Directive into a Regulation, which would have the potential of setting a harmonised, directly applicable Union regulatory anti-money laundering framework should be considered. Moreover, the anti-money laundering / counter terrorism financing cross-border dimension would merit further development to bring it in line with the current degree of integration in the banking market.

Different options could also be considered to ensure high quality and consistent anti-money laundering supervision, seamless information exchange and optimal cooperation between all relevant authorities in the Union. This may require conferring specific anti-money laundering supervisory tasks to a Union body.

The report presents these longer-term options as the basis for further debate and discussion with relevant stakeholders, preparing the ground for possible future decisions by the incoming Commission.

What is the role of the different authorities in preventing and combating money laundering and terrorist financing?

Under the fourth and fifth Anti-Money Laundering Directives, national authorities are responsible for the enforcement of anti-money laundering / counter terrorism financing rules. In the EU, anti-money laundering / counter terrorism financing supervisory authorities can be different from prudential supervisory authorities. In the euro area, for instance, euro area Member States have national anti-money laundering / counter terrorism financing supervisory authorities, while prudential supervision is entrusted to the European Central Bank.

National supervisors are the authorities in the Member State where a credit institution has its registered office (which is the European Central Bank for significant credit institutions established in the Banking Union). This responsibility extends also to the branches of the credit institution, irrespective whether they are established in the same Member States or outside. The prudential authority in the host Member State where branches are established has only residual competences related to the general good.

There are however clear links between anti-money laundering and prudential supervision. Failure to address money laundering and terrorist financing risks can have detrimental effects on the financial soundness of individual institutions, the integrity of the internal market, as well as on financial stability. Therefore, prudential legislation requires supervisors of financial institutions to consider anti-money laundering related aspects throughout their work.

The current mandates of the three European Supervisory Authorities - the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority - extend to the area of anti-money laundering/countering the financing of terrorism. They are empowered to develop rules and guidance in this area, and to promote cooperation and information sharing among authorities, supervisory convergence and to ensure that the anti-money laundering/countering the financing of terrorism legislation is properly applied. Furthermore, the 5th Capital Requirements Directive clarified the possibility for prudential supervisors to use available prudential tools to address anti-money laundering/countering the financing of terrorism concerns from a prudential perspective.

In the Banking Union, the European Central Bank is not in charge of ensuring compliance with the Anti-Money Laundering Directive. For its prudential work, it is also tasked with applying and relying on national legislation transposing EU Directives in all Member States participating in the Single Supervisory Mechanism.

  • 3. 
    Financial Intelligence Unit (FIU) report

What are the Financial Intelligence Units?

An FIU is a central, national unit established in each Member State that is responsible for receiving and analysing information from private entities on financial transactions, considered to be linked to money laundering and terrorist financing. The FIUs share the results of their analyses with the competent authorities where there are grounds to suspect money laundering, associated predicate offences or terrorist financing. The EU - and the international - anti-money laundering and counter terrorist financing framework relies on this analysis.

The EU FIU's Platform has been at the core of identifying the issues set out in the report. This is an informal expert group set up in 2006 by the Commission. It gathers Financial Intelligence Units from EU countries . Its main purpose is to promote cooperation among the FIUs and provide advice and expertise to the Commission on issues related to FIUs. The European Commission participates in the Platform and provides support.

Why did the Commission adopt this report?

The 5th Anti-Money Laundering Directive requires the Commission to assess the framework for Financial Intelligence Units' cooperation with third countries and obstacles and opportunities to enhance cooperation between Financial Intelligence Units in the European Union, including the possi­bility of establishing a coordination and support mechanism. The new Cash Controls Regulation also includes this requirement, as well as the Directive on access to financial and other information.

What are the main findings?

The assessment showed that some Financial Intelligence Units failed to engage in a meaningful dialogue by giving quality feedback to obliged entities defined by the fifth Anti-money laundering directive. The lack of templates for reporting also hampers the quality of the reports by obliged entities. Several Financial Intelligence Units do not fully comply with their obligation to exchange information with other Financial Intelligence Units. The recurrent technical difficulties in the functioning of the FIU.net seem to have been an important factor in these difficulties. The report also shows a need for a stronger mechanism to coordinate and support cross-border cooperation and analysis. The unregulated information exchange between Member States' FIUs and the FIUs of third countries led to a different approaches to such exchanges.

  • 4. 
    Interconnection of central bank account registries

What is this report about?

The fifth Anti-Money Laundering Directive mandated the Commission to submit a report to the European Parliament on this issue. In this report the Commission assesses the conditions, technical specifications and procedures for ensuring a secure and efficient interconnection of the centralised bank account registries or data retrieval systems. Looking at the various IT solutions ensuring the EU-wide decentralised interconnection of national electronic databases, already operational or being currently under development, this report delivers a short factual analysis of the available technical options, highlighting their benefits or drawbacks. The report also identifies where one or another option is most suitable for a possible future interconnection of the national bank account registries. The report will inform EU decision makers about a future interconnection project. It is a legal basis for the establishment of an EU-wide interconnection.

What are the national central bank account registries?

Article 32a of the fourth Anti-Money Laundering Directive requires Member States to put in place by 10 September 2020 national centralised electronic automated mechanisms which allow for the identification of any natural or legal persons holding or controlling in their respective territories payments accounts, bank accounts and safe deposit boxes. These mechanisms may be established either as a central registry, whereby all relevant information are stored in one system, or as a data retrieval system, whereby a central IT platform reaches out to the bank account information held in the different underlying databases of the financial institutions. For the time being, 15 Member States have in place already central bank account registries or electronic data retrieval systems on bank accounts.

Who has access to the information in the central bank account registries?

EU legislation defines the authorities that should have direct access to the information held by the central automated mechanisms, which are the Financial Intelligence Units (FIUs). The Directive also allows Member States to give access to other authorities with tasks on preventing and combatting money laundering and terrorist financing. In addition, Directive (EU) 2019/1153 on the access to financial and other information provides that law enforcement authorities competent for combatting serious crime shall also have direct and immediate access to the national central bank account registries for the purposes of fighting serious crime.



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