OPINION: New AML rules will change the EU’s financial crime prevention landscape for good. But what will change in practice?

THIS WEEK the European Parliament formally endorsed the future Anti-Money Laundering Package, a reform that has been in the making for the past 5 years. Since the European Commission published its proposals in July 2021, and even before, much has been said about how this reform will change the EU’s financial crime prevention landscape for good.

But how will things change in practice? Here are a few simple examples!

Real estate

Criminals often channel money into super fancy mansions and estates. Until now, only information about EU owners has been available to investigative authorities. When the property is owned by a company in a non-EU country, it is extremely hard to identify whether it may have been acquired with illicit funds. The new rules require foreign companies, as well as trusts, that have owned a piece of real estate in the EU since 2014 to record in our beneficial ownership registers who the individuals who own or control the company or trust are. Member States can put the reference date further back in the past, if they consider that certain risks make this necessary.

Cash

As the sudden peak in online fraud during the pandemic showed, criminals do not suffer from any kind of digital divide. Yet, any investigator would tell you that of all the means that exist to launder illicit proceeds, cash remains criminals’ preferred choice. Why? Because it’s easy to transfer, fully anonymous and therefore difficult, if not impossible, to trace back to some criminal act. Of course, access to cash is and will remain a right for everybody in the EU and most cash transfers are absolutely clean. The continued acceptance and availability of cash is an important issue for our consumers, including for financial inclusion. But when large sums of cash are used in transactions, the risk of crime is much higher and much more difficult to manage. For this reason, the new rules introduce an EU-wide cap on large cash payments, set at €10 000, which Member States can lower if needed based on specific national risks. This high figure avoids any negative impact on day-to-day transactions, but also ensures that flats or houses cannot be bought with stacks of cash!

Luxury items

Diamonds are your best friends? Criminals love precious stones too, as well as gold and other precious metals, raw or turned into jewellery. These items can be used to launder money in ways that are pretty similar to using cash. But not every piece of jewellery is attractive for criminals, what interests them are pieces of high value. So, the new rules require those trading in these precious items to carry out checks on their clients when selling items priced €10 000 or more. Other luxury goods such as high-value cars, yachts and planes are also pretty handy when it comes to investing or converting illicit proceeds. What do we mean by luxury? For instance, a car that is worth €250 000 or a boat that costs more than €7 500 000. So, on top of similar checks on the clients, sales of these products will also trigger automatic reporting of any sale to Financial Intelligence Units and registration of the true owner when the purchase is made by foreign companies or trusts.  

Sham fundraising campaigns

Crowdfunding can be a great alternative way to access financing for projects, without the need to obtain loans from banks or other financial institutions. When it comes to charitable projects, crowdfunding allows small contributions to bring real change. Crowdfunding, however, can be misused by groups with less-than-charitable objectives – such as terrorist organisations – or where there is a risk that the funds collected will not be used for the stated goal but to fund terrorist acts. To prevent sham fundraising campaigns from being advertised, the new EU rules require crowdfunding platforms, which enable project owners to connect with potential donors, to carry out checks on the project owners and the intended project. Any attempt to misuse crowdfunding will thus be promptly detected and reported, making alternative financing safer for all.

Crypto

The digital world is full of opportunities. However, with opportunities come risks. The EU has created a solid framework providing regulatory certainty for the development of the crypto-industry, whilst protecting our consumers and our financial system – including from criminal risks. Indeed, as of the end of this year, a comprehensive set of rules will regulate the sector. From an anti-money laundering perspective, this means traceability of all crypto-asset transfers involving the EU, application of anti-money laundering requirements to crypto-asset service providers in line with international standards, and strict oversight of the application of these rules, similar to checks carried out on banks and other financial sector entities. This also means that crypto-asset service providers with a significant level of activity in the internal market and exposed to higher risks may be under the direct supervision of the future AML Authority (AMLA).

Football

Football is Europe´s most popular sport and indeed it is fascinating to play in a football team or enjoy exciting matches. Professional football is not just a sport though, it’s also a multi-billion-euro industry. And this makes it attractive to criminals.  The FIFA corruption case and football leaks of 2015 put the spotlight on the risks of criminal acts associated with this sport. To mitigate these risks, the new rules complement self-regulatory measures at European and national level and require football clubs and football agents to carry out checks on certain financial transactions, such as player transfers, investments, and sponsorships.

Real change is coming with the new AML package. It will make a key difference on the ground – and further improve the integrity of our financial system. Let us all keep a clean sheet against crime!

• THIS ARTICLE first appeared in the European Commission’s Finance News Hub