How AML Due Diligence Changes: The Proposal of The New Eu Anti-Money Laundering Regulation

The new European regulation on anti-money laundering and countering the financing of terrorism AML / CFT Proposal COM (2021) has finalized in 20.7.2021: The main subject is due diligence, transparency of beneficial ownership, and limits on the use of bearer instruments.

Money laundering and terrorist financing pose a serious threat to the integrity of the EU, the economy, the financial system, and the security of its citizens.

On 20 July 2021, the European Commission presented a package of legislative proposals aimed at strengthening EU rules on the fight against money laundering and terrorist financing (AML / CFT).

The package also includes a proposal for a regulation on:

• due diligence

• transparency of beneficial ownership

and has the objective of harmonizing European legislation in terms of the effectiveness of the measures and improving the detection of suspicious transactions and activities and filling the gaps used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.

DUE DILIGENCE OF THE CUSTOMER

A reduction of the threshold for the mandatory due diligence on occasional transactions from Euro 15,000 to Euro 10,000 is envisaged. It introduces the obligation to carry out the AV by banks declared in a state of distress with deposits not available pursuant to Directive (EU) 2014/59 which operate under the supervision of the supervisory authority.

It has been clarified that the fundamental objective of the Customer Due Diligence is to obtain sufficient knowledge of the customers that allows the obliged subjects to determine whether the money deposited on business relationships or subject to occasional transactions derives from money laundering and terrorist financing and for deciding on the corresponding risk mitigation measures. More specific and detailed provisions are provided on the identification of the customer and the verification of his identity. The conditions for the use of electronic identification must be based on the means referred to in Regulation (EU) no. 910/2014.

The European Supervisory Authority AMLA is required to develop standard technical standards for the identification of natural and legal persons which will include specific simplified due diligence measures that obliged subjects can implement in the event of situations of lower risk identified in the supranational assessment. of the risks. Rules are laid down on simplified and strengthened due diligence measures.

It is envisaged that if an obliged subject is unable to fulfill the customer due diligence obligation, it refrains from carrying out a transaction to establish a business relationship and terminates the business relationship by evaluating the suspicious transaction report to the FIU. This obligation does not apply to notaries, lawyers and professionals who are involved in defending the client in legal proceedings.

For the first time, the regulation sets out in detail the documents, data and information that obliged entities must obtain in order to identify the customer and the person acting on his behalf for both natural and legal persons including the type of documents of identification – passport or electronic identification means as per Regulation 910/2014 – and information on nationality, and, where possible, the work carried out. For companies, the obligation to request financial statements and articles of incorporation is introduced. In order to verify the beneficial owners, it is mandatory to take the extract from the central registers. The acquisition left to the discretion of the obliged subjects, of information on the economic activity carried out would seem an indication in contrast with the spirit of the regulation aimed at strengthening the safeguards. On the other hand, all member countries are standardized in relation to the minimum information to be taken on due diligence. However, obliged parties must determine the need for additional information, taking into account the risk profile. Also in relation to the purpose and expected nature of the relationship or transaction, the regulation introduces the obligation to verify the estimated amount and the economic motivation of the envisaged transactions, the source, and the destination of the funds.

THIRD COUNTRY POLICY

The Commission will identify third countries taking into account the identification of the FATF and its own independent assessment. Third countries thus identified will be subject to various measures proportionate to the risk they represent for the financial system of the Union:

(i) third countries with significant (high risk) strategic deficiencies subject to enhanced measures and additional country-specific countermeasures;

(ii)  Third countries with compliance deficiencies subject to enhanced country-specific due diligence measures ;

(iii) Countries that pose a serious threat to the financial system of the Union for which AMLA will evaluate with delegated acts the enhanced measures and the specific countermeasures to be adopted.

In principle, high-risk third countries are those identified by the FATF as “with significant strategic deficiencies”.

Due to the persistent nature of the severe strategic deficiencies in the AML / CFT framework, all enhanced measures and countermeasures will apply to proportionally mitigate the threat. Third countries with compliance weaknesses in their AML / CFT regimes, defined as “ subject to increased monitoring ” by the FATF will in principle be identified by the Commission and subject to enhanced country-specific measures.

The Commission may also identify third countries, which are not listed by the FATF, but which pose a threat to the financial system of the Union and which will be subject to enhanced country-specific due diligence and countermeasures. In assessing the level of threat from these third countries, the Commission can rely on the technical expertise of AMLA. Finally, AMLA will develop guidelines on money laundering, risks, trends, and methods of financing terrorism for countries outside the Union. This approach to third countries aims to ensure that external threats are effectively mitigated.

POLITICALLY EXPOSED PERSONS (PEP)

The PEP provisions are based on the current AML / CFT legislation requiring Member States to draw up lists of functions granting PEP status on their territory and obligations for obliged entities to subject PEPs to enhanced CDD measures. Furthermore, for at least twelve months following the termination of the office, the enhanced AV measures must be applied to the subject, as already envisaged by the Italian and San Marino anti-money laundering legislation.

OUTSOURCING

The proposal clarifies the respective conditions for the use of CDD already carried out by other obliged subjects and the outsourcing of functions to other entities or service providers. In both situations, the responsibility for compliance with the rules rests with the obliged party. The risk-based approach should be applied to suppliers based in high-risk third countries, countries with compliance weaknesses, as well as in any other country that poses a threat to the Union.

BENEFICIAL OWNERSHIP INFORMATION

The beneficial ownership provisions are based on existing legislation including the concept of the beneficial owner and the requirement for all companies and other legal entities to obtain and maintain adequate, accurate, and up-to-date beneficial ownership information. More detailed rules are provided for the identification of the beneficial owner and with regard to express trusts and similar legal entities provisions are provided to ensure the identification of the beneficiary in all Member States.

The proposal introduces the obligation to register beneficial owners of non-EU legal entities in the Union who enter into a business relationship with an EU obliged entity or acquire immovable property in the Union. Directors of companies or other legal persons must report information on beneficial owners to the central registers and to the obliged entities that fulfill the customer due diligence obligations.

COMMUNICATION OBLIGATIONS

Rules on the reporting of suspicious transactions to the FIU are introduced to identify transactions in order to facilitate compliance by the obliged parties and allow more effective functioning of the cooperation of the FIUs. AMLA the new EU AML / CFT supervisor will develop guidelines for their identification and technical standards specifying a common pattern for uniform reporting of suspicious transactions across the EU to national FIUs.

DATA PROTECTION

The Anti-Money Laundering Regulation governs the coordination between the AML / CFT and privacy disciplines referred to in the GDPR EU Data Protection Regulation Regulation (EU) 2016/679 establishing that the GDPR applies to the processing of personal data for AML / CFT purposes. The proposal clarifies the conditions that apply to the processing of certain categories of personal data of a sensitive nature by the obliged subjects ( judicial data, income, and equity data, bank data, health data, etc.) acquired as part of the fulfillment of the obligations of due diligence and constant monitoring of customers.

The obliged subjects, within the limits of what is “strictly necessary”, are allowed to manage sensitive data and those relating to convictions and crimes (respectively articles 9 paragraph 1 and 10 of the GDPR) for AML obligations if such personal data relating to money laundering of money, its predicate offenses or the financing of terrorism provided that:

1. inform their customers e
2. adopt measures of a high level of security in terms of confidentiality.

Obligated entities must keep records of certain personal data for five years after the termination of the business relationship or after the execution date of an occasional transaction. Upon expiry of this retention period, the obliged subjects will delete the personal data.

MEASURES TO MITIGATE THE RISKS OF ABUSE OF TOOLS TO BEARER

The proposal contains a provision preventing merchants of goods or service providers from accepting cash for payments above EUR 10 000 for a single purchase while allowing the Member States to maintain lower ceilings for cash transactions. This ceiling does not apply to transactions between individuals, as the applicability of the new limit of € 10,000 is limited only to cash payments in commercial transactions. Therefore, transactions between natural persons who do not carry out business or professional activities may continue to take place in cash with no limits on the amount, unless national legislation provides for a lower one.

Furthermore, the regulation prohibits anonymity for customers of services related to virtual activities ( crypto-assets ): the supply and safekeeping of anonymous cryptocurrency portfolios are prohibited.

Unlisted companies are prohibited from issuing bearer shares. The issue of bearer warrants is permitted only in cases of intermediation through the banking channel. The Commission must assess the benefits and impacts of a further lowering of this threshold within three years from the application of the proposal.

FINAL PROVISIONS

The Regulation will enter into force on the twentieth day following its publication in the Official Journal and becomes applicable 3 years after its entry into force.