‘Closing the door on dirty money’: the European Commission’s Anti–Money Laundering Action Plan

‘Closing the door on dirty money’: the European Commission’s Anti–Money Laundering Action Plan

Blog WilmerHale W.I.R.E. UK

On 7 May 2020, the European Commission (Commission) issued a comprehensive and ambitious Action Plan and public consultation designed to strengthen the European Union's (EU) legal framework to fight against money laundering and terrorist financing, following a wave of recent high-profile money laundering scandals at European banks. 

This post focuses on the Action Plan’s proposal to establish a new EU-level supervisory and enforcement body to monitor and enforce companies’ compliance with EU anti-money laundering (AML) and countering the financing of terrorism (CFT) legislation.

The six pillars

The Action Plan follows significant recent developments in EU legislation aimed at strengthening the EU’s AML and CFT framework, notably the introduction of the 5th Anti-Money Laundering Directive (5AMLD), which came into force in January this year.  Whilst current EU rules go beyond international standards, they have been inconsistently implemented across the EU, which has led to loopholes or weak links developing in the supervisory framework. The Action Plan is built on six pillars aimed at harmonizing EU rules which are listed below:

  1. Ensure the effective application of existing EU rules.
  2. Establish a single EU AML/CFT rule book.
  3. Establish EU-level AML/CFT supervision – the Commission proposes to establish an EU-level supervisor in the first quarter of 2021.
  4. Establish a coordination and support mechanism for Member State Financial Intelligence Units.
  5. Enforce EU-level criminal law provisions and information exchange.
  6. Strengthen the EU’s global role in shaping international AML/CFT standards.

EU-level AML supervision

The Action Plan concludes that “supervision sits at the heart of an effective AML/CFT framework” and as such, a central plank of the proposals is to implement an EU-level AML/CFT supervisory system in the first quarter of 2021.  Such supervision is currently the sole responsibility of Member States.  Though establishing an EU AML/CFT supervisor is a priority, the Action Plan leaves open the supervisor’s functions, competences (for example whether it would have direct supervisory powers over all sectors, both financial and non-financial) and ability to oversee and instruct national supervisors, to be defined in a subsequent legislative proposal.

A critical point yet to be decided is whether the task of ensuring EU-level supervision is granted to an existing EU agency, namely the European Banking Authority (EBA), or to a new, dedicated body.  Given the recent strengthening of the EBA’s mandate to include responsibility for leading, coordinating and monitoring the AML/CFT efforts of all EU financial services providers and competent authorities, it might be assumed that the EBA would be the natural fit for the role.  However, entrusting the EBA with the new responsibilities would restrict the EU-level supervision to only those entities within the financial sector and commentators have also pointed to the EBA’s much-criticised decision in April 2019 to close its investigation into allegations of widespread money laundering breaches at Danske Bank, without adopting any findings. 

A statement of intent with one note of caution

The Action Plan is an unambiguous statement of intent that the EU is continuing to intensify its efforts in the battle against money laundering across the bloc, and whilst companies operating in the EU may not welcome additional regulatory scrutiny from a new supervisory body, they will at least acknowledge the need for improved consistency in supervision and enforcement. The logical basis for the move to introduce an EU-level supervisor, that “the EU’s AML/CFT framework is only as strong as its weakest link” is unarguable and has been brought into sharper focus by recent banking breaches. The one note of caution regarding the Action Plan surrounds the natural tendency towards complexity in AML/CFT supervision. The UK stands as a good example of the potential downsides of complexity with its 25 HM Treasury appointed AML/CTF supervisors operating in a supervisory system criticised as fragmented and ineffective.  The scope of the new EU-level supervisor’s functions and its interactions with Member States’ authorities will need to be carefully managed.

Respondents have until 29 July 2020 to reply to the Action Plan consultation.