What EU New Anti-Money Laundering Measures Mean For Cryptocurrency Firms

The European Council and the European Parliament have reached a provisional agreement  on aspects of an anti-money laundering package . This should safeguard EU citizens and the financial system against money laundering and terrorist financing.

Under the new package, regulations pertaining to the private sector will be consolidated into a new regulation. Meanwhile, the directive will address the organization of institutional anti-money laundering and counter-terrorist financing (AML/CFT) systems at the national level in member states.

This agreement aims to establish stricter regulations for cryptocurrency firms operating in the European Union. The proposed rules target a significant segment of the crypto sector. They mandate these firms to perform due diligence on customers, especially in transactions exceeding €1,000 (approximately $1,090).

New Anti-Money Laundering Regulation

Entities with obligations, include financial institutions, banks, real estate agencies, asset management services, casinos, and merchants. They play a crucial role as gatekeepers in the anti-money laundering and countering the financing of terrorism (AML/CTF) framework. This is due to their privileged position in detecting suspicious activities.

The provisional agreement extends the scope of obliged entities to include new bodies, with a particular focus on crypto. The proposed rules mandate all crypto-asset service providers (CASPs) to conduct thorough due diligence on their customers. They require the verification of customer information and the reporting of any suspicious activities.

As per the agreement, CASPs must implement customer due diligence measures for transactions exceeding €1,000. Additional measures address risk mitigation for transactions involving self-hosted wallets.

Luxury goods sectors, including traders of precious metals, stones, jewelers, horologists, goldsmiths, luxury cars, airplanes, yachts, and cultural goods such as artworks, will also be subject to customer due diligence and reporting obligations.

Recognizing the high-risk nature of the sector, the provisional agreement expands the list of obliged entities to include professional football clubs and agents. Member states will have flexibility, based on risk assessments, to remove football entities from the list after a longer transition period, set at five years. Other entities have a transition period of three years.

Enhanced Due Diligence

The Council and Parliament have implemented targeted enhanced due diligence measures for cross-border correspondent relationships involving crypto-asset service providers.

Both Council and Parliament ruled credit and financial institutions must apply enhanced due diligence when establishing business relationships with high-net-worth individuals handling substantial assets. Non-compliance will be treated as an aggravating factor in the sanctioning regime.

Belgian Minister of Finance, Vincent Van Peteghem, said : “This agreement is part and parcel of the EU’s new anti-money laundering system. It will improve the way national systems against money laundering and terrorist financing are organized and work together.”

He added: “This will ensure that fraudsters, organized crime, and terrorists will have no space left for legitimizing their proceeds through the financial system.”

The Importance Of FIUs

Each member state has already established a Financial Intelligence Unit (FIU). FIUs proactively prevent, report, and combat money laundering and terrorist financing. They play a crucial role in receiving and analyzing pertinent information on money laundering and terrorist financing, particularly through reports from obligated entities.

As per the agreement, FIUs will have immediate and direct access to a range of financial, administrative, and law enforcement information. This includes tax details, data on frozen funds and other assets under targeted financial sanctions. Records of fund transfers and crypto-transfers, national vehicle and aircraft registers, customs data, and national weapons and arms registers, among others.

FIUs will continue to disseminate information to authorities fighting money laundering and terrorist financing. This includes with investigative, prosecutorial, or judicial roles. In cross-border cases, FIUs will enhance cooperation with counterparts in the member state handling the suspicious report. They will be helped by the upgraded FIU.net system for swift cross-border report dissemination.

The provisional agreement emphasizes the confirmation of applying fundamental rights as an integral part of the FIU’s work, with due consideration when making decisions.

Also, the agreement establishes a robust framework allowing FIUs to suspend or withhold consent to a transaction. This enables in-depth analyses, suspicion assessments, and the prompt dissemination of results to relevant authorities.

What’s Next?

The finalized texts will undergo presentation to member states’ representatives in the Committee of Permanent Representatives and the European Parliament for approval. Upon approval, the Council and the Parliament will formally adopt the texts before publication in the EU’s Official Journal, marking their entry into force.

The process started on July 20, 2021, when the EU Commission unveiled a legislative package aimed at fortifying the EU’s anti-money laundering and countering the financing of terrorism rules. This comprehensive package comprises:

• A regulation establishing the new EU Anti-Money Laundering Authority (AMLA) endowed with sanction and penalty enforcement powers.
• A regulation overhauling the rules on transfers of funds, designed to enhance transparency and traceability in crypto-assets transfers.
• A regulation outlining anti-money laundering requirements for the private sector.
• A directive focusing on anti-money laundering mechanisms.