The European Commission has announced new measures to further strengthen the EU's framework to fight money laundering and terrorism financing (ML/TF). The measures take the shape of an Action Plan for a Comprehensive EU Policy on Preventing Money Laundering and Terrorist Financing, a new methodology to identify high-risk third countries, and an updated list of high-risk third countries. Financial institutions should take note.

What has happened?

The Commission has said that its newly issued Action Plan is a first step towards a new, comprehensive framework to fight ML/TF in the EU. The Commission launched a public consultation on its Plan with authorities, stakeholders and citizens having until 29 July 2020 to provide feedback.

What does this mean?

According to the Commission, although current EU anti-money laundering/combatting the financing of terrorism (AML/CFT) rules are far reaching, and even go beyond international standards, they are not applied consistently across the EU, leading to fragmentation of those laws between 27 Member States.

"There is a clear need to tackle this lack of coherence and ensure a more harmonised implementation of the rules across the EU," the Commission said.

This is why the Commission has now put forward measures that aim to further harmonise the EU framework and address weak links in the EU's AML rules.

Action Plan

The Action Plan is built on six pillars:

  • effective application of EU rules: the Commission will monitor how Member States implement EU AML/CFT rules to ensure that national rules are in line with the highest possible standards. The Action Plan wants the European Banking Authority to use all its powers to tackle ML/TF.
  • a single EU rulebook: the Commission notes that Member States apply the current EU rules in a different ways, with diverging interpretations of the rules leading to loopholes, which criminals can exploit. The Commission will therefore propose a more harmonised set of rules in Q1 2021.
  • EU-level supervision: Member States currently individually supervise EU AML/CTF rules, meaning that gaps can develop in how the rules are supervised. The Commission will therefore propose to create an EU-level supervisor.
  • a coordination and support mechanism for Member States' financial intelligence units (FIUs): in Q1 2021, the Commission will propose to establish an EU coordination and support mechanism for FIUs, which will identify suspicious transactions and activities that could be linked to criminal activities.
  • enforcing EU-level criminal law provisions and information exchange: the Commission will issue guidance on the role of public-private partnerships to clarify and enhance data sharing.
  • the EU's global role: the EU will increase its efforts to act "as a single global actor" in tandem with the Financial Action Task Force (FATF). Among others, it will adjust its approach to third countries with strategic deficiencies in the AML/CFT regimes that threaten the single market. In this regard, the Commission issued a new methodology alongside the Action Plan, which gives the EU the necessary tools to do so. The methodology is yet to come into force, but pending this, the updated EU list ensures better alignment with the latest FATF list.

New methodology

The second set of measures involves a new methodology to identify new high-risk countries, with the key new elements of this new methodology concerning:

  • the interaction between the EU and FATF listing process;
  • an enhanced engagement with third countries subject to the autonomous assessment; and
  • reinforced consultation of Member States experts. The European Parliament and the Council will have access to all relevant information at the different stages of the procedures, subject to appropriate handling requirements.

The Commission also explained the criteria used for listing a third country and who will be consulted and how once the methodology is in place.

New EU list of high-risk third countries

The third element of the Commission's measures is an updated list of high-risk countries. This will have consequences for so-called "obliged entities", such as financial institutions and banks, which will have to apply extra checks ("enhanced customer due diligence requirements") for any transactions involving the said countries.

The countries that have been added to the list are: the Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe.

However, because of the coronavirus crisis, the date of application of this listing of third countries, and therefore applying new protective measures, applies only from 1 October 2020.

Six countries were also removed from the list, namely: Bosnia-Herzegovina, Guyana, Laos, Ethiopia, Sri Lanka and Tunisia.