On 8 November 2018, the European Commission referred Luxembourg to the Court of Justice of the European Union (CJEU) for failing to fully transpose the fourth Anti-Money Laundering Directive (MLD4) into national law. On the same day, the Commission also sent Estonia a reasoned opinion and Denmark a letter of formal notice to assess compliance with MLD4.

Background

MLD4 was introduced to reinforce the EU Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) framework by:

  • strengthening risk assessment obligations for banks, lawyers, and accountants;
  • establishing clearer transparency requirements on beneficial ownership for companies and trusts;
  • facilitating cooperation and exchange of information between Financial Intelligence Units across the EU for the identification and tracking of suspicious transfers of money;
  • introducing a coherent policy towards third countries without appropriate AML/CTF regimes;
  • enhancing the sanctioning powers of competent authorities.

Failure of EU Member States to implement MLD4

Even though EU Member States had to transpose MLD4 by 26 June 2017, most Member States failed to adopt the necessary implementation measures on time. Therefore, the Commission opened non-communication infringement procedures against 21 Member States. In her speech of 25 June 2018, Věra Jourová, Commissioner for Justice, Consumers and Gender Equality, gave a damning assessment of the implementation of MLD4, describing it as ‘slow and unsatisfactory’.

Currently, three Member States are at the stage of court referrals (Romania, Ireland and now Luxembourg), one is on hold (Greece), nine at the stage of Reasoned Opinions, and eight at the stage of letters of formal notice.

“We have stringent anti-money laundering rules at EU level, but we need all Member States to implement these rules on the ground. We don’t want any weak point in the EU that criminals could exploit. The recent scandals have shown that Member States should treat this as a matter of urgency,” said Věra Jourová, commenting on Luxembourg’s referral.

The Commission proposed that the CJEU charges a lump sum and daily penalties until Luxembourg takes appropriate action. Estonia and Denmark were given two months to respond to the relevant formal notices and take the necessary action. If they fail to do so, then the Commission may take further infringement action, including referral to the CJEU.

Adoption of MLD5

In the meantime, following the Panama Papers revelations and the terrorist attacks in Europe, the EU adopted the fifth Anti-Money Laundering Directive (MLD5). MLD5 seeks to strengthen the EU AML/CTF regime by:

  • enhancing safeguards for financial flows from high-risk third countries;
  • facilitating access of Financial Intelligence Units to information;
  • introducing centralised bank account registers; and
  • bringing into scope virtual currencies and pre-paid cards.

MLD5 entered into force on 9 July 2018 and Member States will need to transpose its provisions into national law by 10 January 2020.