The European Union is updating its anti-money laundering (AML) regulations to take a more risk-based approach, lower by half the threshold that triggers AML procedures, and provide better transparency regarding the true owners of entities.

The European Commission last week adopted two proposals toward that end, its fourth AML directive and a complementary regulation on what information must accompany fund transfers to ensure traceability. The update was initiated after new international AML standards were published in 2012 by the Financial Action Task Force (FATF).

Internal Market and Services Commissioner Michel Barnier said the legislation shows that the EU is “at the forefront” of the international fight against money laundering.

“In addition to the criminal law approach, a preventive effort via the financial system can help to stop money-laundering,” Barnier said in a statement. “Our aim is to propose clear rules that reinforce the vigilance by banks, lawyers, accountants, and all other professionals concerned.”

The changes to the Funds Transfers Regulation are designed to ensure “due traceability” of transfers and conform with new FATF standards, the commission said. The update would provide better consistency between member states and address emerging threats while allowing authorities ready access to information throughout the payment chain.

The new directive:

·         Provides rules on how to identify beneficial owners and requires companies to keep records of the identity of individuals behind the company.

·         Updates customer due diligence rules. Currently financial professionals can take advantage of simplified due diligence rules for transactions originating from areas on the Member States' list of “equivalent” third countries. The proposed revision instead favors a more risk-based approach, with enhanced efforts targeted at higher-risk sectors and activities.

·         Expands the definition of politically exposed persons to include domestic as well as foreign politically exposed persons, and those within international organizations. The rule would apply top heads of state, government and parliament members, and members of the judiciary among others.

·         Expands the scope of rules to the entire gambling sector rather than the current language that covers just casinos. Tax crimes also are added to the list of predicate offenses for money laundering.

·         Lowers by half the threshold to trigger AML procedures from cash payments of €15,000 to €7,500. Lawmakers said offenders were taking advantage of the €15,000 threshold. Member states would be allowed to set thresholds even lower.

·         Strengthens cooperation between national Financial Intelligence Units, which analyze and disseminate information about suspected money laundering or terrorist financing.

·         Reinforces administrative sanctioning powers of the national authorities and requires cooperation between national authorities on cross-border cases.

“Dirty money has no place in our economy, whether it comes from drug deals, the illegal guns trade, or trafficking in human beings,” Home Affairs Commissioner Cecilia Malmström said in a statement. “To protect the legal economy, especially in times of crisis, there must be no legal loopholes for organized crime or terrorists to slip through. Our banks should never function as laundromats for mafia money, or enable the funding of terrorism.”

The legislation needs approval by European Parliament and the Council of Ministers before taking effect. Parliament is scheduled to vote on the matter next week. Washington, D.C.-based research group Global Financial Integrity is urging MEPs to go even further in transparency efforts with the creation of public registries of beneficial owners, according to Tax-News.com. The U.K. government signaled its support for the idea last fall.

MEP Bill Newton Dunn of the U.K. said the fourth AML directive proposed would remedy many weaknesses in current EU law. He said movement of dirty money has been facilitated by “loopholes in the financial system.” In an opinion piece published this week in the Parliament.com, Dunn specifically praised the move towards a risk-based approach and away from relying on equivalent regime lists.

“We should not be relying on a list to tell us that a government is low risk,” Dunn wrote. “Risk should be judged by the prospective business relationship, who the beneficial owner is, where the funds originated from, what they are being used for, and who they are being sent to.”

Dunn, who is responsible for issuing the Development Committee's opinion on the proposal, also said he backs the idea of public registries of beneficial owners. “We need to know who owns the companies that are using the European financial system,” Dunn wrote.

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