The Anti-Money Laundering Authority’s fight against financial crime
Increased power and reach promise improved ML/TF controls
Authors:
Nicolas Marinier: Partner, Deloitte
Maxime Heckel: Partner, Deloitte
Andreas Schmitt: Manager, Deloitte
Leonhard Hoffmann: Analyst, Deloitte
Performance Magazine Issue 44 - Article 1
To the point
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In December 2023, the European Council and the European Union (EU) Parliament announced a provisional agreement for the establishment of the Anti-Money Laundering Authority (AMLA), a new EU authority to combat money laundering and terrorist financing (ML/TF). This authority aims to combat these financial crimes more effectively across EU borders through direct supervision of selected high-risk financial institutions and through indirect supervision from national AML/CTF financial supervisors. While the EU Commission’s legislative proposal dated 20 July 2021 laid the foundation for the AMLA and its purpose, the recent decision announced on 13 December 2023 constitutes a significant milestone in solidifying the framework, including the scope of its supervisory powers. The recent announcement on 22 February 2024 that Frankfurt will be the home of AMLA is one more step toward the “go-live” of the AMLA.
The challenge with the current AML/CTF framework
It is glaringly apparent that when it comes to cross-border combat of financial crime, the approach in place today falls short.
Consider the recent case of the Latvian bank, ABLV; it serves as a stark reminder that the existing practices are outdated and ill-equipped to deal with the complexities of modern financial crime. ABLV stands accused of involvement in money laundering schemes tied to Russian and Ukrainian clients, exposing loopholes in our system. One obvious issue is the ease with which many financial institutions accept funds from foreign clients without adequately verifying their identities, the ownership and control structure involved, or the source of funds. In this specific example, the lack of due diligence allowed illicit funds to flow through Latvia before being funneled into western Europe, laying bare serious deficiencies in cross-border ML controls that demand immediate attention.
The difficult and insufficient pace of investigations into cross-border money laundering scandals exacerbate the problem. Lengthy probes and the inherent difficulties in coordinating efforts among various authorities not only delay the fight against financial crime but also increase the likelihood of perpetrators slipping through the cracks or continuing their illicit activities.
To meet these challenges, revising and modernizing the existing AML/CTF framework is critical. This will require not only the implementation of new legislation but also closer cooperation at both national and international levels.
Although the AMLA is in its initial phase of establishment, its proposed power, enhancements, reach, and operational obligations promise great hope—but also significant impact—for the financial sector and its fight against financial crime.
Empowered by the EU: Understanding the AMLA's multiple competencies
Extended direct supervisory powers
The EU is preparing to give the AMLA far-reaching supervisory powers over companies in the financial sector. Under the provisional agreement, the AMLA will be empowered to directly supervise certain types of financial institutions with enhanced risks, such as crypto-assets providers deemed “high-risk” and have cross-border activities and a presence in at least six Member States.
In an initial selection process, which will be renewed every three years, the AMLA will oversee up to 40 groups and organizations and will have the authority to impose sanctions to ensure compliance. Companies that have not been selected during the initial selection process will continue to be subject to supervision at the national level with regard to anti-money laundering and countering terrorist financing (AML/CTF). In the event of insufficient measures, the Authority may temporarily take over the national supervision of non-selected financial institutions.
Supreme authority
In addition to the direct supervision of high-risk financial institutions, the AMLA will also take on the task of coordinating the supervision of other financial entities by national authorities. Furthermore, AMLA will be empowered to judge and enforce binding rules in the event of disagreements between national supervisory authorities. This includes situations where disagreements would arise between authorities of different Member States. Currently national authorities are autonomous; disputes between them could trigger significant tensions among those authorities and risk undermining the effectiveness of AMLA. Here, however, the AMLA could then use its supreme authority and demonstrate its strength by enforcing binding rules in the case of disagreements.
Improved whistleblowing mechanism
The provisional agreement also marks a significant step toward strengthening whistleblowing mechanisms in the fight against financial crime—an issue that was brought into focus with the Whistleblower Directive (EU) 2019/1937. The AMLA will process reports from the financial sector and will also be authorized to review whistleblowing reports from staff of national authorities, providing an overview that combines granularity and cross-jurisdiction. By tasking the AMLA with this responsibility, identifying and investigating potential ML/TF activities could become significantly more efficient, amplifying the impact of whistleblower protection overall.
Unified IT systems
The AMLA will also manage FIU.Net, the information exchange platform used by different national financial intelligence units (FIUs). This additional measure enhances the fight against financial crime in a cross-border context by enabling the investigation of suspicious activities and transactions. Moreover, the initially determined scope and content of AMLA's supervisory database will be expanded as the Authority is tasked with establishing and maintaining a central database that will contain information relevant to AML/CTF supervisory authorities; this includes data on suspicious transactions, high-risk individuals or entities, and any other pertinent information necessary for effective AML/CTF supervision. The AMLA will use this database to support other authorities in their efforts to combat ML/TF by providing them with access to relevant information and analysis.
It is clear that the AMLA has been granted extensive powers to demonstrate its strength and its ability to sanction professionals. This emphasizes that not only is the AMLA serious about AML/CTF, but by effectively exercising these powers, it can establish itself as a formidable force amid the AML/CTF landscape. But with more power, comes increased responsibility.
Four Key obligations of the AMLA
As it launches its operations, the AMLA must prioritize the following in order to effectively fulfill its mandate:
Develop implementing and regulatory technical standards (ITS/RTS)
The AMLA is tasked to play a crucial role in developing a comprehensive set of ITS/RTS as identified by the EU AML Coordination Group. To date, 80 ITS/RTS have been identified, which are critical to defining the complex details of the new unified AML/CTF rulebook. By advancing the formulation and implementation of these standards, the AMLA aims to ensure consistency and effectiveness in AML practices throughout the EU.
Establish supervisory policies and procedures
Central to the AMLA's mission is building robust oversight structures; this includes establishing Joint Supervisory Teams and fostering close channels of cooperation with national supervisory authorities. Moreover, the AMLA must conclude agreements to facilitate smooth cooperation with other EU institutions and authorities from third countries. These efforts are crucial to streamlining surveillance procedures and promoting a coherent approach to combat financial crime.
Strengthen information exchange mechanisms
Another key area for the AMLA is to improve the mechanisms for exchanging information between national authorities and other EU agencies. This includes developing capable data transmission protocols, building databases to store and analyze AML/CTF-relevant information, and promoting training and skill building to support effective use of these information sources. By strengthening these exchange mechanisms, the AMLA seeks to be faster and more efficient than the criminal organizations it is fighting, helping to improve early detection and accelerate the fight against ML/TF across the EU.
Promote good practice and innovation
The AMLA is also expected to play a key role in promoting best practices and innovation in the field of AML/CTF. This includes identifying and disseminating best practices for preventing and detecting ML/TF activities, as well as supporting the research and development of new technologies and approaches that combat financial crime.
Conclusion
The Anti-Money Laundering Authority is optimally positioned to strengthen the fight against money laundering and terrorist financing. In addition to having the EU’s backing and the operational obligations detailed above, its ability to assume control over the FIU.Net platform will provide a unique opportunity to interact directly with reporters and to gain the related data needed to refine its analyses and respond quickly to emerging risks. This direct interaction opens new avenues for more efficient and effective monitoring of ML/TF activities within the EU, ultimately enhancing the fight against financial crime across its Member States. Of course, in order to address any new trend or weakness adequately, the European Commission will need to continuously adapt the resources and powers granted to the Authority.
While it will take time for it to become fully operational and subject to a fair evaluation of its success, we can consider the establishment of the AMLA as an important step in cross-border collaboration where all authorities, institutions, and stakeholders share a common goal: combating ML/TF in the long term.
