New EU AML Laws Take Effect, Gaps Identified

Two years of talks inside the EU on how to improve control measures for digital payments and cryptocurrencies have led to a fifth version of the EU’s anti-money laundering (AML) directive.

The directive, which was finalized in April and came into force on July 9, 2018, aims, in part, to address the threat of terrorist financing via the anonymous use of virtual currencies and prepaid instruments.

It also aims to increase transparency of company owners in order to prevent money laundering, improve the work of financial intelligence units and collaboration between them, and improve the cooperation between AML supervisors and the European Central Bank.

The directive specifically extends AML and counterterrorism financing rules to virtual currencies and the entities that provide services in the sector, including those actors who hold, store, and transfer virtual currencies.

The directive focuses on the transparency and sharing of information between AML and financial bodies in order to combat cross-border money laundering, terrorism financing, and illegitimate transfers.

According to Reuters, the new rules could already be out of date, as they don’t address issues raised by recent banking scandals in Latvia, Estonia, and Malta.

Malta, in particular, is attracting cryptocurrency businesses and exchange operators wishing to access the EU market and take advantage of suitable cryptocurrency-related legislation. Though the country recently passed three bills to regulate cryptocurrency businesses and initial coin offerings, it is under EU scrutiny for allowing the creation of the Pilatus Bank, the founder of which was already under FBI investigation and has since been arrested. 

Some, including EU lawmaker Sven Giegold, propose developing a more centralized authority. “The Commission cannot hesitate any longer in bringing forward a legislative proposal for a European anti-money laundering authority,” he said on Monday.

The European Commission has created a number of banking watchdogs, with the goal of improving the coordination of AML supervision. However, the European Central Bank’s Supervisory Board chair, Danièle Nouy, has said that EU rules do not give regulators clear powers to remove banking licenses. Additionally, “financial intelligence units” don’t cooperate, and criminals can hide illegal proceeds by transferring them across borders.

EU member states have 18 months to develop compliance to the new fifth AML directive but, according to reports, two-thirds of countries have still not applied the fourth directive which came into force in 2015.

The length of time taken to develop the latest directive and draft the rules may mean the fast-moving cryptocurrency sector has already advanced beyond the scope of the mandate.

Melanie Kramer is a freelance FinTech, blockchain, and cryptocurrency writer based between France and Canada. Melanie has studied, and retains an avid interest in, global politics, business, and economics.

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