The EU has a complex and evolving framework of regulations and directives aimed at preventing and combating money laundering and terrorist financing (AML/CTF). This framework includes key concepts like know your customer (KYC) and customer due diligence (CDD). Here’s a breakdown of the main elements:
Key Legislation:
Fourth AML Directive (2015/849): This forms the central pillar of the EU’s AML/CTF legislation. It outlines obligations for “obliged entities” (such as credit institutions, financial institutions, auditors, and gambling service providers) to implement risk-based AML/CTF measures. These measures include:
- CDD: Identifying and verifying customer identities, beneficial ownership, and source of funds.
- Transaction monitoring: Identifying suspicious transactions and reporting them to the authorities.
- Risk assessment: Identifying and assessing ML/TF risks associated with different customers and business activities.
- Internal controls: Implementing policies and procedures to prevent ML/TF.
Fifth AML Directive (2019/2173): This directive strengthens provisions on beneficial ownership transparency, cross-border cooperation, and sanctions, aiming to address gaps identified in the Fourth Directive.
Other relevant regulations and directives:
- Guidelines and recommendations: The European Commission and authorities like the European Banking Authority (EBA) issue guidelines and recommendations to interpret and clarify the AML/CTF legislation. These documents provide practical guidance for obliged entities.
- National implementation: EU member states are responsible for transposing the directives into their national laws. This can lead to some variations in how the rules are applied across the EU.
Key concepts:
- Know your customer (KYC): The process of identifying and verifying the identity of a customer, including their beneficial owner (the person who ultimately controls or benefits from the customer).
- Customer due diligence (CDD): The process of assessing the ML/TF risk associated with a customer and applying appropriate measures to mitigate that risk. This can include simplified due diligence for low-risk customers and enhanced due diligence for high-risk customers.
Current developments:
- The EU Commission is currently working on a package of proposals to further strengthen the EU’s AML/CTF framework, including the creation of a new EU authority to fight money laundering.
Resources for further information:
- European Commission website on AML/CTF: https://finance.ec.europa.eu/financial-crime/eu-context-anti-money-laundering-and-countering-financing-terrorism_en
- European Banking Authority (EBA) website on AML/CTF: https://www.eba.europa.eu/homepage
