Preventing abuse of the financial system for money laundering and terrorism purposes

SUMMARY OF:

Directive (EU) 2015/849 – prevention of the use of the financial system for the purposes of money laundering or terrorist financing

WHAT IS THE AIM OF THE DIRECTIVE?

Directive (EU) 2015/849 (4th Anti-Money Laundering Directive, 4AMLD) aims to combat money laundering* and the financing of terrorism* by preventing the financial market from being misused for these purposes.
It replaces the previous Directive 2005/60/EC (3rd Anti-Money Laundering Directive, 3AMLD) that entered into force in 2007.
Its purpose is to remove any ambiguities in the previous directive and associated legislation, and to improve the consistency of anti-money laundering and counter-terrorist financing rules across all European Union (EU) Member States.
The directive also takes into account the recommendations of the Financial Action Task Force from 2012, which were revised in 2023.
To reflect these updated recommendations, amending Regulation (EU) 2023/1113 introduces additional categories of virtual asset service providers not previously covered by the directive, which are defined in Regulation (EU) 2023/1114, the markets in crypto-assets regulation (see summary). Amending Regulation (EU) 2023/1113 also lays down rules to ensure that crypto-asset* service providers* are able to appropriately mitigate the money laundering and terrorist financing risks to which they are exposed.

KEY POINTS

The directive applies to:

credit institutions;
financial institutions;
designated non-financial businesses and professions, such as:
- auditors,
- external accountants,
- tax advisors,
- notaries and lawyers, in certain circumstances,
- estate agents, when acting as intermediaries in the letting of immovable property for which the monthly rent exceeds €10,000,
- traders in goods (e.g. precious metals and stones, when payments of €10,000 or more are made in cash),
- art dealers, where the value of a transaction is €10,000 or more,
- providers of gambling services.

The directive:

reinforces the rules regarding transparency with regard to the identification of customers – especially beneficial owners* of companies and legal arrangements (trusts);
requires information on beneficial ownership for companies to be held in each Member State in a central register, such as a commercial register, a company register or a public register;
improves the awareness of and responsiveness to any money laundering / terrorist financing weakness – in addition to the national risk assessments to be carried out by Member States, the European Commission also conducts assessments of the money laundering / terrorist financing risks affecting the internal market and related to cross-border activities (the first report was released in June 2017);
brings about a coordinated European policy to deal with non-EU countries (third countries) which have inefficient anti-money laundering / counter-terrorist financing (AML/CTF) regimes, to protect the EU’s financial system – The first EU list of ‘high-risk third countries’ was adopted by a Commission delegated act in July 2016, and the list has since been amended several times;
strengthens and improves cooperation between financial intelligence units (FIUs), which are among the key actors in the fight against money laundering / terrorist financing – A systematic exchange of information between FIUs should take place through advanced technical infrastructures using FIU.net, a decentralised computer network using a sophisticated matching technology;
specifies that suspicions of money laundering or terrorist financing must be reported to the public authorities, usually the FIU;
requires those to whom it is addressed to introduce:
- supporting measures, such as ensuring the proper training of personnel and establishing appropriate internal preventive policies and procedures,
- additional safeguards, such as enhanced customer due diligence for situations of higher risk, like trading with banks situated outside the EU and, in particular, when dealing with natural or legal entities established in non-EU countries identified by the Commission as high-risk third countries;
prohibits banks from keeping anonymous safe-deposit boxes in addition to anonymous accounts and passbooks;
includes measures to prevents risks linked to prepaid cards and virtual currencies by:
- lowering the identification threshold for prepaid cardholders from €250 to €150,
- enabling national FIUs to obtain information allowing them to trace the identity of the owner of virtual currency;
strengthens cooperation between FIUs by allowing them to share more information;
gives the European Banking Authority (EBA), since 1 January 2020, the tasks of preventing the use of the financial system for the purposes of money laundering and terrorist financing and of leading, coordinating and monitoring the efforts of all EU financial services providers and competent authorities in this domain (see summary).

Amending Regulation (EU) 2023/1113

Regulation (EU) 2023/1113 creates a system for dealing with exchanges of crypto-assets to ensure they are not used illegally, such as to circumvent sanctions or to fund terrorism or war. To comply with international standards on transfers of crypto-assets and to ensure the traceability of these assets, it requires crypto-asset service providers to gather and, where appropriate, disclose to the authorities certain information about senders and beneficiaries of any transfers of these assets that they undertake, irrespective of their value.

Regulation (EU) 2023/1113 has amended Directive (EU) 2015/849 to:

include all categories of crypto-asset service providers as defined in Regulation (EU) 2023/1114 within the definition of ‘financial institutions’ in Directive (EU) 2015/849 (Article 3);
require crypto-asset service providers to apply mitigating measures commensurate with the risks associated with transfers involving self-hosted addresses and to implement, where appropriate, enhanced due diligence measures (Article 19a);
require crypto-asset service providers to apply appropriate risk mitigating measures when establishing cross-border correspondent relationships involving the execution of crypto-asset services with a respondent entity not established in the EU (new Article 19b);
allow Member States to require crypto-asset service providers established in their territory in forms other than a branch, and whose head office is situated in another Member State, to appoint a central contact point in their territory (Article 45, paragraph 9);
remove registration requirements in relation to those categories of crypto-asset service providers which will become subject to a single licensing regime under Regulation (EU) 2023/1114 (Article 47, paragraph 1) – these amendments to Directive (EU) 2015/849 also require the European Banking Authority to issue guidelines on a range of issues, including:
- the criteria and elements that crypto-asset service providers must take into account when assessing their cross-border correspondent relationships involving the execution of crypto-asset services, along with the risk mitigating measures associated with the respondent entities, including the minimum action to be taken by crypto-asset service providers where a respondent entity is not registered or licensed (new Article 19b),
- risk variables and risk factors to be taken into account by crypto-asset service providers when entering into business relationships or carrying out transactions in crypto-assets (Article 18),
- measures crypto-asset service providers have to set in place to identify and assess the risk of money laundering and terrorist financing associated with transfers of crypto-assets made to or originating from a self-hosted address* (new Article 19a),
- how the enhanced customer due diligence measures apply and appropriate risk mitigating measures to be taken when obliged entities perform crypto-asset services with unregistered or unlicensed entities which provide crypto-asset services (new Article 24a).

Supplement to Directive (EU) 2015/849

A delegated act, Delegated Regulation (EU) 2019/758, lays down a set of additional measures, including minimum action, that credit and financial institutions must take to effectively handle the money laundering and terrorist financing risk where a non-EU country’s law does not permit the implementation of group-wide policies and procedures at the level of branches or majority-owned subsidiaries that are part of the group and established in the non-EU country.

FROM WHEN DO THE RULES APPLY?

Directive (EU) 2015/849 has applied since 25 June 2015 and was originally supposed to become law in the Member States by 26 June 2017. This deadline was, however, further extended by several amendments, in particular Directive (EU) 2018/843, which had to be fully transposed into national law by 10 January 2020. The same date applied for the establishment of the registers referred to in Article 30 of Directive (EU) 2015/849, as amended, while the registers referred to in Article 31 thereof were to be established by 10 March 2020.

The changes introduced by amending Regulation (EU) 2023/1113 apply from 30 December 2024.

BACKGROUND

The directive is part of a package of EU legislative measures aimed at preventing money laundering and terrorist financing that includes Regulation (EU) 2015/847 on the traceability of money transfers (see summary). It is also part of a broader EU strategy to tackle financial crime that includes the work of:

an Expert Group on Money Laundering and Terrorist Financing that meets regularly to exchange views and assist the Commission to prepare legislation or define policy;
a Committee on the Prevention of Money Laundering and Terrorist Financing that may provide opinions on implementing measures proposed by the Commission;
the network of FIUs;
the Joint Committee of European Supervisory Authorities.

For further information, see:

EU context of anti-money laundering and countering the financing of terrorism (European Commission)
Fight against the financing of terrorism (European Commission)
Fight against money laundering and terrorist financing (Council of the European Union)
Anti-money laundering and countering the financing of terrorism (European Banking Authority).

KEY TERMS

Money laundering. The conversion of the proceeds of crime into apparently clean funds, usually via the financial system, for example by disguising the sources of the money, changing its form or moving the funds to a place where they are less likely to attract attention.

Terrorist financing. The supply or collection of funds intended to be used to carry out terrorist offences.

Crypto-asset. A digital representation of a value or right which may be transferred and stored electronically in a repository using distributed ledger technology (DLT) or similar technology (that is, it is shared across, and synchronised between, a set of DLT nodes using a consensus mechanism).

Crypto-asset service providers. A legal person or other undertaking whose occupation or business is to provide one or more crypto-asset services to clients on a professional basis, and that is allowed to provide crypto-asset services in accordance with Regulation (EU) 2023/1114.

Beneficial owner. The person who ultimately owns or controls a company.

Self-hosted address. A distributed ledger address not linked to either a crypto-asset service provider or an entity not established in the EU and providing services similar to those of a crypto-asset service provider.

MAIN DOCUMENT

Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, pp. 73–117).

Successive amendments to Directive (EU) 2015/849 have been incorporated into the original text. This consolidated version is of documentary value only.