Europe reaches milestone in the fight against money laundering and terrorist financing
Ever wonder why your bank asks you for personal information when you open an account or wish to make a large-value transaction? The reason is that financial institutions are trying to avoid being used to launder money or to finance terrorism. These institutions act as “gatekeepers” for the financial system – a role imposed upon them by law and one that, in Belgium, the National Bank ensures they fulfil.
On 19 June, a new package of EU AML rules was published in the Official Journal of the European Union and subsequently entered into force. Consisting of two regulations and a directive, the package is undoubtedly a milestone in the fight against money laundering and terrorist financing in Europe. For the first time, anti-money laundering obligations will apply directly to financial institutions in all member states. In addition, a new European Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) will be established, serving as the linchpin of an integrated system of supervision in which national supervisors, such as the National Bank, will continue to play an important role.
Working together to prevent money laundering
Criminals make a large amount of money from crimes such as drug trafficking, tax or social security fraud, and theft. They then pump these funds back into the regular economy through money laundering. It is estimated that around €16 billion in illicit funds are laundered every year in Belgium. Money laundering is a punishable offence, but prevention is better than cure. Therefore, financial institutions have a legal duty to know their customers, monitor transactions and report suspicious transactions to the Belgian Financial Intelligence Processing Unit (CTIF-CFI). The CTIF-CFI determines whether there is sufficient cause to refer a matter to the courts for possible prosecution. The fight against money laundering is thus conducted by a range of actors (i.e. the financial sector, regulators such as the National Bank, the police and the judicial authorities). But a chain is only as strong as its weakest link. Cooperation is essential.
It is estimated that around €16 billion in illicit funds are laundered every year in Belgium.
A step towards common European supervision
The new AML package was developed against the backdrop of a number of high-profile European money laundering scandals. The Danske Bank scandal was one such case, in which billions of dollars from Russia and elsewhere were laundered through an Estonian branch of a Danish bank and funnelled into the EU. Such scandals made it painfully clear that there was a need for unequivocal EU-wide rules and that supervision was not equally effective in every country. After all, crime does not stop at national borders. On the contrary, criminals are particularly inventive when it comes to identifying the weakest link. A strong European response was imperative.
For the first time, anti-money laundering obligations will be directly applicable to financial institutions in all member states.
Through the new AML package, fundamental anti-money laundering obligations will become directly applicable in member states via a regulation as from mid-2027. This is a first. In addition, a European regulator (the aforementioned AMLA) will be created. From 1 January 2028, AMLA will directly supervise a number of financial institutions (up to a maximum of forty) that pose a high risk of money laundering and that are active in at least six member states.
National authorities will continue to supervise the remainder of the financial sector, but AMLA will exercise far-reaching indirect supervision in this regard by overseeing national authorities. In other words, it will perform supervisory oversight. As such, AMLA will conduct evaluations of national supervisors and will be able to take over supervision of particularly difficult cases from a national supervisor. In addition, AMLA will play a role in supervising gatekeepers in the non-financial sector, such as lawyers, accountants, auditors, casinos and football clubs. AMLA is also intended to streamline cooperation between financial intelligence units in Europe. Lastly, it will be responsible for the further development of anti-money laundering policy, in which national supervisors will be involved through membership on AMLA’s General Board.
What role does the National Bank play?
The National Bank ensures that financial institutions in Belgium comply with anti-money laundering rules. In performing its supervisory activities, the Bank takes into account the money laundering risk profile of a financial institution. The riskier the profile, the more closely the Bank monitors the institution. In its off-site supervision, the Bank determines whether financial institutions are sufficiently structured to comply with their legal obligations. On-site inspections allow Bank inspectors to undertake spot checks to verify that a financial institution’s procedures are being applied in practice. Where problems are identified, the Bank takes action and can impose measures. For example, it can order the temporary suspension of certain activities. In addition, the Bank’s Sanctions Committee can impose fines.
NBB colleagues helped bring Council negotiations with the European Parliament on the AML package to a successful conclusion.
The Bank actively contributes to the development of national, international and European anti-money laundering policies. For example, the Bank helps set global anti-money laundering standards in the Financial Action Task Force, which are then translated into European and national standards. The Bank is also very active at the European level. For instance, a Bank representative leads AML policy discussions within the European Banking Authority (EBA). Finally, it was Bank staff who, together with the CTIF-CFI and the Belgian Treasury, brought Council negotiations with the European Parliament on the AML package to a successful conclusion earlier this year, on the eve of the European elections.
A race against the clock
With the publication of the AML package, AMLA now exists on paper. However, it must still be built from scratch, which is no small task. The institution will be based in Frankfurt, home also to the European Central Bank, although there will be no structural ties between these two institutions. Over the coming year, every effort will be made to develop AMLA’s operations and put together its governing bodies. Once it reaches cruising speed, AMLA will have over 400 staff.
This work will be a race against the clock, especially given that many technical standards and guidelines still need to be ironed out before AMLA can start direct supervision in 2028. The National Bank, in keeping with its European focus, will do its utmost to make AMLA a success.
