Anti Money Laundering and Combatting the Finance of Terrorism Regulatory Updates

Significant Developments in Anti-Money Laundering: EU Agreement and Malta's Risk Assessment

The European Union (EU) has achieved a preliminary consensus between the Council and Parliament on crucial elements of the anti-money laundering (AML) package. Nonetheless, the agreement awaits formal adoption by both entities, its potential impact on EU-wide AML regulations is substantial.The provisional agreement on the new anti-money laundering regulation signifies a comprehensive effort to standardise rules across the EU, effectively closing potential loopholes exploited by criminals for laundering illegal proceeds or funding terrorist activities through the financial system.

Key highlights of the agreement include:

Crypto Sector Regulations: The agreement introduces new rules applicable to the majority of the crypto sector. Notably, due diligence measures will be mandatory for transactions exceeding €1000.Luxury Goods Traders: Subject persons or obliged entities now include traders dealing in luxury goods such as precious metals, stones, jewellery, luxury cars, airplanes, yachts, and cultural items like artworks.Enhanced Due Diligence (EDD) for Crypto-Asset Service Providers: Specific EDD measures are established for cross-border correspondent relationships involving crypto-asset service providers.Cash Payment Limits: A uniform EU-wide maximum limit of €10,000 for cash payments is set. Subject persons must identify and verify the identity of individuals conducting occasional transactions in cash between €3,000 and €10,000.Beneficial Ownership Threshold: The threshold for beneficial ownership is set at 25%, with detailed rules addressing complex ownership and control structures to prevent individuals from concealing their involvement.Data Protection and Record Retention: Provisions on data protection and record retention are clarified to streamline processes for competent authorities and expedite their efforts.Countermeasures for High-Risk Third Countries: Additional risk levels trigger specific EU or national countermeasures for high-risk third countries.Access to Real Estate Registers: To enhance inquiries into criminal schemes related to real estate, the regulation allows competent authorities access to real estate registers through a unified access point.The official press release on this agreement can be accessed here.

Malta's National Risk Assessment (NRA) for 2023

In tandem with the EU's efforts, Malta has released its National Risk Assessment (NRA) for 2023, providing a comprehensive evaluation of the country's susceptibility to risks related to:

• money laundering;
• terrorist financing;
• proliferation financing; and
• targeted financial sanctions.

Key points from the NRA include:

1. The overall residual risk of money laundering in Malta has decreased in comparison to the 2018 NRA, indicating the efficacy of mitigating measures implemented by both authorities and the private sector.
2. Substantial enhancements have been recorded across various sectors, including legal entities, trust and company service providers, banking, investment services, accountants and auditors, gaming, and virtual financial assets service providers.
3. Certain sectors, notably financial institutions, real estate agents, and dealers in high-value goods, have also reported reduced risk levels. However, these sectors remain more susceptible to a heightened risk of money laundering when compared to others.
4. Identified higher risks encompass the laundering of proceeds from drug trafficking, foreign organized crime, and fraud, including cybercrime.
5. Money laundering typologies posing a greater residual risk include the misuse of cash and cash-based businesses, the utilization of Maltese registered companies lacking sufficient links to Malta, intricate corporate structures, and the acquisition of high-value movable and immovable property.
6. Residual risks associated with terrorism financing, proliferation financing, and targeted financial sanctions have been determined to be of moderate severity.

Subject persons are obliged to review the NRA, align their risk assessments accordingly, and update customer risk profiles regularly. Access the full NRA here.

Enforcement Factsheet: A Compilation of Regulatory Actions - 2021/2022

Moreover, the Financial Intelligence Analysis Unit (FIAU) has recently issued an Enforcement Factsheet, summarising regulatory actions taken between 2021 and 2022. This compilation highlights the most serious breaches identified during examinations, providing case studies, red flags, and guidance for subject persons in areas such as:

• the nature of business relationships;
• enhanced due diligence;
• transaction monitoring;
• reporting; and
• breaches related to beneficial ownership.

For a detailed overview of the FIAU's enforcement actions and guidelines, refer to the Enforcement Factsheet released on January 15, 2024.These recent developments underscore the collective commitment of the EU and individual member states, like Malta, to fortify the AML framework and combat financial crimes effectively. Industry stakeholders and subject persons are encouraged to stay informed and adapt their practices to ensure compliance with these evolving regulatory standards.

About the Authors

This article has been authored by Dr Bjorn Camilleri, Regulatory & Business Advisor and Dr Chanelle Meli, Regulated Industries & Compliance Advisor. Contact us here or on info@csbgroup.com for more information.