EU Establishes Agency to Monitor Money Laundering and Crypto Transactions

EU Establishes Agency to Monitor Money Laundering and Crypto Transactions

 Published: July 12th, 2021

 The European Union is setting up a new agency to coordinate national supervisory authorities monitoring money laundering. By doing so, the bloc plans to enhance the transparency of virtual currency transfers too. Among the rules the new agency would enforce requires crypto transfer service providers to disclose user data on virtual currency transfers.

The European Union is proposing a new agency to combat money laundering. The Union also plans to roll out new regulations for cryptocurrency-related transactions. A new anti-money laundering agency (AMLA) would work with the national authorities to become the epicenter of an integrated supervisory system.

Currently, the bloc depends on national regulatory agencies of the member states to monitor anti-money laundering (AML) laws since the Union has never established such a body to cover the common market.

Reuters recently reported that AML efforts are below par. However, the bloc explores ways of addressing the problem and other associated scenarios such as organized crime and terrorism financing at the Union level using a new agency.

The Union’s regulations covering financial services do not touch on the transfer of cryptocurrencies. Experts say that such a situation leaves holders of virtual currencies exposed to risks associated with terrorism financing and money laundering.

New regulations would require service providers to collect and disclose data with the agency. The said data would include the details of senders and receivers of virtual currencies transferred. The Reuters report said the highlighted procedure currently falls out of the scope of the rules that govern the EU financial services industry.

Sven Giegold, EU Parliament member, said eventually, the power to establish the agency and enforce the new laws belong collectively with the parliament and the individual states. However, he is hopeful that there is sufficient political willpower. He urged the EU to take legal action against countries that do not enforce AML consistently.

Bank Scandals Incentivize the Union to Act

The EU saw the need to heighten its AML regulation because of a Danish bank scandal that started in 2007 and run through 2015. Danske Bank, Denmark’s largest lender, has fallen from the pedestal it once occupied, in the process getting mired in an intricate web of one of the worst money-laundering scandals in the globe. An Estonian branch of the bank cleared $235 billion of suspicious funds.

The EU plan comes when regulators are warning investors of the risks associated with virtual currencies. A March report by the European Securities and Markets Authority reiterated that cryptocurrencies are immensely speculative and highly risky.

Investors could lose everything in the virtual currency market, which remains largely unregulated, the report added. The report, coupled with Bitcoin’s recent astronomical rise where it set a new all-time high of almost $65,000, convinced the EU agency that the new asset class is exhibited significant risks.

The new authority that Brussels plans to set up would have direct supervisory powers. Besides, it would sidestep reluctance and patchy enforcement by some member states to clamp down on increased illicit finance in the wake of consistent scandals.

The commission would table the legislation to create the new agency this month, with operations set to commence in 2024. The Union hopes that AMLA would begin directly supervising certain cross-border financial companies and impose fines in the tune of millions of euros on firms that breach its money-laundering regulations.

EU’s Boldest Endeavor Against Illicit Finance

Sam Fleming, Financial Times staffer, said the legislative package is the EU’s most daring attempt to go head-on against illicit finance so far. Market experts suspect that the bloc’s financial companies handle hundreds of billions of euros of dirty transactions every year. Still, the Union’s response is clouded by the patchy enforcement procedures of its member states.

Besides, some countries show utter reluctance in implementing the existing AML directives, Fleming added. The Union wants to harmonize regulatory processes while bolstering coordination between national authorities. Besides, the bloc is keen on improving the cross-border flow of information, especially among the countries’ financial intelligence units.

The new agency would directly preside over the riskiest financial sector companies having operations in multiple member states. Though the legal package to set up the agency still needs to be agreed on between the EU parliament and the member states, it is expected to develop a single rule book for AML and terrorism financing.

The deal would also create new regulations on virtual currencies. AMLA would levy fines with penalties not exceeding 10% of annual turnover or €10 million (approx. $11.9 million), whichever is higher.

While the location of the agency remains unknown, it would have a staff of 250 people.

Pivotal in Preventing Money Laundering

According to the EU draft document, since ALMA would directly supervise and decide on some of the riskiest cross-border financial sector entities, the agency would prevent money laundering and terrorism financing incidents.

The draft adds that the agency would coordinate national supervisory authorities and help them improve their efficacy in imposing the single rule book. Besides, AMLA would ensure that the bloc’s AML efforts adopt high-quality supervisory standards and risk assessment methods run on a homogenous approach.

Money laundering is a massive challenge within the EU. Europol estimates that the value of suspicious transactions is equivalent to 1.3% of the bloc’s GDP. A European Court of Auditors report released in June warned that a lot needs to be done to ensure that EU AML laws are implemented promptly and consistently.

The report added that the current oversight mechanism is disintegrated and poorly coordinated.

Giegold said the proposed package is a big deal. He added that it indicates that the many years of pressure are paying off. Noting that the new plan against money laundering is a big step for the bloc and its common market, the parliamentarian added that the commission needs to enforce infringement proceedings renegade states that go against the common wish of the Union.

Giegold said the Union needs a zero-tolerance policy against the vice.

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