“You get to a point where it gets very complex, where you have money laundering activities, drug related activities, and terrorist support activities converging at certain points and becoming one.”Sibel Edmonds
In our previous article The Intensifying Fight Against Money Laundering and Terrorist Financing (Part 1), we deep dived into how money laundering and terrorist financing activities severely impact businesses, economies and societies worldwide, how the global fight against money laundering (AML) is shaping the political agenda of the EU and will continue to do so in 2021, and why that’s key to successful AML and counter-terrorist financing (CTF) efforts.
In Part 2, we discuss the US’s role and strategy to tackle the AML/CTF issues, while also exploring the roles and responses of key players in the field, such as the Financial Action Task Force (FATF), the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval) and the United Nations (UN).
US response to Money Laundering: prioritising is key
The reinvigorated work to combat money laundering and terrorist financing hasn’t been solely a European effort. On February 6, 2020, the US Department of the Treasury issued the 2020 National Strategy for Combating Terrorist and Other Illicit Financing (2020 Strategy), which provides a comprehensive roadmap to modernise and reform the US AML/CTF regime. The 2020 Strategy identifies key threats, vulnerabilities and priorities for disrupting and preventing illicit financing activities, and updates the 2018 Strategy. The 2020 Strategy articulates three strategic priorities:
- Increasing transparency and closing gaps in the US AML/CTF legal framework;
- Improving the efficiency and effectiveness of the US AML/CTF regulatory and supervisory framework;
- Enhancing current AML/CTF operational capabilities.
These strategic priorities are supported by a number of enabling actions, including legislative proposals on beneficial ownership. They expand AML/CTF obligations to certain financial institutions, support responsible AML/CTF innovation and enhance public-private cooperation.
On July 20, the US House of Representatives voted to include an AML amendment in the House’s version of the 2021 National Defence Authorization Act. The amendment closely mirrors the Corporate Transparency Act and the COUNTER Act, which aims at modernising the US AML/CTF framework.
But it doesn’t end there. To ensure the end of anonymous shell companies, the amendment also includes a provision requiring the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, to collect ownership information at the time of incorporation. The goal is to ensure that such key information is accessible to relevant stakeholders—Financial Crimes Enforcement Network (FinCEN), law enforcement and financial institutions.
However, expectations are running high. It’s a common belief that bipartisan House support might push the amendment through during negotiations between the House and Senate in an effort to reconcile the two bills, even if the National Defence Authorization Act passed by the Senate on 23 July doesn’t include the beneficial ownership provision.
Meanwhile, on April 15, 2020, the Federal Financial Institutions Examination Council (FFIEC), in collaboration with FinCEN, published updates to its Bank Secrecy Act (BSA)/AML examination manual. But while it doesn’t impose any new regulatory requirements, the manual offers more transparency into the examination process that federal and state regulators apply when evaluating a financial institution’s BSA/AML compliance programme. It also emphasises a risk-based approach to BSA/AML examinations, noting that regulators are expected to tailor their examinations to the risk profile of the financial institutions.
The FATF’s strategic focus on virtual assets
At the international level, FATF remains the key actor in the fight against money laundering and terrorist financing. Established in 1989 by the G7, the intergovernmental body, plays an instrumental role in setting standards and promoting effective actions in the AML/CTF sphere.
On July 1, Germany took on the Presidency of the FATF for the first time in its history. The new FATF President Marcus Pleyer presented ambitious goals for Germany’s two-year term. In a paper outlining FATF’s objectives for the 2020-2022 period, Mr. Pleyer vows to:
Strengthen the FATF’s governance, enhance its strategic focus, increase its public visibility and reinforce its fight against money laundering, terrorist financing and the financing of weapons of mass destruction.
The paper also highlights a wide range of focus areas, such as digital currencies and payments, ethnically or racially motivated terrorism, migrant smuggling, environmental crime, and illicit arms trafficking.
Indeed, the FATF recently published two reports published in June, as virtual assets are growing in size and importance. The first is a 12-month review of the implementation of the revised FATF standards on virtual assets and virtual asset service providers (VASPs), while the second is a report on the money laundering/terrorist financing risks posed by the so-called stablecoins—a type of cryptocurrencies—to the G20 finance ministers and central bank governors.
Both reports conclude that while the revised FATF standards are currently fit for purpose, the future market developments need to be monitored closely. The reports also call on all jurisdictions to fully implement the standards, as FATF plans to review progress again in June 2021.
Moneyval’s appeal for robust measures
The FATF’s activities have also been supported by another key player in AML/CTF – the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (Moneyval).
In September 2019, the monitoring body of the Council of Europe published its 2018 annual report, calling on states to ensure they have taken appropriate measures to combat “dirty money”. In light of increased risks, Elzbieta Frankow-Jaskiewicz, Chair of Moneyval, underlined the urgency for european countries and worldwide to apply robust AML/CTF measures, and highlighted a number of initiatives carried out by Moneyval in 2019.
In January 2020, Moneyval published follow-up reports assessing the progress made by six countries – Albania, Andorra, Hungary, Latvia, Serbia and Slovenia – with respect to AML/CTF measures. They noted that all states, except for Slovenia, have made progress on these two fronts.
The six countries were placed in an enhanced follow-up procedure following the adoption of their mutual evaluation reports. These reports assessed the effectiveness of AML/CTF regimes and compliance with the FATF’s 40 Recommendations.
The follow-up reports analysed progress in addressing deficiencies identified in the mutual evaluation reports and the implementation of new requirements related to the FATF recommendations. Moneyval noted that the six countries will remain subject to its enhanced follow-up procedure.
The UN’s strengthening role in the fight against AML/CMF
The United Nations (UN) Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, recently strengthened its role in combating money laundering and terrorist financing. In March 2020, the president of the UN General Assembly and the president of the UN Economic and Social Council jointly created the High-Level Panel on International Financial Accountability, Transparency and Integrity for Achieving the 2030 Agenda (FACTI Panel).
The Panel consists of 15 members drawn from policymaking, civil society, academia and the private sector and is tasked with exploring actions that governments and financial institutions can take in the areas of financial and beneficial ownership transparency, tax matters, bribery and corruption, confiscation and disposal of the proceeds of crime, money laundering and the recovery and return of stolen assets.
What this means for Luxembourg
As a member of both the EU and the FATF, Luxembourg is directly affected by the AML/CTF developments in these institutions. As the efforts to combat money laundering and terrorist financing at the EU and the global level intensify, Luxembourg will face increasing scrutiny and pressure to comply with the latest standards and legislation in the area of AML/CTF.
The projected build-up of more supervisory powers at the EU level, which is one of the main features in the Commission’s Action Plan adopted on May 7, is only one of the key developments that will have a major influence on the AML/CTF framework in Luxembourg.
In the areas of Asset and Wealth Management, Luxembourg’s first money laundering (ML)/terrorist financing (TF) risk analysis of the Collective Investment Sector, published on January 17, 2020, has driven some important events.
The risk analysis, which reflects conclusions echoing those reached by the FATF and the European Commission in their own risk assessments, applies a granular and systematic approach to the ML/TF inherent risks faced by the Collective Investment Sector in Luxembourg. The sub-sector risk assessment also looks at risk-mitigating factors applied by Investment Fund Managers and competent authorities, as well as residual risk levels resulting from the application of these risk-mitigating factors.
CSSF’s expectation is that supervised entities that are part of the Collective Investment Sector will reflect the findings and conclusion of the risk analysis into their frameworks to ensure effective and efficient mitigation of ML/TF risks. Since the issuance of this sector risk assessment, a number of AML/CTF legal and regulatory changes have been made in Luxembourg to implement the 5 AMLD.
AML/CTF is currently at the top of the agenda of regulators, financial institutions and other key stakeholders.
The truth is technological progress and other global developments, such as the COVID-19 pandemic, provide new and better opportunities to commit crimes. The fight to stop money laundering and terrorist financing is only intensifying.
Financial institutions will face skyrocketing compliance costs, stricter supervision and more detailed regulations, while regulators and FIUs will struggle to keep up with increasing workloads and less-than-perfect cooperation across borders. Yet, the stakes are too high to surrender in the face of mounting criminal activities. It’s crucial that stakeholders at the national and international level have a clear understanding of their roles and responsibilities, the magnitude of the challenges they are facing, and act in a swift, decisive fashion. In any other scenario, the battle against money laundering and terrorist financing will be irrevocably lost.
What we think
Luxembourg closely observes FATF and Europe Actions. Luxembourg’s AML/CTF laws and regulations include specific provisions for Asset and Wealth Management and Alternative investments, based on a sector-risk assessment of the collective investment sector. The specific risk assessment allows Luxembourg to be effective yet efficient in identifying money laundering and terrorist financing and preventing the Luxembourg Asset and Wealth management industry to be misused.