On 7 May 2020, the European Commission released its Action Plan to strengthen the EU’s anti-money laundering and counter-terrorist financing (AML/CTF) framework and further strengthen the EU’s fight against financial crimes. The Action Plan outlines the Commission’s proposal to achieve a more harmonised set of EU rules, better supervision, and improved coordination amongst domestic Financial Intelligence Units. In this alert, Guidehouse experts summarise the Commission’s proposed Action Plan and discuss the steps financial institutions need to take to achieve compliance with the new initiative.

The Six Pillars

The Commission’s Action Plan is based on six key pillars, each of which is aimed at improving the EU’s overall fight against money laundering and terror financing:

1. Effective application of EU rules – The Commission will closely monitor the transposition of EU rules in domestic law to ensure that national rules are set at the highest possible standard.
2. A single EU Rulebook – The Commission will publish a harmonised set of rules in the first quarter of 2021 to help ensure they are applied consistently across Member States.
3. EU-level supervision – The Commission will propose an EU-level supervisor to ensure Member States comply with EU rules.
4. A coordination and support mechanism for Member State Financial Intelligence Units – The Commission will propose an EU mechanism to support the work of Member States’ Financial Intelligence Units.
5. Enforcing EU-level criminal law provisions and information exchange – The Commission   will issue guidance on the role of public-private partnerships to enhance information sharing between these sectors and strengthen judicial and police cooperation in fighting money laundering and terrorist financing.
6. The EU’s global role – The Commission will strengthen their collaboration with the Financial Action Task Force to help shape international standards in the fight against money laundering and terrorist financing, and adjust their approach to third countries that have strategic deficiencies in their AML/CTF regimes that threaten the EU Single Market.

Refined Methodology

The European Commission published a new methodology to identify high-risk third countries with strategic deficiencies in their national AML/CTF regimes. The key new elements concern: (i) the interaction between the EU and Financial Action Task Force (FATF) listing processes; (ii) an enhanced engagement with third countries; and (iii) reinforced consultation of Member States experts.

Updated List

As of 1 October 2020, the following countries will be included in the Commission’s list of high-risk countries with strategic deficiencies in their AML/CTF regimes: The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama, and Zimbabwe.

The following countries have been delisted, with effect from 20 days after publication in the Official Journal: Bosnia-Herzegovina, Ethiopia, Guyana, Lao People's Democratic Republic, Sri Lanka, and Tunisia.

What Does This Mean for Financial Institutions?

All obliged entities must apply enhanced due diligence (EDD) on customers operating in countries on the updated list. This means revisiting Know Your Customer (KYC) files and conducting customer due diligence (CDD) or EDD on those customers operating in the newly listed countries. Financial institutions should evaluate the effectiveness of their policies, procedures, and systems responsible for adequately mitigating the risks associated with transacting with these customers.

How Can Guidehouse Help?

Guidehouse can rapidly review and assess your financial crime framework to determine whether it is operationally effective and meets the new regulatory expectations. Guidehouse can identify financial crime framework gaps, advise on optimal solutions to weaknesses identified, and identify areas (e.g., products, services, clients, and relationships) that pose a higher degree of risk. 

Guidehouse has in-depth knowledge of the regulatory environment, both in the EU and Globally, and financial institution processes. Guidehouse’s relevant expertise includes the following: 

• Financial crime framework risk assessments and gap analyses
• Transaction and CDD reviews
• Advising on the effectiveness and efficiency of financial crime processes and systems
• Compliance system testing and reviews 
• Training

Guidehouse’s financial crime consultants work with financial institutions of all sizes to build effective and efficient risk management and compliance frameworks to help clients protect against legal, fiduciary, shareholder, and reputational risk. Guidehouse experts include distinguished former prosecutors, regulators, compliance officers, and consultants, who leverage their combined experience to help clients conquer their compliance challenges.

Special thanks to Sajeev Kanagarajah for contributing to the article.