FRANKFURT – On 22 February 2024, the representatives of the Council and the European Parliament decided that the seat of the future European Anti-Money Laundering Authority (AMLA) will be in Frankfurt am Main.
The AMLA, a new EU-wide authority with responsibilities around money laundering compliance and financial sanctions monitoring, will significantly change the way money laundering and sanctions laws are enforced within the EU. Therefore a review of existing policies and processes in the area of money laundering prevention should be undertaken immediately.
1. Introduction and subject matter
The Anti-Money Laundering Authority, which the European Parliament and the European Council agreed to establish on 13 December 2023, is expected to take up its activities in Frankfurt am Main in mid-2025. Its main tasks will be as follows:
(1) Direct supervision of anti-money laundering compliance for certain European banks and other high-risk financial service providers, including crypto-asset service providers.
(2) Ensuring compliance with financial sanctions.
(3) Indirect supervision of other obliged entities. While these entities are primarily supervised by national regulators, the AMLA will mediate disputes between national regulators and may assume supervision in exceptional circumstances.
(4) Coordination of Member States’ efforts to combat money laundering and terrorist financing in the non-financial sector.
The AMLA will directly supervise certain European banks and other financial service providers that operate across borders or are considered „high-risk“. A total of up to 40 organisations will be included in the initial selection process in Germany – around 200 companies across Europe. This direct supervision will be carried out by joint supervisory teams under the direction of the AMLA, which will carry out assessments and inspections. The list of companies designated for supervision or inspection will be reviewed every three years.
As part of the AMLA’s direct supervisory powers, the AMLA will ensure that these selected obliged entities have appropriate internal policies and procedures in place to ensure the implementation of targeted financial sanctions, such as asset freezes and asset seizures.
The AMLA will also have certain enforcement powers. In the event of serious, systematic or repeated violations of directly applicable requirements, the AMLA will be able to impose financial sanctions on the selected obliged entities.
For obliged entities in the financial sector that are not designated as „selected obliged entities“, money laundering supervision will mainly remain unchanged at national level.
In relation to the non-financial sector, the AMLA will provide support by conducting inspections and investigating possible breaches in the application of money laundering prevention rules. In doing so, it will be able to issue non-binding recommendations.
The AMLA will also coordinate the national financial intelligence units that investigate suspected violations of money laundering regulations.
The AMLA will mediate and settle disputes between national supervisory authorities and may also take over the supervision of a financial undertaking in exceptional circumstances or in the event of certain breaches of EU law.
2. Procedure for supervision until the AMLA commences its activities
Even before it was clear that the AMLA was coming to Frankfurt, we had already seen a significant increase in the focus of the German Federal Financial Supervisory Authority (BaFin) on auditing our clients in the area of money laundering prevention. In its report „Risks in Focus for 2024“, BaFin emphasises that it continues to classify the risk of being misused for money laundering, terrorist financing or other financial crimes in Germany as „high“ for the more than 8,700 persons obliged to do so under the German Money Laundering Act (GWG).
In 2022, a total of 337,186 suspected money laundering reports were received by the Financial Intelligence Unit (FIU). Of these, a total of 326,123 originated from the financial sector from financial market participants such as credit and financial services institutions.
International financial transactions, for example in the export sector, are a particular contributor to the risk of money laundering. Fast-growing companies are also exposed to particular money laundering risks. Last but not least, crypto assets open up unprecedented opportunities for criminal activities.
BaFin’s repeated warnings about failures by some institutions in the area of money laundering prevention, including severe fines (most recently €6.5 million), are also increasing significantly in both their number and severity.
It is noticeable that the market is still reluctant to invest in money laundering prevention and to initiate the necessary projects and measures.
3. Direct recommendations
Against this background, we strongly recommend that you scrutinise your existing guidelines and processes in the area of money laundering prevention. Our experience has shown that there is considerable potential for improvement in order to prevent BaFin sanctions, while at the same time streamlining internal processes and thus increasing their efficiency.
In BaFin’s opinion, some business models, such as payment agents, third-party acquiring, white labelling, loan fronting and trading in crypto assets, are particularly vulnerable. If you are active in these areas and have not been subject to a special audit by BaFin in recent years, this recommendation is all the more urgent.
Feel free to contact us! We are not only very experienced in scrutinising your existing guidelines and processes, identifying and implementing potential for improvement, but are also happy to assist you with projects or (special) audits by the supervisory authority. We can also act as an outsourced money laundering officer for you.
4. Outlook
There is still some uncertainty as to whether the European Public Prosecutor’s Office, an „ad hoc sanctions authority“ or the AMLA should be given a role in enforcing sanctions for breaches of anti-money laundering rules or sanctions imposed. While Members of the European Parliament have repeatedly pushed for „substantial developments“ in sanctions enforcement, the European Commission and Member States have generally resisted any serious change. In particular, Member States have endeavoured to keep the enforcement of sanctions entirely within their competence.
Although the AMLA will only start its work once all political issues have been resolved, the industry needs to be aware of the upcoming changes in the monitoring and enforcement of money laundering and financial sanctions and prepare accordingly.
Marcus Columbu
Attorney at law
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