On Monday, July 9th, the fifth review of the EU anti-money laundering directive went into effect. Despite the rules being active less than 48 hours, they have already garnered their share of criticism and calls for additional reforms after banking scandals in Estonia, Estonia, and Malta.
The fifth iteration of the rules came about from two years of talks centring fortifying controls on company owners and actors in digital payments, including those who work with virtual currencies. Specifically, the directive has five objectives: building safeguards for money originating from high-risk countries; making EU financial intelligence units more powerful; stopping terrorist groups from using virtual currencies; reducing risks associate with using anonymous prepaid instruments, such as pre-paid cards; and ensuring national bank along with payment account registers and central data retrieval systems across all member states.
Reuters reports that, “despite marking progress in the fight against large-scale fraudsters, the new rules could be born obsolete as they fail to address new gaps” which were brought to light by the banking scandals in the Baltics earlier this year.
Part of the issue with the rules is that, despite their aim, the national financial intelligence units are weak and seldom cooperate, giving criminals a wide berth to commit and get way with financial crime if they transfer their loot across borders. Reuters suggests that a common supervision approach may be more effective.
Calls for new rules have come from both EU lawmakers and the ECB, both advocating for rules that give supervisors a clear mandate to yank banking licenses for alleged money laundering and to remove any bank board member who refuses to implement proper assessments.
The EC is expected to have ideas on solutions by the end of the year, yet gauging the impact of the rules would be delayed by the fact that two-thirds of member states have not yet applied the fourth version of the directive, from 2015, and states still have an 18-month window to implement the new rules, which could last longer because of the “toothlessness of EU sanction proceeding against late or inadequate implantation”. Additionally, the everchanging nature of crypto make it difficult to establish solid anti-money laundering rules.