Last week, Members of the European Parliament (MEPs) voted in favour of stricter rules to combat money laundering and terrorist financing, and evading sanctions in the European Union (EU). Among the three significant pieces of anti-money laundering (AML) legislation adopted is draft legislation that strengthens EU rules on conducting due diligence on anonymised financial instruments, including transfers of crypto assets. 

The parliament will vote on it during its plenary session in April. The new rules would require entities, including banks, assets, and crypto assets managers, to verify their customers’ identity, what they own, and who controls the company. 

They would also have to establish detailed Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) supervision based on risk in their sector of activity and transmit the relevant information to a centralised beneficial owners’ register.

Verification of Crypto Asset Transfers

Under the new rules, crypto asset transfers will have to include information on their source and the beneficiary, much like traditional money transfers. Before making a crypto asset available to beneficiaries, providers such as crypto exchanges would have to verify that the source of the asset is not subject to restrictive measures and that there are no risks of money laundering or terrorism financing. 

The rules would not apply to person-to-person transfers or among exchanges and providers acting on their behalf, as per the previous crypto-asset regulation for AML that had already been voted on, the Markets in Crypto-Asset Regulations (MiCAR). MEPs want technological solutions to ensure that these asset transfers can be individually identified.

Prevention of Money Laundering and Terrorist Financing

The adopted texts require banks, assets and crypto assets managers, real and virtual estate agents, and high-level professional football clubs to verify their customers’ identity, ownership, and company control. They will also have to establish detailed types of risk of money laundering and terrorist financing in their sector of activity and transmit the relevant information to a central register. 

MEPs want to cap payments that can be accepted by persons providing goods or services to restrict transactions in cash and crypto assets. They set limits of up to €7000 for cash payments and €1000 for crypto-asset transfers where the customer cannot be identified.

Access to Information

Following the latest European Court of Justice ruling, it was decided that persons with a legitimate interest, such as journalists, reporters, other media, civil society organisations, and higher education institutions, should be able to access the register, including the interconnected central registers of various EU members. 

Their access rights will be valid for at least two and a half years. Member states will automatically renew access but revoke or suspend it if abused. The legitimate interest should apply without discrimination based on nationality, country of residence, or establishment.

Removal of Minimum Thresholds and Exemptions

The MEPs also decided to remove minimum thresholds and exemptions for low-value transfers. The European Parliament wants the European Banking Authority (EBA) to set up a public register of crypto firms with a high risk of money laundering, terrorist financing, and other criminal activities, which the EBA says it is considering. This measure aims to prevent criminals from exploiting confidentiality rules that allow for secrecy and anonymity.

Restriction of Transactions in Cash and Crypto Assets

To restrict transactions in cash and crypto assets, MEPs want to cap payments that can be accepted by persons providing goods or services. They set limits to €7000 for cash payments and €1000 for crypto-asset transfers where the customer cannot be identified. 

Given the manifest risk of misuse by criminals, MEPs want to ban any EU citizenship by investment schemes (dubbed “golden passports“) and impose strong AML controls on the residence by investment schemes (“golden visas”).

AMLA to Ensure Consistent Enforcement

Under the adopted guidelines, the new European Anti-Money Laundering Authority (AMLA) would monitor risks and threats within and outside the EU and directly supervise specific credit and financial institutions, classifying them according to risk level. 

Initially, it would supervise 40 entities with the highest residual risk profile and present in at least two member states. To fulfill its duties, AMLA could mandate companies and people to hand over documents and other information, conduct on-site visits with judicial authorization, and impose sanctions of €500,000 to €2 million, or 0.5-1 percent of annual turnover, for material breaches.

For severe violations, AMLA could impose sanctions of up to 10 percent of the total annual turnover of the obliged entity in the preceding business year. In their position on the draft law, MEPs wish to extend the agency’s competence to drawing up lists of high-risk non-EU countries. 

Adopting stricter rules on money laundering and terrorist financing by the European Parliament is a significant step in closing existing gaps in combating these crimes in the EU. 

The new rules on crypto asset transfers will ensure that these transfers can be individually identified, closing the loophole that allowed for secrecy and anonymity.