Threats associated with money laundering, which can lead to terrorist financing, are constantly evolving. The EC has stated that recent terrorist attacks in the European Union (EU) and beyond, as well as the 'Panama Papers' scandal, have brought this issue further into the foreground.
In May 2015, the EU adopted the Anti-Money Laundering Package, a significant step forward in combating money laundering. Just over a year later, amendments have been made to Directive (EU) 2015/849 on preventing the use of financial system for money laundering or terrorist financing.
A key measure added to the regulation regards digital and virtual currencies. Virtual currency exchange platforms and wallet providers have been added to the list of obliged entities to regulation. This means that, as gatekeepers, they are the first step for the public to enter the marketplace and need to be monitored.
This means the sector is now obligated to undergo the same level of regulation and monitoring as other financial institutions.
Monica Monaco, Founder and Managing Director of TrustEu Affairs, said: "It is interesting that virtual currency exchange platforms and custodian wallet providers are becoming obliged entities and that definitions of custodian wallets and exchanges are in the Proposal; this is the first time that virtual currencies exchange platforms and custodian wallets are defined under European law and I think this comes with a very clear message from the European Commission, that they embrace and value technology as long as the prevention of anti-money laundering and terrorism financing can continue and improve"
Tackling the anonymous within prepaid
Two propositions were put forward with regards to prepaid instruments. Firstly, lowering the amount, from €250 ($277) to €150, for non-reloadable prepaid instruments to which Customer Due Diligence (CDD) applies. Secondly, to suppress CDD exemptions for the online usage of prepaid cards.
The intention is to better serve identification purposes and widen customer verification requirements.
In a factsheet, the EC stated: "Limiting the anonymous use of prepaid instruments will provide a clear disincentive for use for terrorist and criminal purposes. Prepaid cards will continue to be an accessible instrument."
Furthermore, anonymous prepaid cards issued outside the EU will only be used in the union where they can be shown to comply with requirements equivalent to the ones presented in this regulation.
Monaco said: "As far as prepaid cards are concerned, the fact that the European Commission proposal indicates that anonymous prepaid cards issued outside of the Union will only be used in the Union where they can be shown to comply with requirements equivalent to the ones in 4AMLD, clearly shows that for UK issued prepaid cards – whether after Brexit the UK gets a EEA status or starts a bilateral agreements negotiation with the EU- prepaid cards issued in the UK will need to comply with EU regulation equivalent to be used in the European Union."
However, David Parker, founder and CEO of Polymath Consulting, believes this new regulation to be unnecessary.
Speaking to EPI, he said: "How many terrorists are really going to wander about buying gift cards to use when the limit is already so low? Will lowering the limit by €100 really affect the use of these products by terrorists or just provide a nice headline for politicians? I would contest that a gift card of €250 is still only half a European-issued €500 note that really is totally anonymous."
He was even harsher on the measure for prepaid instruments issued outside of the EU.
Parker continued: "Totally unenforceable in the real world. How will a merchant know to decline the transaction from a card issues in, let's say, Mongolia? If the acquirer has to decline, they will need a list of what programmes to not meet the AML requirements. Who provides this? Who vets it? Who says it falls short?
"This is a great political statement that cannot be practically enforced."
The nine new measures
- Designate virtual currency exchange platforms (and wallet providers) as obliged entities
- Tackle the use of anonymous prepaid instruments
- Give new powers to FIUs to request information from any obliged entity
- Enable FIU and competent authorities to identify holders of bank and payment accounts
- Harmonise the EU approach towards high-risk third countries
- Improve transparency: new rules on access to beneficial ownership information
- Interconnection on national central registers
- Additional technical clarifications
- Earlier transposition