Question

Explain in detail the role of each of the following in preventing money laundering and terrorist financing in the EU: Obliged Entities; Financial Intelligence Unit (FIU). You should refer to the AML EU directives in your answer.

Answer 1

Fighting terrorist financing and money laundering contributes to overall global security, integrity and growth of the financial system. Obliged Entities and Financial Intelligence Unit (FIU) are two of the most important enablers which help the law enforcement agencies in preventing money laundering and terrorist financing in EU.

Obliged Entities refer to the Financial Institutions/Designated Non Financial Business and Profession. It is very essential that the gatekeepers which are the Obliged Entities along with the Banks, they apply and implement the measures necessary to prevent money laundering and terrorist financing.The EU adopted the first AML directive in 1990 to prevent the misuse of financial system for money laundering.The AML directive states that the obliged entities shall apply CDD (customer due diligence ) requirements when entering into a business relationship (i.e. verify and validate the identity of customers, regularly monitor transactions and also report suspicious transactions). This legislation has been constantly revised in order to mitigate the risks relating to money laundering and terrorist financing. In 2015, the EU adopted a modern regulatory framework encompassing:

• 4th AML Directive 'Directive (EU) 2015/849' on preventing the use of Financial System for money laundering or terrorist financing
• Regulation (EU) 2015/847' which seeks additional information on the payer accompanying transfers of funds – makes the fund transfers more transparent, thus helping law enforcement agencies to track down the criminals.

​The 5th Anti-Money Laundering Directive, which amends the 4th Anti-Money Laundering Directive that was published in the Official Journal of the European Union on 19 June 2018. The Member States must implement this Directive by 10th January 2020. These amendments introduce additional improvements to better equip the Law Enforcement Authorities to prevent the financial system from being used for money laundering terrorist financing activities These amendments will

• Enhance transparency by setting up publicly available registers for companies, trusts and other legal arrangements;
• enhance the powers of EU Financial Intelligence Units, and provide them with access to broad information for the carrying out of their tasks;
• limit the anonymity related to virtual currencies and wallet providers & Pre-paid cards;
• broaden the criteria for the assessment of high-risk third countries and improve the safeguards for financial transactions to and from such countries;
• set up central bank account registries or retrieval systems in all Member States.

From the above discussion in light of the AML directives we can infer how the Obliged Entities help the EU in preventing money laundering and terrorist financing activities. Now we will discuss the role of FIU (Financial Intelligence Units) in doing the same.

The FIUs come into picture once the Obliged entities have discharged their duties of Customer Due Diligence, Enhance Customer Due Diligence and monitoring and reporting of transactions. During the regular monitoring of the transactions if any suspicion is identified among any transactions, all those transactions are reported to the FIU (Financial Intelligence Unit) in their member state. The FIU analyses the reports and shares with the FIUs in other member states.Financial Intelligence Unit has tools to help analysis: beneficial ownership registers (who is the real beneficiary of a company/trust); and central bank account registers (who has which account and where). This is made possible by the Directive (EU) 2019/1153 which gives the law-enforcement authorities direct access to information about the identity of bank-account holders contained in national centralized registries. In addition, it also gives law enforcement the possibility to access certain information from national Financial Intelligence Units (FIUs) – including all the data on financial transactions. These measures speed up criminal investigations and enable the authorities to fight cross-border crimes more effectively and efficiently.

Thus from the above discussion we can very well see the roles which Obliged Entities and Financial Intelligence Units play in preventing the money laundering and terrorist financing in EU