Raluca Prună, Head of the Financial Crime Unit in the EU Commission’s DG FISMA, said, in an interview for Aperio Intelligence, that fighting money laundering and terrorist financing is a major political priority of this Commission.

Context: Romania is subject to an infringement procedure regarding its delays in implementing the Fifth Anti-Money Laundering Directive.

The European Commission adopted an Action Plan in May to improve the implementation, supervision, enforcement and coordination of the EU’s anti-money laundering and counter-terrorist financing

(AML/CFT) rules over The European Commission adopted an Action Plan in May to improve the implementation, supervision, enforcement and coordination of the EU’s anti-money laundering and counter-terrorist financing (AML/CFT) rules over the next 12 months.

Following the close of the European Commission’s public consultation on the Action Plan on 26 August, Aperio Intelligence spoke to Raluca Prună, the Head of the Financial Crime Unit within the European Commission’s Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA).

What are the most important measures to close the loopholes across member states? 

Raluca Prună: The Action Plan sets an ambitious AML/CFT policy agenda and provides for several measures aimed at strengthening policy at Union level. The current rules are often insufficient and ineffective in dealing with the threats posed by the growing cross-border dimension of money laundering, as well as the threats posed by new technologies.

A single reinforced rulebook will limit the fragmentation of the current legislative landscape by harmonising key areas of AML/CFT legislation, such as the identification of obliged entities and customer due diligence measures.

The challenges brought about by digitalisation require a set of strengthened rules to address virtual assets and to facilitate the use of IT and AI solutions to tackle cyber fraud. Furthermore, the establishment of an EU-wide AML supervisory system will help remedy the weaknesses of member state-based supervision, allowing for a consistent and effective application of AML/CFT rules throughout the EU. What role do member states play in combatting financial crime? 

The fight against money laundering and financial crime requires action on several fronts, and member states continue to play a pivotal role. It is crucial that rules are effectively implemented at national level, and that member states apply the risk-based approach to identify relevant threats and provide a swift and tailored response.

Even with a new EU-level supervisor, national supervisors will remain in charge of most of day-to-day supervision, therefore adequate and effective enforcement of the rules at member state level is still a priority in the fight against financial crime. What is, in your view, the best option for ensuring EU-level AML/CFT supervision? Is a dedicated AML authority necessary? 

The recent scandals involving EU credit institutions have shed light on the need to address the structural weaknesses of the current supervisory system, especially the ability to effectively monitor relevant cross-border activities.

The structural nature of the weak links suggests that they can be best addressed by integrating the architecture of the AML/CFT framework with a dedicated EU AML authority. Such an authority would need clear powers and should be entrusted with supervisory powers, in addition to monitoring and assessment of the risks across the EU. The Action Plan mentions the need to expand the AML/CFT measures to other sectors. Which sectors should be covered? 

A relevant example is the technology sector, which is constantly evolving, which leads to new risks. The scope of the EU legislation needs to be expanded for example to virtual asset service providers, which have not been covered so far. The list of obliged entities should also include FinTech companies, both new companies and incumbents, with an obligation to cooperate with FIUs and to be supervised appropriately. Careful attention will therefore need to be paid to the definition and scope of FinTech obliged entities.

Then, areas such as sports, gambling, freeports and so on, have all emerged as risk areas in recent years and were identified as such in the Supranational Risk Assessment Report adopted by the Commission in July 2019. The Commission has been monitoring the developments in new risk areas in order to design the appropriate remedial measures. 

What aspects of customer due diligence do you expect to be covered by the new AML regulation, likely to be tabled next year? 

Raluca Prună: On customer due diligence, the requirements should at least be largely subject to EU-wide harmonisation. The new rulebook should also introduce measures to facilitate the use of digital identification tools to verify customers’ identity, especially for remote business relationships. 

What measures are there in the pipeline to ensure better coordination between the EU and FATF in fighting money laundering? The Commission is a committed and active founding member of the FATF and plays a central role in the development of its global standards. In line with the current AML Directives, the future single rulebook will make sure that the EU is aligned with the standards and enacts them in EU law, while going beyond them in a number of respects, such as transparency on beneficial ownership.

One challenge is that not all EU member states are FATF members, which reiterates the need for the EU to strengthen its role and coordination at international level. Different ways of further coordinating the EU positions in the FATF are being explored, as it is essential that the EU speaks with one voice in the international arena.

Whatever form the solution to this issue, particularly when the single rulebook is applicable, it will have to ensure that the specific nature of the Union, as a supranationalbody, is better reflected in the FATF framework and that the Union’s own rules can guide the activity of the FATF. 

How could technological innovation/AI be used to fight financial and economic crime in the EU? 

Raluca Prună: Digitalisation and new technologies have brought about new threats and challenges from an AML perspective. New software and IT/AI solutions are needed for the detection of suspicious transactions, especially in the context of cryptocurrencies and FinTech.

Technological innovation is also relevant to the development of solutions to identify customers’ identity remotely. In addition, specific technologies such as the Legal Entity Identifier could play a key role in improving transparency in the identification of parties to financial transactions at international level.

Let me also mention that the Commission is working on a digital finance strategy, of which one part is a legislative proposal on virtual (or crypto-) asset providers. The Commission will coordinate internally to ensure clean interconnection between the different initiatives, without overlaps or gaps. 

Is digital identity onboarding likely to become the norm in Europe? 

Raluca Prună: Digitalisation, online services and remote transactions are already shaping our future and will probably increase in relevance as time goes by, especially in sectors such as finance and banking. As already mentioned, this has an impact on know-your-customer (KYC) procedures and is of course accompanied by the need to verify customers’ identity digitally and remotely.

Digital identity onboarding will play a key role, especially in certain sectors that are more exposed to digitalisation. However, this requires investment by market operators, and smaller entities may encounter barriers of a different nature that could make it burdensome to adopt the proper tools and software to effectively carry out digital ID onboarding. 

foto: Věra Jourová, vice-president EC CE Vĕra Jourová, Member of the EC in charge of Justice, Consumers and Gender Equality, received by Raluca Prună, Romanian Minister for Justice at 21.11.2016 / European Union, 2016, Source: EC - Audiovisual Service

Romania is subject to an infringement procedure regarding its delays in implementing the Fifth Anti-Money Laundering Directive (5MLD). What are the key measures Romania should take to ensure compliance with the EU’s AML framework? 

Raluca Prună: The Action Plan states that rigorous implementation of AML/CFT rules by member states is key for the overall policy at Union level. The Commission is therefore closely monitoring the transposition of the Fourth and Fifth Anti-Money Laundering Directives by all member states.

To date, Romania has notified the complete transposition of both Directives after infringement proceedings were launched. The Commission’s assessment is ongoing and will look at all measures, notified or not, and their effect on the complete transposition of 4MLD and 5MLD into Romanian law.

In this respect it is worth noting that a study assessing the effective implementation of 4MLD in all member states, including Romania, is also ongoing. 

What is the biggest weakness in the EU’s fight against financial crime? 

It is clear from our studies of recent money laundering cases that two key weaknesses are:

(1) the level of resources committed to AML investigations, which includes authorities sometimes being understaffed, and

(2) communication between the relevant authorities, especially regarding cross-border cases. We have an integrated market and the AML/CFT regime at Union level is only as strong as its weakest link.

An EU-level supervisor with significant resources and the competence to host a communications network between national supervisors, is a very important step towards remedying those weaknesses.

At the same time, the single rulebook will facilitate enforcement by harmonising a core set of applicable rules. 

What is the financial crime threat landscape likely to look like as the global economy begins to recover from the pandemic? 

Raluca Prună: The Covid-19 pandemic has led to unprecedented global challenges, also in relation to financial crime threats. During the pandemic, there has been an increase in crimes such as fraud (especially online), counterfeiting, cybercrime, misdirection or exploitation of government funds or international financial assistance, thereby creating new sources of proceeds for illicit actors. This is linked to new trends and changes in the financial behaviour of citizens and operators, often unfamiliar with online platforms and procedures.

As these trends are likely to affect the economic and financial landscape in the long term, the above threats will probably remain and become more systematic. In this context, it is important that the risk-based approach is strengthened and that technological solutions to tackle these types of financial crime are developed. 

What can financial institutions and non-financial institutions do better in the fight against financial crime? Are the AML/CFT obligations on private sector institutions likely to get more onerous?

The Action Plan provides the policy map to achieve this aim. Full implementation of the measures provided for in the Action Plan, including adoption by the co-legislators of the AML/CFT legislative package, would provide the Union and its member states with a very solid AML/CFT regime. This will be a major achievement.