AML/CFT

On 19 June 2024, the CSSF published a communication (the “Communication”) regarding the Regulation (EU) 2024/1624 of the European Parliament and of the Council of 31 May 2024 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “AML/CFT Regulation”), Regulation (EU) 2024/1620 of the European Parliament and of the Council of 31 May 2024 establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism (the “AMLAR”) and the Directive (EU) 2024/1640 of the European Parliament and of the Council of 31 May 2024 on the mechanisms to be put in place by Member States for the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “Sixth AML/CFT Directive”), both published in the Official Journal of the European Union on the same date.

The Communication highlights that anti-money laundering and counter-terrorism financing (AML/CFT) legal framework necessitate improvements to adequately mitigate money laundering and terrorist financing risks and to effectively detect attempts to misuse the EU financial system for criminal purposes. In this respect, AML/CFT Regulation is aimed at achieving harmonisation between Member States, since it is directly applicable.

The AML/CFT Regulation expands the scope of obliged entities to include crypto-asset service providers, crowdfunding platforms, and other high-risk sectors, to ensure that AML/CFT rules apply to new financial technologies. Moreover, enhanced due diligence obligations have been introduced for specific transactions or relationships, notably the ones involving high-risk third countries. In addition, specific enhanced due diligence obligations have been implemented for crypto-asset service providers in case of cross-border relationships and for credit and financial institutions in case of relationships with high-net-worth individuals with total wealth exceeding EUR 50,000,000 and assets under management exceeding EUR 5,000,000.

In addition, the AML/CFT Regulation imposes further verification on customers and beneficial owners to verify that they are not subject to financial sanctions. Concerning legal entities, any natural and legal persons controlling or owning more than 50% of that legal entity must be verified against sanctions lists. In this context, the definition of beneficial ownership has been refined: although the definition itself remains largely unchanged1, it has been clarified that (i) the threshold for determining ownership interest in a corporate entity is set at 25% or more of the shares or voting rights or other ownership interests in the corporate entity, including rights to a share of profits, other internal resources, or liquidation balance; Member States are, however, free to propose lower thresholds for particular high-risk entities, but not lower than 15%2 (ii) all shareholdings at every level of ownership should be considered, and (iii) control via other means must be identified independently of, and in parallel to, the existence of an ownership interest or control through ownership interest. Furthermore, the actions taken to identify beneficial owners must be recorded, and in case no beneficial owner can be determined, a statement stating the reasons which have prevented the determination of the beneficial owner must be provided. Any discrepancies with information contained in beneficial ownership registers must be reported without undue delay and in any case within fourteen calendar days of their detection.

The Sixth AML/CFT Directive provides enhanced rules regarding beneficial ownership information and how it is to be recorded in central registers. The Communication emphasises that in addition to beneficial ownership information of legal entities, contractual arrangements, nominee arrangements and foreign entities and arrangements must be recorded in these registers.

In addition, the Sixth AML/CFT Directive sets out that centralised automated mechanisms (such as Luxembourg's central register of bank accounts) will include more information and be interconnected at the EU level to enable swift cross-border information retrieval.

The Communication further mentions a limit of EUR 10,000 for cash payments in EU. It is worth noting that Member States can impose lower limits if there are specific national risks.

The AML/CFT Regulation and the Sixth AML/CFT Directive will enter into force on the twentieth day following their publication in the Official Journal of the European Union. The AML/CFT Regulation will apply from 10 July 2027. As regards the Sixth AML/CFT Directive, the Member States have three years from its entry into force to transpose it into their national legislation.

Finally, the AMLAR, which will apply from 1 July 2025, establishes a supranational AML/CFT supervisor, known as the Anti-Money Laundering Authority (the “AMLA”), which will be based in Frankfurt am Main (Germany) and will be part of the EU institutions. In brief, the AMLA is aimed at “protecting the public interest, the stability and integrity of the EU financial system and the good functioning of the internal market” by preventing the use of the EU financial system for the purpose of ML/TF and by ensuring high-quality AML/CFT supervision.

The AMLA will start overseeing entities classified as high-risk entities and operate in at least six Member States as of 2028. On top of that, AMLA will indirectly supervise the entire financial sector for AML/CFT purposes by monitoring developments in relation to AML/CFT, assessing threats of ML/TF, collecting and analysing information.

1: A beneficial owner is defined as any natural person (i) who has, directly or indirectly, an ownership interest in the corporate entity or (ii) controls, directly or indirectly, the corporate or other legal entity, through ownership interest or via other means.

2: To the extent that Member States identify entities that are exposed to higher money laundering and terrorist financing risks, they must inform the Commission thereof, which will assess whether the risks associated with those specific high-risk entities are relevant for the internal market and may conclude that a lower threshold is appropriate to mitigate those risks. In this case, the AML/CFT Regulation will be amended.