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The ACAMS moneylaundering.com editorial team hit on several important AML- and sanctions-related developments during our year-in-review webinar, but as is so often the case with these kinds of events, ran out of our allotted hour and a half on air before we could cover every topic of import and address all questions from our audience.

Reporters Valentina Pasquali, Koos Couvée and Gabriel Vedrenne have taken time to respond to those remaining queries.

You can read their answers below this intro, and listen to our webinar again or for the first time by clicking on this link (the segment is free of charge but may require you to create an account with ACAMS).

As always, visit moneylaundering.com for more in-depth coverage and analysis of these and other issues, and we’ll see you at our conference next month in Florida.

How is the use of real estate for large-scale money laundering being addressed?

VP: In the U.S., FinCEN, a bureau of the Treasury Department, made an opening bid on Dec. 6 by issuing an advanced notice of proposed rulemaking, or ANPRM, that sought public feedback on the best ways to regulate the real estate sector for AML purposes. The notice posed broad questions, such as the kind of due-diligence controls the sector already follows, what types of transactions are most common and/or riskier (for example cash, leveraged, etc.), and which industry players would be best positioned to inquire about their clients’ sources of funds and would therefore make fertile targets for AML oversight.

The comment period for this ANPRM has been extended to Feb. 21.

KC: In Europe, the EU has published plans to require individuals who acquire real estate in the bloc through offshore legal entities and trusts to declare their true identities to national registers on beneficial ownership. The measure was introduced under the AML package in July.

The U.K. is preparing similar legislation though the government has delayed it several times already. It is now expected to be introduced by the end of the year.

With regards to the U.S. AML Act, will beneficial ownership disclosure also apply to entities and trusts in U.S. secrecy jurisdictions such as Delaware, Nevada, et cetera?

VP: That is certainly the aim of the law. The proposed rule covers legal entities in all 50 states and in its current form covers most trusts as well.

Will the EU’s new AML regulator focus on the gaming industry?

KC: As the plans are currently formulated, the gaming industry will not be subject to direct supervision by the proposed Anti-Money Laundering Authority. EU officials foresee a staff of 250 employees for the agency, which will begin directly supervising a “limited number of the riskiest, cross-border” financial institutions in the EU by 2026 and oversee national AML supervision across the bloc.

Critics of the plans have pointed out that the emphasis in the criteria for direct supervision is more on size rather than risk. It looks like the AMLA will focus, at least initially, on large banks—and possibly money services business—with a footprint in at least 10 countries.

The AMLA could in theory prod national supervisors to act when particular risks in the gaming sector arise. Having said that, the plans are very much still in development and there have already been calls—notably from the European Banking Federation—for more emphasis on risk and making all regulated sectors candidates for direct supervision by the AMLA.

May not be relevant to this webinar, but has there been any further discussion of increasing the reporting threshold for CTRs and SARs (currently $10,000 and $5,000/$10,000)?

VP: The AML Act gave Treasury one year to consult with the Justice Department, National Security Council and federal banking agencies and produce a report on whether the present CTR and SAR thresholds should be increased to reflect inflation, or otherwise adjusted.

Treasury was also tasked with issuing any necessary rulemaking upon release of the report, as well as to repeat the process at least twice at a five-year interval. Obviously, we have yet to see any report or rulemaking out of Treasury on this, so I would say: stay tuned.

Will there be changes to the CDD rule for considering a trustee a beneficial owner for trusts?

VP: Let’s start with FinCEN’s Dec. 7 NPRM for the beneficial ownership database. There the bureau pitched a definition of “ownership interests” that would include both equity and debt instruments, insofar as the latter may be converted into equity. It also proposes “that an individual may own or control ownership interests by way of the individual’s position as a grantor or settlor, a beneficiary, a trustee or another individual with authority to dispose of trust assets.”

How that may impact the CDD rule remains to be seen. Under the AML Act, FinCEN has at least another year-and-a-half to two years—based on my back-of-the envelope calculation—to revise it in a way that reflects the existence of the beneficial ownership database.

GV: This is similar to the AML regulation that the EU unveiled last July. Under this future regulation, a trustee is still considered one of the beneficial owners for trusts, alongside the settlor, the protector, the beneficiaries and any other natural person exercising ultimate control. Moreover, when performing CDD checks for a trust, a regulated entity must obtain at least all the usual details of a beneficial owner: their name, place and date of birth, residential address, nature of their business and other information.

Would it not benefit everyone if all countries, and continents specifically, followed the exact same guidelines for AML? Currently the guidelines or processes or procedures vary from country to country, or even differ between banks in the same country. Why does the World Bank or a similar body not have any oversight on this? Why are individual countries left to fend for themselves here?

GV: In an ideal world, having the same rules everywhere would indeed be the ultimate solution and prevent criminals from taking advantage of legal and regulatory gaps. In reality this is a utopian vision, and for several reasons is achievable only in the very, very long term, if at all. For one, countries have very different legal traditions—civil law vs. common law vs. religious law, for example—so it is not easy or obvious to apply the same principle the same way everywhere.

AML carries a cost for the private and public sectors and not all countries have the same level of development, which means that one cannot ask the same efforts from a Swiss bank as from a bank in Burundi. Nations also have economic and geopolitical interests at stake. Some of them have low populations, almost no natural resources and have consciously set up a more flexible—some would say lax—regime to attract capital and companies.

The only method that has proved its worth thus far is that of FATF, which is developing common minimum standards that are sometimes perceived as insufficient by those most dedicated to the fight against financial crime, but still entail a significant effort for some countries. Another strategy is to require countries to put in place stricter rules if they want to enter into trade deals and the like.

But even in very legally and politically integrated blocs like the EU, it’s still complicated. The planned prohibition on cash payments above €10,000 does not pose a problem for countries like Italy and France, which already observe even lower thresholds than that, but causes indignation in Germany or Austria, where people tend to pay for quite a lot in cash. So you can imagine the clashes this type of blanket rule could produce between countries much further apart culturally.

Will the U.S. Corporate Transparency Act address and mitigate the risk associated with tax havens?

VP: The CTA aims to stamp out the illicit use of anonymous U.S. shell companies. That may impact traditional tax havens, like the Cayman Islands or Bermuda, only in the sense of shining a light on the owners of American shell companies that control bank accounts or other assets there. But it does not directly impact those countries’ domestic corporate-formation regimes.

Question for Koos Couvée: Where can we find information on the U.K. AML law and follow its developments?

U.K. officials are working on an Economic Crime Bill, which is expected to include proposals to reform Companies House, the U.K. corporate registrar, to empower it to crack down on shell company abuse and build a second database—this one of individuals who have used offshore legal entities to buy U.K. real estate. It may also include new provisions to enhance public-private information-sharing and strengthen unexplained wealth orders.

The government was recently accused of scrapping the bill but Foreign Secretary Liz Truss announced plans to reintroduce the legislation by the end of this year. It’s fair to say that the government is under renewed pressure from campaign groups and politicians, including from the ruling Conservative Party, to plug the gaps in Britain’s AML regime.

How will Malta’s gray-listing affect established U.S. companies there? Do you think they will pull out, or stay and ride this out?

KC: Every company has its own risk appetite, and, depending on the business, some may not experience any impact from the decision to gray-list Malta. Press reports have suggested that some local banks are finding it more difficult to process overseas transactions. There have also been reports that several gaming CEOs have raised concerns about the decision and expressed interest in potentially relocating to other jurisdictions. At the very least, it will further complicate Maltese banks’ ability to maintain and secure correspondent services.

Reputational damage from gray-listing may eventually reduce the country and its financial system’s attractiveness to investors and corporates, but there’s mixed evidence. For instance, the repeated gray-listing of Panama and gray-listing of Iceland had limited economic effects, according to FitchRatings.

I think I just read this morning that FATF is adding, or considering adding, the UAE to the gray list. Any thoughts on this?

GV: There would be legitimate reasons for this decision. For one, numerous investigations have shown that the UAE is a destination of choice to integrate illegally mined gold or diamonds, mainly from Africa, into the legal economy.

In addition, more and more criminal ringleaders in Europe and North Africa have relocated to the UAE to continue to run their networks without exposing themselves to law enforcement, or to retribution from rival organizations. Notorious criminals from France, the Netherlands, Belgium and Spain have been spotted there and for a long time they seem not to have been bothered by local authorities.

Finally, FATF’s latest assessment highlighted that the country’s AML regime still has many flaws, which are all the more important because the UAE is very exposed to many risks as a financial and travel hub for the Middle East and Africa, and as a bridge between Europe and Asia. Also, the UAE only emerged as a financial services hub around 2000, and it takes time to integrate AML standards and culture.

But this is changing as the UAE is very attached to its image and absolutely needs to be integrated into the international economic, financial and diplomatic circuits. More importantly, more and more countries are putting pressure on the UAE and this is beginning to bear fruit.

KC: The way gray-listing works in FATF is that countries are automatically slated for inclusion on the list if they receive lackluster scores after their mutual evaluations. They then can only avoid listing if they are judged to have made significant progress in addressing virtually all of their major deficiencies.

Quite often, a majority of FATF delegations agree that a country has made significant progress and should not be listed. But FATF works by consensus, which in practice means that it only takes two to four delegations to block the will of the majority, with the end result sometimes being that a country ends up gray-listed anyways.

It is rare that a country like the UAE, with its long-term AML shortcomings, has managed to thus far avoid the gray list, which suggests there may be political considerations at play. That is not to say the process is entirely political. In fact, it is larger technical. The UAE has no doubt done a great deal to improve its effectiveness against financial crime, not least by improving cooperation with overseas law enforcement.

Is there any indication of regulatory initiatives/enforcement to cryptocurrency transactions in 2022?

VP: In its latest semiannual regulatory agenda, published Jan. 28, the U.S. Treasury hinted that FinCEN and the Federal Reserve may issue an updated NPRM to lower the travel rule’s current $3,000 threshold to $250, and expand that obligation to the cryptocurrency industry, in March.

By September, the bureau may separately finalize a year-old proposal to require cryptocurrency exchanges and other companies to report single and aggregate transactions of $10,000 or more in a single day that involve either unhosted wallets, or any type of wallet—hosted or unhosted—that is based in Burma, Iran or North Korea.

Could Gabriel provide more detail on the EU initiative concerning digital ID?

GV: Since the eIDAS regulation’s adoption in 2014, several EU countries have put systems in place that allow people to prove their identity online. But those systems have met with varying degrees of success and, above all, these digital IDs are specific to each country. That’s why the European Commission unveiled plans last year to introduce a bloc-wide, interoperable digital ID with an implementation phase to end in 2027.

The EU’s AML package unveiled in July of last year takes these plans into consideration and authorizes the use of digital ID on the basis that it can facilitate customer due-diligence processes that are conducted remotely.

New regulatory technical standards on due diligence will be issued as part of the AMLA, but we will have to wait months or even years to see them. That being said, the EU’s philosophy remains unchanged: the minimum set of information to be obtained by obliged entities will depend on the level of risk associated with each customer.

What is certain is that the EU is betting heavily on digital ID and, according to the impending AML regulation, seems to view it as the future for identifying customers. In short, we know what the EU’s intentions are but will have to wait a little while for the details.

Can you also confirm that the Sixth AML Directive will ban any cash transaction over €10,000?

KC: As part of its sweeping, six-pillar AML package, the EU last July proposed to prohibit cash payments for all goods and services above €10,000. But the plan would be introduced under the proposed new AML regulation, not the Sixth AML Directive Anti-Money Directive. Note that many EU countries already have had lower cash ceilings for years.

Negotiations on the AML package between the European Parliament, Council and Commission are expected to take place this year and perhaps for some months into 2023. The regulation will apply three years after it is published in the EU’s Official Journal, so likely in 2026—the same year that the AMLA will be fully operational.

Malta will hire some expensive consultants to review policy and work with law enforcement to conduct more investigations—money to be made by subject matter experts—particularly from the U.K.

GV: Is that a question? Either way, yes, high-profile experts are already working there.

KC: Given that it is a tiny country with an outsized financial center, and with only a small pool of AML talent in which to fish, Malta has been hiring consultants from the U.S., U.K. and other countries to work inside and advise its regulatory and government agencies for years. This increased particularly in the runup to the Moneyval evaluation in 2019, in which the country did particularly poorly and which ultimately led to its inclusion on the FATF gray list. This trend of hiring overseas AML professionals is unlikely to abate any time soon, since it is facing an uphill battle to address multiple systemic weaknesses before it has any chance to come off the list.

Is David Lewis’ resignation letter available to the public?

KC: During the webinar I referred to this letter incorrectly as a resignation letter. In fact, it was a confidential letter from David Lewis to the heads of delegations of the 39 full FATF members informing them that he had resigned as the FATF’s executive secretary. The letter is not available to the public. I did obtain a copy but cannot share it, though we have quoted from it extensively in our coverage on David Lewis’s resignation.

We also published a further interview with David Lewis in which he explained in detail his reasons for leaving FATF and what he believes are the weaknesses in its governance processes.

Can the speakers comment on any reforms in Zambia?

Colby Adams, managing editor of moneylaundering.com: Thanks for joining our webinar. We have not written about AML reforms or financial crimes in Zambia specifically for some time, but have an extensive archive of stories and legal documents that cover the country’s anti-financial crime campaign both obliquely and directly.

Story tips or suggestions? Send them to Gabriel Vedrenne at gvedrenne@acams.org, Koos Couvée at kcouvee@acams.org and Valentina Pasquali at vpasquali@acams.org