The international legislative framework for anti-money laundering is based on a series of sources comprising international standards, European legislation and international conventions.
The FATF’s Recommendations
The International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, drawn up by the FATF and summarized in 40 Recommendations, are the fundamental principles for preventing and combating money laundering and the financing of terrorism that countries are called upon to transpose into their legal, administrative and financial systems.
The Recommendations, which were completely revised in 2012 and are regularly updated, are accompanied by Interpretive Notes and a Glossary with a set of definitions. The Recommendations set out a comprehensive and consistent framework of measures to combat money laundering and the financing of terrorism. They also take account of the experience acquired in the application of the standards over the years, the problems found in the assessment of national anti-money laundering systems and the changes in risks. Specifically, a risk-based approach is adopted in the Recommendations: the consideration of risk informs the regulatory framework, the actions of the authorities and the compliance by obliged entities. The basis of this approach is the carrying out of a precise national risk assessment on a regular basis. The noteworthy items introduced in the 2012 revision of the FATF standards include the broader scope of money laundering predicate offences, which also covers tax offences, and the refinement of preventive customer due diligence measures, in order to provide greater clarity on how to adapt to the risk characteristics and step up the intensity in cases of greater exposure.
The body of the Recommendations also includes the standards for combating the financing of terrorism, introduced in 2001, as well as specific measures to address the financing of the proliferation of weapons of mass destruction, in compliance with the United Nations Security Council Resolutions.
The key topics of the Recommendations also include the role of the Financial Intelligence Units (FIUs) at national level and the importance of their international cooperation mechanisms. The rules, inspired by the Egmont Group’s standards and by the Group’s definition of a “FIU”, make clear some aspects of financial analysis and the scope of information (financial, administrative and investigative) that must be available. They also include a general obligation for FIUs to be as cooperative as possible with foreign counterparties, restricting the possibility of refusal to a few unavoidable cases. The requirements for the requests are clearly set out, as is how to use the information exchanged, subject to the prior consent of the counterparty for any further use.
European Union rules on the prevention and combating of money laundering and the financing of terrorism have implemented the changes in international principles over time, with a view to creating a harmonized regulatory framework among Member States.
The European anti-money laundering commitment dates back to the early 1990s and has been reflected over the years in five Directives and in various other measures.
The Fifth Directive (EU) 2018/843, currently in force, makes some changes to the EU regulatory framework in some specific areas, completing the measures introduced by the Fourth Directive (EU) 2015/849.
The Fourth and Fifth Anti-Money Laundering Directives strengthen the prevention system of Member States in line with the guidelines set out in the FATF’s 2012 Recommendations and enhance the risk-based approach, which is a fundamental criterion for adjusting preventive measures and checks.
The Fourth Directive confirms the central role of the Financial Intelligence Unit through more structured legislation that strengthens its prerogatives and extends its functions, also with reference to money laundering predicate offences. The provisions underline the fundamental requirements of autonomy and independence and adapt the definition of an FIU, clearly setting out its tasks of receiving suspicious transaction reports and other communications, analysis (selective and aimed at cases of actual risk) and dissemination. The rules on international cooperation have also been revised and extended to envisage, among other things, that feedback on requests from foreign FIUs should be given using the same powers available for domestic analysis, regardless of any differences in the legislation of Member States or in the definition of a predicate offence.
In addition, the Fourth Directive introduces an ‘automatic exchange’ obligation for suspicious transaction reports with cross-border characteristics: the FIUs must promptly forward reports that ‘involve another Member State’ (cross-border STRs) to the European counterparts concerned.
The risk-based approach in the Fourth Directive for defining safeguards for prevention and combating includes assessments at various levels that are complementary to one another. The analyses carried out in each Member State using specific national risk assessments are flanked by an assessment at supranational level, coordinated by the European Commission. The Supranational risk assessment aims to identify and assess the risks generated by the interrelationships between threats and vulnerabilities in various Member States that they themselves are unable to identify. The first report on the Supranational risk assessment was published in June 2017. It presents a vast mapping of risks by field of activity and a list of the most commonly used methods for money laundering. In addition, the Commission has drawn up specific Recommendations for Member States indicating the measures and initiatives to be undertaken for risk mitigation.
The Fifth AML Directive extends the range of obliged entities to include virtual currency exchangers, includes more detailed rules on due diligence, especially given the risks linked to the use of prepaid payment cards and to counterparties in high risk countries, extends the transparency measures for the beneficial ownership of companies and trusts by setting up accessible and interconnected national registers and strengthens the powers of the FIUs for domestic analysis and cooperation. The European Commission is tasked with assessing the effectiveness of cooperation between EU FIUs and proposing a coordination and support Mechanism.
In accordance with the provisions of the Fourth and Fifth AML Directives, on 24 July 2019, the Commission approved and published four Reports on the anti-money laundering system.
The new Supranational Risk Assessment reviews the risks identified in the first assessment in order to see whether they persist, in light of the Commission’s recommendations and the measures applied by the Member States; the assessment also identifies new risk factors of a supranational kind.
The Report on the FIU’s activities and cooperation and on the European coordination and support mechanism. The analysis covers four main topics: (1) cooperation between European FIUs and FIUs in third countries; (2) cooperation between EU FIUs; (3) the tasks for the European mechanism; and 4) the possible role of the FIUs and the mechanism in carrying out controls. The mechanism should help to develop the competences already assigned to the EU FIU Platform by focusing on the critical issues found and on the conclusions and proposals set out in the Mapping exercise (Mapping Exercise and Gap Analysis on FIU's Powers and Obstacles for Obtaining and Exchanging Information).
The Report on the cases of money laundering involving banks in some EU countries examines the reasons for the ineffectiveness of controls and draws up proposals for a greater harmonization of the anti-money laundering rules and for better cooperation between supervisors and between supervisors and FIUs.
The Report on the interconnection of central bank account registers aims to find solutions to provide integrated access in every Member State to the information held in the various registers to identify financial relationships throughout the EU.
Other European legislative sources help to outline an overall framework for anti-money laundering measures.
Regulation (EU) 2018/1672 extends the measures for monitoring cross-border physical transfers of cash and for sharing and using the relevant information. The new rules require the competent authorities (usually customs agencies) to transmit all the declarations concerning the transport of valuables for an amount of €10,000 or more to the FIU of their country twice a month. The declarations also include instruments other than cash, such as payment cards and other means connected to liquidity. In addition to declarations, information on cases of suspicious money laundering or financing of terrorism detected by the customs authorities should be sent to the FIU, with no threshold limits, as well as allegations of breaches of the obligation to declare that emerged during the checks.
Directive (EU) 2019/1153, which concerns information exchanges between FIUs, national investigative bodies and Europol, provides that FIUs can make their information available to the investigative bodies and that they must have the power to obtain investigative information from the police authorities.
The amendments to Regulation (EU) 2010/1093 on the European Banking Authority, though confirming national competence in anti-money laundering controls, entrust the EBA with new responsibilities for conducting reviews of national supervisory authorities: the exercise of enforcement and sanctions, the application of binding mediation powers, the use of substitute powers in the event of inaction by national supervisors, and the drawing up of guidelines to encourage checks and develop cooperation. The EBA will have the power to acquire the necessary information for its new tasks from the competent national supervisory authorities. Close coordination is also needed between the EBA and the FIUs, in accordance with the status of the latter.
The anti-money laundering legislative framework today consists of Legislative Decree 231/2007, recently amended by Legislative Decree 125/2019, and by the relative implementing provisions issued by the Ministry for Economy and Finance, by the Financial Intelligence Unit for Italy and by the sector supervisory authorities, according to the competences indicated in the section “The national legislative framework”.The applicable regulatory sources for compliance with the obligations regarding the prevention and combating of money laundering are also indicated in the section ‘Requirements for operators’, divided by type of requirement.
For information on the ancillary tools used to detect transactions suspected of money laundering and financing of terrorism, see the section “Red flag indicators and anomaly schemes”.