Preparations for a European asset registry have started | AML, CFT

The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) has opened a European tender regarding  a European asset registry in addition to all registers there are in Europe, like the land registers (in the Netherlands: kadaster). The title of the tender: ‘Feasibility Study for a European asset registry in the context of the fight against money laundering (AML) and tax evasion’.

The tender specifications show that Europe is thinking of creating new expensive bureaucracy on top of of other registrations.

Interesting points

Remarkable:

  • No explanation is given why the current registers are not improved first.
  • No explanation is given why the asset registrations held by the tax authorities are not sufficient and what additional value is to be expected from the new asset registry.
  • It is disregarded that the ‘beneficial owner’ (BO) under anti-money laundering (AML) legislation in many situations is not the ‘beneficial owner’ according to tax law. The two BO-concepts consciously are mixed up, to the detriment of BO’s that have no economic interest in entities.

On page 9 as stakeholders next to governmental authorities the following private parties are mentioned:

  • NGOs involved in the fight against tax evasion and money laundering – even though they usually act as political marketing instruments of governments. Strangely enough they are considered to be a source of information (page 8 mentions interviews with these NGOs).
  • Banks – that due to AML-legislation are evolving into pseudo-governments without appropriate democratic oversight.
  • IT suppliers, ‘Sub-contractors involved in the maintenance and development of AML/CFT EU information sharing systems‘, the black box of big IT-companies.

It looks as if the private sector plays no role in the feasability study at all. The study only will be based on governmental information and those who are confronted with the inapproprate European plans will not be consulted.

Some details

Details from the tender document show what Europe is heading towards:

1.2. Subject: what is this call for tenders about?
The subject of this call for tenders is the Feasibility Study for a European asset registry in the context of the fight against money laundering (AML) and tax evasion.

(…)

1.4.1 Background and objective

Anti-money laundering (AML) framework
Collection of data and interconnection of registers is a key instrument under EU law to speed up access for competent authorities to financial information and facilitate cross-border cooperation:

* In terms of collection of data, the AML Directive [1] requires Member States to establish Beneficial Ownership Registers and Bank Account Registers. Article 32b AMLD also requires Member States to provide Financial Intelligence Units (FIUs) and competent authorities with access to information, which allows the identification in a timely
manner of any natural or legal persons owning real estate, including through registers or electronic data retrieval systems where available. In addition, Article 65 AMLD mandates the Commission to draw up a report on the set-up of a central data-base registering virtual currencies users’ identities and wallet addresses and accessible to FIUs;
* In terms of interconnection, work is being conducted on the interconnection of Beneficial Ownership Registers as required under the AMLD. The AML package that the Commission is preparing, in accordance with the Commission’s Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing, is expected to feature an interconnection of Bank Account Registers. The Commission is also undertaking studies assessing the feasibility of interconnecting real estate
registers and developing a central data base for crypto-assets (see below box 1 for further details).

Immediate and direct access to the information held in centralized registries is crucial for the success of criminal investigations or for the timely identification, tracing and freezing of related assets in view of their confiscation.

Under Article 32(4) AML Directive, Member States are required to ensure that their FIUs have access, directly or indirectly, in a timely manner to the financial, administrative and law enforcement information that they need to fulfil their tasks properly. This is particularly needed for FIUs to carry out analysis of Suspicious Transaction Reports (STR) and cross- border analysis. To facilitate access to information, recital 57 of the 4th AML Directive [2] encourages Member States to consider setting up a “mechanism to ensure that competent authorities have procedures in place to identify assets without prior notification to the owner”. The Directive does not further specify which types of assets, different from those held in bank accounts or real estate registers, competent authorities should be able to identify.

BOX 1 – Interconnection projects and studies under the AML Directive

Interconnection of Beneficial Ownership Registers. One of the Union’s main legal tools to ensure transparency for AML/CFT purposes is the set of rules relating to beneficial ownership information, including the way in which such information is defined, registered, accessed and verified. The beneficial ownership information system rests on the central registers set up in each of the Member States of the Union. Beneficial ownership registers identify the “beneficial owners”, meaning the natural person(s) who ultimately owns or controls a legal entity, trust or legal arrangement similar to trusts. The national registers are organized in accordance with Articles 30 and 31 of the Anti-money laundering Directive. In addition, the European Commission is working with Member States on the interconnection of beneficial ownership registers. This interconnection will facilitate cooperation and exchange of information between EU Member States and further increase beneficial ownership transparency.

Interconnection of Bank Account Registers. Access by competent authorities to central bank account registers or retrieval systems is also an important component in the fight against money laundering, its associate predicate offences and terrorist financing, as well as more generally, in combatting serious and organised crime. As mentioned in the Commission’s Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing adopted on 7 May 2020 [3], a future EU-wide interconnection of bank account registries and data retrieval systems would facilitate the cross-border cooperation of the competent authorities involved in the fight against money laundering, terrorist financing and other serious crimes. A 2019 Commission report [4]  assesses the various IT solutions at EU level, already operational or being currently under development, which may serve as models for a possible interconnection of the centralized mechanisms. The report concludes that the interconnection is technically feasible and that a future EU-wide interconnection of the centralized mechanisms would speed up access to financial information and facilitate cross border cooperation. For an interconnection to be achieved, a legislative instrument would be required.

Real estate registers. The need to increase transparency in real estate ownership has led to the obligation, in Article 32b of the Anti-Money Laundering Directive, to grant Financial Intelligence Units (FIUs) and competent authorities access to the information allowing the identification of natural or legal persons owning real estate. This can be done via registers or electronic data retrieval systems, if available. The Commission is required to report to the European Parliament and the Council on the necessity and proportionality of such interconnection.

Crypto-assets. In accordance with Article 65 of Directive (EU) 2015/849 as modified by Directive (EU)
2018/843, the European Commission is mandated to draw up, by 11 January 2022, a report “including, where appropriate, with respect to virtual currencies, empowerments to set-up and maintain a central database registering users’ identities and wallet addresses accessible to financial intelligence units (FIUs), as well as self- declaration forms for the use of virtual currency users”.

A survey conducted in 2016 by the EU FIU Platform [5] shows that EU FIUs have significantly different capacities and tools to obtain information allowing the identification of assets held in their territories. That survey concludes that “while some rely on the power to obtain information from obliged entities, this does not seem to provide an effective and efficient means to identify assets whose existence and location is not previously known”. Since then, some difficulties have been addressed by the transposition and implementation of the 4th Anti-Money Laundering Directive. However, as mentioned in a 2019 report [6] the extent to which an FIU has direct access to a data source varies greatly from one Member State to another. The AML package that the Commission is preparing, in accordance with its Action Plan for a comprehensive Union policy on preventing money laundering and terrorism financing, is expected to propose steps to improve the access of information by FIUs.

In addition to the asset registers referred to above (concerning real estate, companies, bank account and safe deposit boxes, crypto assets), access to information on other sources of wealth (e.g. movable property, life insurance, securities, and high value assets [7]) may be instrumental in providing further transparency and a comprehensive or broader overview of assets held by criminals. That might help reduce time for analysis, enhance cross-border cooperation and facilitate work of authorities.

Fight against tax evasion
For the purposes of fighting tax evasion, the availability of correct and updated information on beneficial ownership is also essential. It is needed for the smooth and effective functioning of the automatic exchange of information under Directive 2011/16/EU [8] and for any form of administrative cooperation between tax authorities under this Directive, including the exchange of information on request and spontaneous exchange of information, for the appropriate assessment of tax liabilities in the country of residence of the beneficial owners and for the assistance to be provided in the recovery of unpaid taxes under Directive
2010/24/EU [9].

Directive 2011/16/EU provides for automatic exchange of information on the following 5 non-financial categories (so called ‘DAC1’): income from employment, directors fees, pensions, life insurance products, and immovable property (income and ownership). Exchange of information on these five categories depends on the information being available in the sending Member State. Land and Property registers in the EU do not generally contain beneficial ownership information for real estate held by individuals through legal persons like limited liability companies and legal arrangements like trusts. No information is currently automatically exchanged between tax authorities on assets like high value assets.

Under an amendment [10] to the Directive (‘DAC2’), financial account information is exchanged between the Member State where the account is held and the Member State where the account holder/beneficial owner is resident. DAC2 is based on the OECD Common Reporting Standard, which provides for equivalent information between 3rd countries and Member States. An amendment to the DAC [11] (‘DAC5’) provides tax authorities access to beneficial ownership information collected under the AML rules, including for the purposes of checking customer due diligence obligations of financial institutions under DAC2. Furthermore, the Commission will propose an amendment to the DAC (so called ‘DAC8’) to incorporate alternative means of payment and investment – such as crypto-assets and e-money due to their increasing importance -. 

Objective of the project
The project aims at assessing the feasibility of providing a unique point of access for AML competent authorities, FIUs and tax authorities, where relevant, to the various sources of asset ownership in the EU. For this purpose, the study will explore how to collect and link information available from various sources on asset ownership.

Unless otherwise mentioned, this study should not focus on assets in Beneficial Ownership registers, Bank Account registers, Real Estate registers and on crypto-assets which are being implemented or subject to further analysis in other studies commissioned by Commission services [12]. These registries would nevertheless need to be analysed in particular for the purposes of assessing the feasibility and proportionality of an EU asset registry (providing a single point of access, as specified below under task 5), and to provide a more precise mapping of existing registries (as specified below under task 2 and in Box 2).

To achieve that general objective, the study will have to achieve the following:

1. Provide a mapping of all sources of information pertaining to asset ownership and outlining for each asset category (i) the differences across Member States in terms of the information collected and format used and (ii) a gap analysis (i.e. information that is not currently available through single information sources and by digital means allowing search functions in Member States);

2. For each type of source (e.g. fiscal data, land, securities) assess whether and how collection of data into single databases and interconnection of them would be feasible by identifying operational and IT challenges;

3. Analyse the legal feasibility and necessity of an EU asset registry and new registers (needed at national level to bring about an EU asset registry, where appropriate) in the fight against tax evasion and money laundering;

4. Develop technical options outlining the possible design and scope of an EU asset registry (or possible interconnection of specific additional registries) and identifying efficient search functions for users (i.e. FIUs, tax authorities).

While the mapping exercise should cover access to information for all competent authorities (AML authorities, FIUs, law enforcement authorities and tax authorities), the feasibility assessment and the functionalities of an EU asset registry will feature AML authorities, FIUs and tax authorities as main users of that registry.

1.4.2. Detailed characteristics of the purchase
The work will be structured around the following tasks:

– Task 1: A comprehensive inventory of the sources of wealth pertaining to the ownership by individuals of assets of all types with a view to collecting information on all sources of wealth so that relevant authorities may have a comprehensive overview of assets for the purposes of fighting money laundering and tax evasion.
That inventory is of general nature (and not Member States- specific)

– Task 2: A mapping of existing registers in all Member States including:
(i) an explanation of how those registers are used to assist competent authorities in the performance of their tasks,
(ii) the exhaustive list of information contained in these registers and the format of this information (e.g. format of the birthdate)
(iii) condition of access (i.e. digital, limitation of access, legal constraints, payment/fees);
(iv) whether registers are interconnected at national level (e.g. beneficiary ownership register and real estate register in some Member States) and
(v) whether information on the beneficial owner (“BO”) is available or can be easily obtained by consulting the national register of BOs.

– Task 3: A mapping of asset ownership information that is not available through single information sources in the Member States and a gap analysis of additional information needed to bring about, where appropriate, a comprehensive EU asset registry.

– Task 4: An operational and IT feasibility assessment of each of the following options: (i) new registers/data bases at national level in addition to the existing ones
(Beneficial ownership, bank account) for sources of wealth for which registers do not exist at national level, and their interconnection at European level to form an EU asset registry;
(ii) the interconnection of only the existing national registers required under EU law (Beneficial ownership, bank account) and real estate registers with an EU asset registry;
(iii) a central EU asset registry connecting the existing registers at national level and, for sources of wealth not covered by them, featuring a central EU register/data base with national access portals.

– Task 5: Assessing the necessity and legal feasibility of collecting additional information identified in the gap analysis performed under task 3 for the purpose of the fight against tax evasion and money laundering. This should include for each register/data base (existing and new ones) a legal feasibility assessment in particular in terms of protection of fundamental rights (privacy and data protection).

– Task 6: Analysing the necessity and legal feasibility of interconnecting registers to bring about a faster access to information, detect tax evasion and cross-border money laundering and facilitate freezing and confiscation of assets and the extent to which costs associated with the development of such interconnection would be proportionate. This should include a legal feasibility assessment in particular in terms of protection of fundamental rights (privacy and data protection).

– Task 7: Based on the outcome of the feasibility assessments (operational, IT and legal assessment) conducted under tasks 4, 5 and 6, the report will outline the possible design and functionality of an EU asset registry or interconnection of national registries, including technical functionalities of a search function. For this purpose, the contractor must present a range of possible technical solutions that will best address legal, IT and operational challenges identified.

The main stakeholders of the project include the following:

– The European Union Member States administrations in charge of AML/CFT and Financial Action Task Force (FATF) negotiations (notably Treasuries services);
– NGOs involved in the fight against tax evasion and money laundering;
– Financial Intelligence Units (FIUs) of the Member States, as well as tax authorities;
– Banks (e.g. European Banking Federation), Central Securities Depositories;
– Public authorities involved in the management of registers/data retrieval systems;
– European Commission services (FISMA, CNECT, JUST, HOME);
– European Banking Authority (EBA), European Securities and Markets Authority (ESMA);
– Europol (European Union’s law enforcement agency);
– European Public Prosecutor’s Office (EPPO);
– Sub-contractors involved in the maintenance and development of AML/CFT EU information sharing systems (like for instance the central register for interconnection of Member states beneficial owners registers (BORIS)

Footnotes:

1 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 (as amended) on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Text with EEA relevance), OJ L 141 5.6.2015, p. 73, consolidated text available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1586531944033&uri=CELEX:02015L0849-20180709

2 Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015

3 Communication from the Commission on an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing 2020/C 164/06

4 Report from the Commission to the European Parliament and the Council on the interconnection of national centralised automated mechanisms (central registries or central electronic data retrieval systems) of the Member States on bank accounts, COM(2019) 372 final.

5 EU FIU Platform mapping exercise and gap analysis on FIU’s powers and obstacles for obtaining and exchanging information, report adopted by the EU FIU Platform. See Commission staff working document on improving
cooperation between EU Financial Intelligence units (SWD(2017) 275 final)

6 Report from the Commission to the European Parliament and the Council assessing the framework for cooperation between Financial Intelligence Units, COM(2019) 371 final

7 A wide range of assets including precious metals like gold, art, antiques, jewellery, yachts, cars and planes. Such assets may also be stored long term in free-zones and customs warehouses in the EU where ownership of the asset can change during the storage period without notification to the tax authorities.

8 Directive 2011/16/EU on Administrative Cooperation in direct taxation provides for automatic exch

9 Directive 2010/24/EU of the Council of 16 March 2010 concerning mutual assistance for the recovery of claims relating to taxes, duties and other measures, OJ L 84 of 31.3.2010, p. 1.

10 Directive 2014/107/EU on automatic exchange of financial account information

11 Directive 2016/2258/EU on access by tax authorities to beneficial ownership information as collected under EU AMLD legislation

12 See below (description of task 2) and Boxes 1 and 2 for further details.

 

More information:

 

Over Ellen Timmer, advocaat ondernemingsrecht @Pellicaan

Verbonden aan Pellicaan Advocaten, http://www.pellicaan.nl/, kantoor Rotterdam, telefoon 088-6272287, fax 088-6272280, e-mail ellen.timmer@pellicaan.nl ||| Weblogs: algemeen: https://ellentimmer.com/ || modernisering ondernemingsrecht: http://flexbv.wordpress.com/ ||| Motto: goede bedoelingen rechtvaardigen geen slechte regels
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