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How To Fight Money Laundering And Terror Funding With eIDAS And AML

How To Fight Money Laundering And Terror Funding With eIDAS And AML

"Cutting off the funds " is one of the most effective weapons in the arsenal of authorities trying to deal with terrorists and other organized criminals. The international nature of such criminal organizations forces them to move money between various countries and requires international transfers and exchange currencies.

Often this necessitates using legitimate financial intermediaries in the middle to move the funds. To avoid detection, these criminals use a number of methods to make the transactions seem innocuous - fake IDs, shell corporations, decoy businesses, and so on. Such things are not easy to detect, and this is where the Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) regulations come in.

Most countries in the world today have some directives and guidelines to prevent the use of the banking system by criminals and terrorists - these rules make up the AML/ CTF laws and regulations. Additionally, most banks have their own internal set of guidelines as well, which are usually even more strict than the local legal requirements. Still, government AML laws help tremendously as the authorities try to plug the gaps based on their investigative experiences with ongoing terrorist activities.


The enhanced AML directive will help to cut off terrorists financial resources

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The EU has been one of the more active bodies in trying to keep its AML directives relevant and up to date. The recent amendments seek not only to restrict the use of the banking and financial system by criminals but also to serve as a mechanism for detecting any suspicious activity in the first place and highlighting it to the authorities in a timely manner. In addition to this, the EU has to ensure that all of this is done without violating the rights of its citizens. Here are some examples of how the changes to the AML directives will help in the fight against money laundering and terror financing:

  • Using the eIDAS framework properly identifies and verifies parties related to any transactions. eIDAS provides secure electronic identification and trust services and may be used for various activities like opening bank accounts, verifying and tracking transactions, etc. The 2016 amendments bring it closer to being the most effective AML tool.
  • Bringing virtual currency exchanges under the purview of AML laws obliges them to implement preventive measures and report any suspicious activity to the authorities. The challenge here is to do it in a manner that does not compromise the other benefits of virtual currencies - such as speed, and low cost of transactions and this has been acknowledged by the regulators.
  • Reducing the threshold of anonymous pre-paid cards, making them ineffective tools for illicit activities.
  • Empowering the Financial Intelligence Units of the Member States by allowing them access to better and more timely information from all obliged entities. This would serve to reduce the delays in time-critical investigations. The ultimate objective is to create an automated system that provides information promptly.
  • Standardizing the approach across Member States towards high-risk countries.
  • Increasing access to information regarding beneficial ownership. Numerous corporate entities have complex ownership structures, and banks are mandated to identify the ultimate beneficial owners/ natural persons who control a company. This is extremely hard, and time-consuming process and sometimes requires accessing data on dozens of related companies spread across countries and even continents! Increasing access to this information, even within the EU, would make the procedure considerably more streamlined and efficient.

Regulators must strike a balance between improving compliance and minimizing additional costs/ delays to the end customers. The fight against money laundering and terror funding is an ongoing one, but with the right tools, it's a fight that can be won.


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 References and Further Reading

 Image: Money Laundering - Pounds, courtesy of Images Money, Flickr (CC BY 2.0)