Is the EU in Breach of Its Own 6 AMLD Laws?

Catch and release – Hold and repeat. This is the main modus operandi that the EU Commission usually tends to work with when legislating EU Laws, whether it is a Directive or a Regulation.

There has been much criticism towards the EU Commission in the past year, mainly because of the failed Covid-19 vaccination scheme, which is moving at the same pace as the transposition and establishment of the AML Agency of the EU.

Additionally, Israel’s recent operation in Gaza as GateKeeper, has raised political turmoil worldwide, with large markets and geo-political powers, such as the EU and US at the helm of Counter-Terrorist Financing (hereinafter- CTF).

The mere question of CTF has been raised multiple times since the start of the operation, which has begged the inescapable question⁏ “Who is funding the terror groups in Gaza and the West Bank?”

It is this crucial point that the EU has failed in, maybe to the largest extent of its AML and CTF history, since the original inception of the Coal and Steel Community in 1952. The EU has targeted the regulation of Fintech and has regarded it as one of the greatest enemies to AML and CTF practices in the Union. This has resulted in the Payment Service Directive II (PSD2) and 6 AMLD. Electronic Money Institutions (EMIs), crypto exchanges, digital banks and payment service providers (PSPs) are in need of constant regulation and compliance of their in-house practices, full compliance with GDPR, tier I AML and KYC on-boarding of clients, which has resulted in huge costs for the regulated financial institutions. These regulations hinder operations, which in turn has led many financial institutions to sub-contract their compliance and banking regulation activities.

With that said, it seems that the EU Commission is not withholding the same best practices and regulations it distributes to the private sector, and even when it is not fully regulated in accordance with its own laws.

A recent investigation has not raised the old rumours of EU funding but has proved that the EU has directly funded terrorist activities in the Palestinian Authority (PA) vis a vis donations to foundations in the PA under the services of donation funding.

For years, the EU has gone to the extent to call it ‘blood liable’, and has refuted these claims. It is now, that the recent investigation sheds an unflattering light on this transaction and payment scheme, which goes against one of the main and most constructive Directives issued in the 21st Century- The Sixth Anti Money Laundering Directive (6 AMLD).

While public outcry in Israel has led to a few demonstrations, and the governmental sector has yet to condemn the funding, it raises an interesting question in regards to liability of the EU in front of its own laws and regulations, and maybe in front of the State of Israel?

6 AMLD, the new anti-money laundering (AML) and counter-terrorist funding (CTF) Directive sets out a very specific robust framework for the prevention of those activities, whether they are conducted in the private or public sector.

6 AMLD also lays out criminal liability to the offender (and is defined as an offender for the first time in EU Law history) and even sets out the procedures and regulations for lodging a case in front of the Court of Justice of the European Union (CJEU) for infringement of conformity and breach of the EU Law.

Thus, a case may be lodged against the EU Commission for breach of 6 AMLD in Luxembourg (the seat of the CJEU). In addition, the question of whether the State of Israel is able to launch a case of infringement proceedings, as well as the fact that the EU is able to prosecute EU civil servants who were involved, directly or indirectly, within the Civil Service Tribunal and based in Luxembourg.

Ella Rosenberg

Cases that can be lodged against the EU Commission are divided into the following types of cases:

It is the first time in EU History, that the EU Commission is compelled to lodge an act against itself, and other EU Member States are obliged to lodge these proceedings too. The regulatory implication that such an act has is groundbreaking, as 6 AMLD speaks on direct and personal liability of instigators, executors, aiders and abettors to the terrorist funding process.

This hot potato, which has rolled unexpectedly into the hands of the EU Commission, now leaves Ursula von der Leyen and the Legal Division at the Commission in a strategic dilemma. Should they uphold EU Laws and start these proceedings, or should they take a selective approach and decide not to lodge any proceedings at all?

Will the EU Member States take into account EU Law as their ally, and lodge the exact same proceedings in order to maintain the economic union they are a part of?

Regardless of the outcome of the proceedings, whether they would be lodged or not, the question is not of a tactical scope, it is of a strategy. Should the EU be held accountable for infringements of its own laws?

Moreover, this raises the question of tension between Member States of the EU, such as why did the EU Commission decide to issue infringement proceedings against Ireland (which led to a 3 Million Euro fine), shake up the Financial Intelligence Units in Estonia and Lithuania (which led to a momentary shutdown of all crypto licenses in Estonia and enhanced fines against Electronic Money Institutions in Lithuania), fine banks in the Netherlands by the Dutch Central Bank and even go to the extent of issuing specific conditions of anti-money laundering practices when discussing Foreign Trade Agreements (FTAs) with the Association of Countries of the EU, while at the same time facilitating and even worse- issuing terror funding in the West Bank.

The implementation of 6 AMLD, in this case, should have been conducted on the EU Agency level and the EU Commission. The EU Commission should have lodged enhanced due diligence (EDD) on the banks that received the funds and should have taken into account the red flags that have popped up in indication: geographical scope (PA), type of enterprise (foundation- high risk), large amounts of donations, who is the end client (UBO), Enhanced KYC Process On-boarding, sanction and bank screening.

This might be the greatest test of the EU as an economic union, as this will impact their strategy of whether to continue to be a European Federation or stay at an economic union level. Be that as it may, the magnitude of this moment in time cannot be disregarded and should not be dismissed.

Only time will tell whether litigation, and to what extent, it will take place, and how the EU will be held accountable if found in breach of its own laws.

 

Ella Rosenberg is an EU Law Regulatory Consultant and Co-Founder at Armada.

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