EU anti-money laundering & counter-terrorism financing policy & its impact on civil society

Philea and Civil Society Europe recently hosted a webinar to discuss the unintended consequences of EU anti-money laundering and counter-terrorism financing policy on public-benefit organisations with policymakers and how to limit their impact. Here they share their summary of that discussion.

The fight against money laundering and financing of terrorism remains an important priority at international, EU and national level for both policymakers and civil society organisations. Despite this, international and EU legislation have produced a number of unintended consequences on the work of legitimate public benefit organisations, including public benefit foundations, limiting their ability to provide humanitarian assistance, social support, aid in the education and culture fields, and to contribute to the fight against climate change, but also to hold governments accountable and fight corruption.

For this reason, on 6 June 2023 Philea and Civil Society Europe hosted a webinar to discuss the impact of EU anti-money laundering and counter-terrorism financing policy on civil society with high-level policymakers and national representatives from the sector. The discussion came at a timely moment, as the final negotiations (trilogues between the European Commission, Parliament, and Council) on the new EU anti-money laundering and counter-terrorism financing policy legislative package (EU AML/CFT Package)[1] are unfolding, with the final legislation to be adopted in the coming months and to enter into force in 2027.

Legislation objective

As explained at the beginning of the webinar by Raluca Pruna, Head of Unit for Financial Crime at the Commission, the main objective of the new legislation is to achieve a harmonisation of the rules at EU level through a “single EU Rulebook” comprising a Regulation[2] – the first of its kind in this field – and a Directive, which will replace the previous one from 2018. Importantly, Raluca Pruna stressed the fact that harmonisation does not mean a one-size-fits-all approach, and that a risk-based approach should remain a guiding principle when applying the new policy.

To better understand the unintended consequences of EU AML/CFT policy, the discussion highlighted some concrete examples of unintended consequences happening at Member State level, mostly in the form of overregulation and bank de-risking.

Interpretations of the law by national governments

Thanks to insightful interventions by civil society and foundation representatives and nonprofit law experts, it was interesting to learn how certain national governments have adopted even stricter rules than what is currently required by EU legislation. This is the case, for example, in Spain, where associations and foundations are considered partial obliged entities, and in Bulgaria, where all civil society organisations are classified as obliged entities, meaning that they must keep records of all donors and beneficiaries – which can number in the thousands – and identify who is the beneficial owner, a difficult task, given that non-profit structures are set up to serve the general public and not private interests.

Unintended implications

Furthermore, some Member States require public benefit foundations to list as their “beneficial owners” – not only board members but also founders (who in most cases have no say in the running of the organisation or may have passed away), and in some countries such as Austria listing of all grant recipients (beneficiaries) as “beneficial owners” is required. Reporting on all grant recipients is not in line with the rationale of identifying the individuals who own or direct the organisation and implies significant administrative burdens for foundations, and also raises important privacy issues.

Other examples presented in the webinar concerned Belgium, where associations must report the same details on ownership structures in four different registers, and Finland, which has adopted a very strict act on fundraising. Participants also reported on banks delaying processes and even not providing services to the public benefit sector, often without giving an explanation: this issue of so-called bank de-risking is also considered as an unintended consequence of the AML/CFT policy.

These cases of unintended consequences or overregulation have a chilling effect on legitimate PBOs’ work.

All civil society representatives stressed the importance of dialogue with their respective governments, with examples of constructive, or very constructive engagement, reported in Spain, Belgium, the Netherlands and Finland.

Limiting the impact 

How can the new EU legislation potentially limit some of these unintended consequences as trilogue negotiations unfold? What good practices can be identified in the adoption and implementation of the legislation at Member State level? The panel discussion focused on these questions.

Lia van Broekhoven, executive director at Human Security Collective, presented the main asks of a civil society coalition around the EU AML/CFT package. To avoid unintended consequences that ultimately divert civil society from its role, it is necessary to clarify that public-benefit organisations associations or foundations are not obliged entities and that the beneficial owner for these entities is the one directing the organisation, and not also the beneficiaries or grant recipients. She then stressed the importance of allowing cross-references to company/foundation registers where the Beneficial Ownership information is stored, to avoid multiple reporting obligations. Lia also highlighted the need for civil society to apply political pressure and to engage in meaningful multi-stakeholder sector dialogues. This has been the case in the Netherlands, where risk-based standards have recently been developed as a result of this dialogue.

The importance of dialogue with civil society organisations was echoed by the policymakers who participated in the panel. Elina Rantakokko, ministerial advisor on these issues at the Finnish Ministry of Finance, shared some good practices put in place in the Finnish context, including a thorough analysis of the sector to determine the diverse areas of risk. Gwendoline Delbos-Corfield, from the Greens at the European Parliament and member of LIBE, one of the committees in charge of the EU AML/CFT Package, stressed the importance of monitoring the impact on fundamental rights and in particular civic space. She also reminded us of the need to remove obstacles for activities of associations as well as cross-border philanthropy across the internal market. Raluca Pruna from the European Commission also stressed the need to continue this dialogue once the legislation is adopted, to limit as much as possible erroneous application by Member States, as- she stated – was the case for beneficiaries considered as beneficial owners.

Carlotta Besozzi of Civil Society Europe and Hanna Surmatz representing Philea concluded the event by stressing that it is hoped that the momentum of the trilogue negotiations will still be used, in particular to clarify some definitions around Beneficial Ownership to ensure that in the case of public-benefit foundations and associations, the Beneficial Owner is the one directing the organisation. For the future, both considered that multi-stakeholder engagements and dialogues among banks, policymakers and the public-benefit sector should be deepened at national, EU and international levels to ensure a risk-based, proportionate and fit for purpose AML/CFT policy that does not unduly restrict the millions of legitimate associations, foundations and their beneficiaries.

[1] The Package comprises 4 Proposals: New Regulation on AML/CFT, 6th Directive on AML/CFT (AMLD 6) Regulation establishing EU AML Authority (AMLA), Revision of the 2015 Regulation on Transfers of Funds

[2] Type of EU Act which becomes immediately enforceable as law in all member states simultaneously when it enters into force

Picture by Alex Fotos on Pixabay