What could the European Commission’s plans to beef up regulations against money laundering & terrorism financing mean for charities?

The European Commission has announced its plans for updating the existing EU regulatory framework to combat money laundering & terrorism financing. Our public affairs columnist Patrick Gibbels looks at the potential impact of tighter legislation & the associated increased administrative duties on charities.

On 12 February 2020, by means of a roadmap, the European Commission announced its plans for updating the existing EU regulatory framework to combat money laundering and the financing of terrorism. This may well lead to tightened legislation and more administrative burden for charities when transacting large sums of money across international borders.

Last July, the European Commission adopted a package (a collection of regulatory initiatives), which highlighted a number of shortcomings in the implementation of the current framework. Moreover, recent money laundering scandals have put pressure on the EU to re-evaluate the current system and to assess whether a more comprehensive approach at EU level is needed.

Currently, the rules are based on the 5^th Anti Money Laundering Directive and last year’s July AML Package. The Commission has thus far taken a minimum harmonisation approach, which means that the legislation is unified only at a basic or ‘minimum’ level, leaving a lot of room for Member States to adapt new legislation to their domestic systems. However, the Commission now argues that this has resulted in fragmentation across the 27 national frameworks, creating loopholes for criminals to engage in cross-border money laundering.

Because of the international nature of the scandals, the Commission does not believe that increased action by the Member States will be sufficient to tackle this problem and is not convinced that even full implementation of these latest provisions would remedy the current weaknesses. The EU is therefore leaning towards implementing a more harmonised approach. It is also considering setting up a transnational EU body to coordinate actions for Financial Intelligence Units.

For fundraisers and charities, this may result in even stricter regimes and could mean additional regulatory and administrative burdens. Whilst we do not yet know what the upcoming initiative entails exactly, it is safe to assume that such an approach might lead to additional layers of registration, stricter record-keeping, and heavier reporting requirements. In order to come to a balanced approach, the Commission has opened a public consultation on the matter, where feedback can be given on the Commission’s plans until 11 March 2020.

The European Commission’s Directorate General for Financial Stability, Financial Services and Capital Markets Union (FISMA) has confirmed that the next step after the consultation will be the launch of a policy communication at the end of March. This Action Plan will in turn serve as the basis for further extensive consultations of stakeholders. Member States will debate it in the context of the Expert Group on Money Laundering and Terrorist Financing and the FIU Platform. The Commission services will also hold meetings with stakeholders to get their opinions. This can be an opportunity for the charity sector to engage but requires you to proactively approach the European Commission. Future legislation is expected to be introduced at the beginning of next year.  

EFA will, together with its partners EFC, Dafne and Civil Society Europe, actively plead for a balanced initiative, with a risk-based approach for the NGO sector.

 Patrick Gibbels, director, Gibbels Public Affairs