«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Alessandro Vita *
ABSTRACT: The waves of crisis of the 2000s showed a necessity to review the banking supervision. The policy makers’ first answer was the reshaping of the supervisory framework with the born in 2014 of the Single Supervisory Mechanism.
Consequently, in the aftermath of the systemic turbulence caused by the technology innovation there was a need to rethink also the ways on how banking and money laundering supervisors interact. In light of this, a new proposal by the policy makers was to strength the AML framework with the most important news that is the establishment of a European Anti-Money Laundering Authority. This short paper, in light of last decisions of the European Commission and starting from the institution of the SSM, goes through the regulatory implications of this new European Authority. The great innovations proposed should be able to improve not only the AML risk but also the overall protection of European citizens.
SUMMARY: 1. Foreword. – 2. The anti-money laundering prevention in the SSM framework. – 3. Overview of the AML supervision in Italy. – 4. The technology evolution and the AML risk. – 5. The new AML package and the Anti-Money Laundering Authority.
1. The waves of crisis of the 2000s, in which the failing of the Lehman Brothers is not the last but of course the foremost event and lead the European policymakers to rethink the shape of the banking supervision. The financial crisis demonstrated how problems can spread throughout the financial system and directly affect people’s lives.
With the Regulation (EU) No 1024/2013 has been created a single supervisory mechanism (SSM) with the aim to strengthen oversight of the system in the euro area and other participating European Union (EU) Member States. European Central Bank (ECB) and national supervisory authorities make up the SSM. The ECB, in cooperation with the national supervisors, is responsible for the effective and consistent functioning of the SSM.
Going through the regulation, what it is important to underline here is that the National supervisors remained responsible for several specif issues such as consumer protection, money laundering, payment services and the supervision of branches of banks in Member States that are not part of the SSM. Therefore, despite an overall unification of the banking supervision several important issues such as the prevention of the money laundering and financing of terrorism remained under the responsibility of the National Authority.
Nevertheless, in the last decade, the money laundering prevention due to the development of the technology from a side and the further necessity to strength the supervision from the other side, lead the regulator to rethink again the allocation of the power with the aim to reach a trade-off between the recent evolution in the markets and the need to guaranty an efficiencient supervision. Therefore, after several discussion between the European Institutions, the outcome converged towards a new AML package where the main proposal is the establishment of a new authority called Anti-Money Laundering Authority and responsible for the coordination between all the local EU Authorities.
2. As briefly reported above with the Regulation (EU) No 1024/2013 the policymakers provided an initial overview of the division of the competences between the ECB and the National Authorities. The tasks that are not transferred to the ECB remained under the control of the National Authorities. One of these tasks that is not transferred to the ECB is related to the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and consumer protection. Nevertheless, the regulation provides that the ECB should cooperate, as appropriate, fully with the National Authorities which are competent to ensure a high level of consumer protection and the fight against money laundering.
Therefore, the power on the money laundering prevention remained under the control (and the power) of the National Authorities in cooperation with the ECB. From the regulation, it was not very clear what kind of cooperation should be put in place, therefore, in 2019 the European Supervisory Authorities announced a multilateral agreement on the exchange of information between the ECB and AML CFT competent authorities.
The agreement was intended to improve the framework for exchanging information between the ECB and National Authorities to potentially enhance the effectiveness of the supervisory practices. The need to formalize a clear framework came from the the Directive (EU) 2018/843 issued in June 2018 (also know as AMLD5) that amended the fourth directive. These amendments also included a new Article 57a(2), which requires the ESAs to support the conclusion of an agreement on the practical modalities for exchange of information between the ECB and National Authorities.
The policy makers made wider efforts to enhance the cooperation and information exchange between prudential and AML/CFT Authorities through a clear legal mandate. This is a kind of first reply to the need to strength the AML framework, indeed, due to high spread of technology, especially in the fields of FinTech and Crypto, the AML risk is improving day after day. A reply from the policy makers should be essential to defend the EU citizens from this kind of threats, also to maintain the trust in the institution high.
The ESAs, together with the ECB and National Authorities, have developed the quoted Multilateral Agreement, which contains the picture and a perimeter of the information exchanges. More in particular, as reported by the EBA in the agreement there are disposition about provisions on the type of information and underlying process for exchanging it; confidentiality and data protection provisions; situations where the request for information can be refused; means of communication and language used in the information exchange; the signing process; and the settlement of disputes procedures.
In a public speech, Yves Mersch, affirmed that the new framework that strength the rules has 2 main objectives. The first is to protect society from crime and the second is to protect the stability and integrity of the European financial system. EU legislators recognize that money laundering, terrorist financing and organised crime are significant problems that are damaging the integrity, stability and reputation of the financial sector and threatening the Internal Market and the internal security of the Union.
An interesting point of the few words reported above is that the public speech was held in November 2019, a period in which the Covid-19 epidemic was not yet in place. In the following 2 years and half, the use of technology applied to the payments it shot even higher, increasing also the implication in term of AML risks. In light of this the framework agreements seems quite soft, therefore, the need of the policy makers to rethink the money laundering supervision and regulation became a priority.
3. The d.lgs. n. 231/2007, in accordance with international rules and criteria envisaging the presence in each state of a Financial Intelligence Unit (FIU) with full operational and managerial autonomy and responsible for combating money laundering and terrorist financing, lead the Banca d’Iaylia to established the “Unità di Informazione Finanziaria”. The UIF as part of the wider efforts to prevent money laundering and terrorist financing collects data on financial flows and information mainly through the suspicious transaction reports transmitted by financial intermediaries, professionals and other operators.
Moreover, the UIF is in charge to analyze the information, drawing on the available sources of intelligence and using the powers at its disposal, and to assess its relevance for possible transmission to investigative bodies and cooperation with the judicial authorities, as well as in respect of eventual countermeasures. It is part of the global network of financial intelligence units for the exchange of vital information. Each semester UIF publish a report in which there is the overview of the supervision taken and an overview of the new regulation introduced.
To frame the phenomenon of money laundering risk in Italy, based on the last report available, it is interesting to report some data from the report above. In the second semester of 2021, the UIF received 69,401 reports of suspicious transactions, up from those received in the corresponding period of 2020 (+15 percent), which complete a year of significant growth. Indeed, in the whole of 2021, there were 139,524 reports, 23 percent more compared to 2020. Almost all (more than 99 percent) of the reports involved suspicions of money laundering; only 243 were motivated by allegations of terrorist financing and 3 by operations potentially related to proliferation programs of weapons of mass destruction.
In the six-month period, the significant contribution to the growth of reporting by obligated entities falling in the categories of Payment Institutions and Electronic Money Institutions, confirming the dynamics already underway in the previous six months. The incidence of the non-bank financial thus rose from 26.0 percent to 33.4 percent.
Reports on cash transactions received by the UIF in the second half of 2021 pertain to 23.4 million transactions, totaling € 124.9 billion, an increase of 4.9 percent compared to the same period of the previous year. The full year recorded 43.2 million transactions, showing an upward trend and an increase of 2.7 percent over 2020.
Cooperation with the Judicial Authority remains at a high level: in 2021, the Unit received a total of 510 requests from the Judicial Authority; at the same time, there is also a sharp increase in the number of suspicious transaction reports forwarded (up 16.8 percent compared to 2020). Spontaneous requests and disclosures from foreign FIUs increased from 815 to 910; these were accompanied by an increasingly robust flow of cross-border reports (up from 9,298 to 11,028).
What it is import is underline that starting from 2017, the number of suspicion transaction reported to the Unit is constantly increased. In 2017 the reported transactions were reported 93,820 while in 2021 the number reached the amount of 139,524. This means that in the last 5 years, in relative terms, the amount of suspicion transaction reported increased by 48.7 percent.
Looking at the subject that provides the suspicion transaction reports in 2017 banks and poste accounted for 76.9 percent, other financial intermediaries for 14.2 percent and non financial subjects for 8.8 percent. In 2021 the trend is quite different, indeed, the share of the reports from bank and poste decreased to 55.2 percent, while both the share for the other financial intermediaries and the non financial subjects increased respectively to 33.4 percent and 11.3 percent. To make more clear the trend, in term of absolute report, the bank and poste amount is substantially in line with the previous years with a slight increased from 72,171 to 77,086 (+ 6.8 percent), for the other financial intermediaries and the non financial subjects the difference is very material. The other financial intermediaries reports sharply increased from 13,352 to 46,628 (+ 249 percent) and the non financial subjects report almost doubled, increased from 8,297 to 15,810.
From the above is possible to elaborate a preliminary conclusion, from a side the risk of money laundering and terrorism financing is increasing day after day, from the other side, the risk of money laundering evolves and changes thanks to the new technology. From this, the necessity from the policy makers, and eventually to the regulator, to develop new rules and new framework (such as th institution of an European Authority) to improve the efficiency of the supervision.
4. It is now useful to keep in mind that technological automation in the financial sector, from way back, has been a real pillar for both the growth of operators and the interventions of regulators. After all, technological innovation is a phenomenon that always leaves room for improvement because, in a global context in which information is now accessible without limits of either space or time, it is not subject to limits. In light of this, traditional operators will be joined by increasingly innovative companies, therefore regulators and supervisors will have to timely identify and detect new threats to systemic stability.
This, appears even more evident in relation to that compartment composed of a myriad of entities born with the appellation “shadow”, which today despite often elude the supervision are candidates for a central role in the banking/financial sector. The development of increasingly sophisticated technologies therefore also results in the development of new risks that enable the circumvention of existing controls or regulations. This is especially true in the context of the money laundering and financing of terrorism.
New technologies increase the possibility of money laundering, in fact, it is becoming increasingly difficult for supervisors to trace the actual source and/or destination of funds. To strength the supervisory framework it is essential to keep in mind that in a globalized world, anyone can invest everywhere in few minutes. If from a side the new technology increases the possibility of money laundering from the other side the supervisors can leverage on these new technology developing new tools to prevent the money laundering and the terrorism financing.
Another point interesting to underline is the evolution of the cryptocurrency market, national and international supervisors are reserving a special attention to this point to avoid the materialization of any possible risks to the financial stability. It is not irrelevant that the FSB opinion on the cryptocurrencies is the following “Crypto-asset markets are fast evolving and could reach a point where they represent a threat to global financial stability due to their scale, structural vulnerabilities and increasing interconnectedness with the traditional financial system.”
As of today we are still in a preliminary phase and both the supervisors and the policy makers have not a clear picture of the overall implication of the cryptocurrencies. Anyway, there is no doubt that, due to the nature of the cryptocurrencies, they have a high intrinsic risk of money laundering.
It is not therefore a coincidence that for the FSB Crypto-assets also raise broader policy issues mainly in term of money laundering, such as the need for consumer and investor protection; strong market integrity protocols; anti-money laundering and combating the financing of terrorism regulation and supervision, including implementation of international sanctions; regulatory measures to prevent tax evasion; the need to avoid circumvention of capital controls; and concerns relating to the facilitation of illegal securities offerings.
Finally, it then seems necessary to dwell on and assess the legal and political effects of an event, so rare that – for years to come – it will exemplify the ‘black swan’ repeatedly cited in the economic literature to decline an impossible to predict event (the occurrence of which determines a series of events that have a more than significant impact on the relevant community). The reference is to the war initiative that Russia has decided to undertake with neighboring Ukraine in February 2022, an event that could have (or more likely will have) a negative effect on the money laundering.
Indeed, USA and UE established several sanctions to the Russia that should have several negative effects on the economic condition for the latter, i.e. the strengthen of the measures to freeze funds and economic resources provided for in Regulation (EU) No. 269/2014 against designated persons and more important a ban on all transactions with the Central Bank of Russia. This aspect could lead to cyberattacks and fraudulent use of funds and/or crypto-assets with a very high risk of money laundering.
To improve the defense and the oversight against the possible money laundering, on 16 March 2022, Financial Intelligence Units from Australia, Canada, France, Germany, Italy, Japan, the Netherlands, New Zealand, the United Kingdom and the United States have established a Working Group to develop activities and collaboration to contribute to ongoing initiatives against Russia. The main goals are contribute to the effective enforcement of restrictive measures decided by the international community by providing guidance to the private sector and countering evasive behavior and employ the tools of analysis and collaboration to identify and “track” assets referable to Russian nomenclature.
Overall, it is clear that the technology evolution lead to an increasing money laundering risk. Again more higher considering the new geopolitical assets. From here, appear clear the necessity for the policy makers, and consequently the supervisors, to restructure the AML framework. It is also quite clear that the ratio of the new regulation proposed follow the same ratio of the banking union, namely, better together.
5. In light of the above, on 20 July 2021 the European Commission published an “AML package” with the proposal of four new important acts: three regulations and the sixth anti-money laundering directive. To prevent arbitrage and national incentives “downward,” the Package promotes a more harmonized and integrated, based especially on a single “rulebook” for operators in all countries and on a clear innovation of the institutional apparatus.
The four elements of the package are: i) a regulation AMLA that refers to the institution of a single European Authority responsible for the AML; ii) a regulation on AML/CFT, containing directly-applicable rules, including in the areas of Customer Due Diligence and Beneficial Ownership; iii) a revision of the 2015 Regulation on Transfers of Funds to trace transfers of crypto-assets (Regulation 2015/847/EU); A sixth Directive on AML/CFT (“AMLD6”), replacing the existing Directive 2015/849/EU (the fourth AML directive as amended by the fifth AML directive), containing provisions that will be transposed into national law, such as rules on national supervisors and Financial Intelligence Units in Member States.
To summarize, the aim of this package is to improve the detection of suspicious transactions and activities, and to close loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system. Moreover, the European Commission supports the idea that enhancing the EU’s framework for anti-money laundering and countering terrorist financing will also help to protect the EU citizens from terrorism and organised crime.
The AMLD6 contains rules on the procedures of national and supranational, on the identification of countries third parties “at risk,” on the transparency of “beneficial ownership,” on the establishment of archives national archives useful for analysis and control. The directive also defines the functions of AML supervision and the duties and powers of the FIUs, for greater convergence and effectiveness in analysis and collaboration.
The single rulebook has the aim to reduce the national discretion, moreover, it defines more broadly and stringently the scope of the recipients of the obligations: it includes, i.e. companies crowdfunding and crypto-asset service providers. The interventions of harmonization also concern adequate verification, suspicious transaction reporting, data retention and internal controls.
The AML/CFT supervision will be transformed from a national perspective to a unique European perspective inside the Union and should enhance cooperation among FIUs. On this regards, it is important to recall an aspect that for the banking supervision is a central point, the level playing field. In few words, this new arrangement should establish a common framework able to guarantee the application of the same rules across all the EU countries.
The new EU-level Anti-Money Laundering Authority (AMLA) will be the central authority coordinating national authorities to ensure also that the private sector correctly and consistently applies EU rules. It is not yet clear if the AMLA will replicate completely the arrangement of the ECB within the SSM, nevertheless, this new authority will also support FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies. However, the duplicity of AMLA’s functions makes it governance and organization complex, this is due also because there is a need to ensure the autonomy of the Mechanism in line with the Financial Action Task Force (FATF) rules regarding the FIU.
The Authority will have direct supervision powers to crack down on illicit finance across all EU Member States and moreover, it will be able to impose fines, with total penalties not exceeding 10 per cent of annual turnover or EUR10 million, whichever is higher. In particular, as summarized and reported by the European Commission, this new authority will:
Appear quite clear that in the next years, when the new package will become fully operative there will be a revolution in both the supervisors and the supervised entity.
In a recent article, Édouard Fernandez-Bollo, Member of the Supervisory Board of the ECB said that the ECB welcome the proposal from the European Commission published on July 2021 to set up the AMLA. In light of the ECB this new arrangement will help to ensure that AML/CFT rules are applied more effectively and consistently across countries. For the member of the Supervisory Board the creation of this new authority matters to the ECB, as banking supervisors, since AMLA and the ECB will need to cooperate in several areas to ensure efficient and effective supervision.
Finally, similarly to the ECB’s discharge of its prudential supervisory tasks, it is proposed that AMLA will use joint supervisory teams (JSTs) in its direct AML/CFT supervisory tasks. In light of all the features reported seems quite probably that the AMLA and the AML package are candidate to become the “fourth pillar” that should further strength not only the money laundering but also the banking supervision.
It is clear that the framework take inspiration from the single supervisory mechanism (SSM) established in 2014. Nevertheless, what it is expected from the policy makers in this phase is to take the points of strength of the SSM and improve the areas that from the practical experience in the banking supervision showed rooms for further improvements. In this way, should be possible not only effectively strength the AML European framework. Indeed, at the same time, if the measures will be really efficient, the policy makers could specularly propose this kind of improvements also in the SSM supervision. To conclude is quite clear that banking supervision, mainly due to the technology developments, is day after day more interconnected with the AML supervision. Despite the new European framework has the aim to improve the AML supervision, positive effects will be expected also in the banking supervision. Therefore, considering the great innovations that this package will have, the practical experience could confirm that the new regulatory framework will actually improve not only the AML risk but also the overall protection of European citizens.
 See Regulation (EU) No 1024/2013 on conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions.
 In some Countries the Central Bank is also the Supervisory Authority (i.e. Banca d’Italia), instead, in other Countries (i.e. France and Germany) Central Bank and Supervisory Authority are two different entities.
 See CAPRIGLIONE – “L’unione bancaria europea”, Torino, 2013; IBRIDO – “L’unione bancaria europea. Profili costituzionali” Roma, 2017; URBANI – I rapporti tra la banca e le autorita’ di vigilanza nel nuovo contesto dell’unione bancaria in RICERCHE GIURIDICHE, vol. 7, pp. 121-135.
 For a picture of the AML in the banks see URBANI – La disciplina di contrasto del riciclaggio e dell’usura , l’attivita’ delle banche, Milano, Wolters Kluwer CEDAM, pp. 595-622; BIS – AML and CFT in banking – Executive Summary, 29 July 2021.
 The banking union provides the Single Supervisory Mechanism, the Single Resolution Mechanism and the Cross Guarantee Scheme. While the SSM and the SRM are in place from several years the latter point is still under a discussion phase.
 On 20 July 2021, the European Commission presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering the financing of terrorism (AML/CFT) rules. The package also includes a proposal for the creation of a new EU authority to fight money laundering.
 Other tasks remained under the competence of the National Authorities are the power to receive notifications from credit institutions in relation to the right of establishment and the free provision of services, to supervise bodies which are not covered by the definition of credit institutions under Union law but which are supervised as credit institutions under national law, to supervise credit institutions from third countries establishing a branch or providing cross-border services in the Union, to supervise payments services, to carry out day-to-day verifications of credit institutions, to carry out the function of competent authorities over credit institutions in relation to markets in financial instruments.
 See the full article in the EBA website in the section press&News, ESAs announce multilateral agreement on the exchange of information between the ECB and AML CFT competent authorities, 15 January 2019.
 See BIS – Introduction of guidelines on interaction and cooperation between prudential and AML/CFT supervision, 8 November 2019; BIS – Basel Committee finalises AML/CFT guidelines on supervisory cooperation, Press release, 2 July 2020.
 See URBANI, MINTO – La quarta direttiva europea in materia di antiriciclaggio, tra luci ombre e prospettive in Diritto della banca e del mercato finanziario, vol. I, pp. 119-142.
 See Speech by Yves Mersch, former Member of the Executive Board of the ECB and Vice-Chair of the Supervisory Board of the ECB, at the Colloque de l’AEDBF-Europe, Paris, 15 November 2019. Available in the ECB website.
 See A. Urbani – La disciplina antiriciclaggio alla prova del processo di digitalizzazione dei pagamenti, in Rivista di diritto bancario.
 See UIF Quaderni dell’antiriciclaggio dell’Unità di Informazione Finanziaria, Dati statistici, II semestre 2021
 See CAPRIGLIONE – Diritto ed economia. La sfida dell’intelligenza artificiale, relazione al Convegno organizzato da ADDE su Etica e diritto per un’intelligenza artificiale sostenibile in finanza, Milano, 26 ottobre 2021; BASKERVILLE – CAPRIGLIONE – CASALINO, Impacts, Challenges and trends of Digital Transformation in the Banking Sector, in Law and Economics Yearly Review, 2020, p. 341 ss.
 See. ex multis LEMMA, FinTech Regulation, Exploring New Challenges of the Capital Markets Union; TROIANO, FinTech tra innovazione e regolamentazione, Conference “FinTech: prime esperienze e prospettive di regolamentazione”, La Sapienza University, Rome, 4 December 2017, p. 7; RIZZI, FinTech Revolution, Milano, 2016; ARNER – BARBERIS – BUCKLEY, The Evolution of FinTech: A New Post-Crisis Paradigm?, 2015, available on http://www.ssrn.com.
 On the shadow banking see LEMMA, The Shadow Banking System. Creating Transparency in the Financial Markets, Palgrave, 2016.
 It is useful to remember that supervisory authorities do not have sanctioning or investigative power over entities and operating cases that do not fall within the perimeter of their supervisory activities, which is defined by the rules from time to time in force. Therefore, outside their control are all FinTechs that carry out activities to date not covered by supervisory regulation or that manage to carry out, without applying for a license to operate, financial activities similar to those regulated under other financial intermediaries.
 See FATF – Opportunities and challenges of new technologies for aml/cft, July 2021, IAIS – Application Paper on Combating Money Laundering and Terrorist Financing, November 2021; URBANI – op. cit.
 FSB – Assessment of Risks to Financial Stability from Crypto-assets, 16 February 2022.
 See FSB – Crypto-assets and Global “Stablecoins”, updated for the last time on 17 February 2022.
 See UIF – Alert sanzioni economiche UE
 See FIU Working Group – Russia-Related Sanctions and Illicit Finance Statement of Intent.
 See UIF – newsletter December 2021 “SVILUPPI EUROPEI. L’AML PACKAGE”
 See the press release document of the European Commission on 20 July 2021 “Beating financial crime: Commission overhauls anti-money laundering and countering the financing of terrorism rules”
 See SICLARI – Gold plating e nuovi principi di vigilanza regolamentare sui mercati finanziari, in Amministrazione in cammino, 2007
 See KPMG – The new European AML Authority (“AMLA”) and the EU’s Single AML Rulebook, 15 March 2022.
 See European Commission – Beating financial crime: Commission overhauls anti-money laundering and countering the financing of terrorism rules.
 Initial set-up of the AMLA will take place at the start of 2023, and AMLA is expected to be fully resourced by the end of 2025.
 Blog post by Édouard Fernandez-Bollo, Member of the Supervisory Board of the ECB, Frankfurt am Main, 21 February 2022.
 The JST is a team that will lead by the AMLA but in which there will be involved also people from the National FIU.
 See Opinion of the european central bank of 16 February 2022 on a proposal for a regulation establishing the Authority for Anti-Money Laundering and Countering the Financing of Terrorism.
 The banking union framework is based on three pillars, the single supervisory mechanism, the single resolution mechanism and the cross guarantee scheme. Nevertheless, the latter is not yet implemented.
* PhD candidate in “Scienze Giuridiche e Politiche” at the University Guglielmo Marconi