If approved by MEPs, the new directive would prevent the EU’s financial system from being used to fund criminal activities. It would also prohibit the large-scale concealment of funds, and bring more transparency with regards the true ownership of companies and trusts.
Previously the registers of beneficial owners of companies were accessible only to those who could prove a legitimate interest, journalists and NGOs for example. Under the new legislation, they would be accessible to all, and national registers would be interconnected to facilitate cooperation between member states.
‘Keep dirty money out of the European banking system’
The new rules also include provisions for registers of the beneficial owners of trusts, and a register of bank accounts and safe deposit boxes. Joint author of Parliament’s report on the issue Krišjānis Kariņš explained: “If Europol is seeking a criminal in one member state, they will be able to see in which other countries this individual has accounts.”
The Latvian EPP member added: “The goal is to keep dirty money out of the European banking system. Banks have to know who stands behind each account. There are two problems with dirty money; one is that it destroys the economy and the other that it can finance terrorism.”
Terrorism on a shoestring
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Co-author Judith Sargentini of the Greens/EFA said: “We made clear that if you do not want to show who the owner is, it will be difficult to do business in Europe.” The Dutch MEP also notes that in Europe nowadays it is possible to fund terrorism “on a shoestring”: “You rent a car or you can even steal a car and you run into a crowd of people. This does not cost money, the only thing that costs money is paying salaries to Islamic State militants.”
Kariņš points out that the sources of terrorism financing are many: “It is through illicit activity, money coming from the black market, the trade in illegal goods, arms or people smuggling. This money enters the European banking system and is laundered.”
Prepaid cards and crypto currencies
The new rules would lower the threshold for identifying the holders of anonymous prepaid cards from €250 to €150. Sargentini points out that this change was of huge importance to national authorities: “French authorities insisted, saying that rental cars used in attacks in France have been paid by anonymous cards.”
The new legislation would also require virtual currency exchange platforms and custodian wallet providers to exercise due diligence and end the anonymity associated with such exchanges. “Now we say that platform providers and those who keep bitcoins in their wallet need to know their customers just as banks do. It is quite revolutionary,” explains Sargentini.
Kariņš notes that the owners of crypto currencies will want to convert them into euro should they wish to buy something: “That’s when the crypto currencies will enter the European banking system and at this point we want banks to ask who this customer is and where the [virtual] money originates.”
The new legislation aims to close down criminal financing without hindering the normal functioning of the financial markets and payment systems such as prepaid debit cards. “The goal is to create problems for criminals but not for ordinary and honest Europeans,” says Karinš. “We do not want to push people back to cash,” adds Sargentini.
Next steps
The final text of the directive, which has been the subject of an informal agreement between the Parliament and Council, will be submitted to a plenary vote on 19 April. Once it enters into force, member states will have 18 months to ensure compliance.
Click here to learn more about Parliament’s efforts in tackling terrorism.