The European Commission (EC) has announced an action plan to tighten money laundering controls and crack down on the financing of terrorism. The action plan includes measures that build on existing EU rules and adds to them where necessary. It is a direct response to the rise in terrorist activity throughout Europe and is aimed specifically at curbing terrorist activities.

The measures aim to improve the oversight of the financial means used by terrorists, such as cash, cultural artefacts, virtual currencies and anonymous pre-paid cards. However, the EC also says it is aware of avoiding unnecessary restrictions on the functioning of payments and financial markets for the general public.

Two-pronged approach to controlling terrorist financing

The EC's action plan has two main strands of action:

1. Tracing terrorists through financial movements and preventing them from moving funds or other assets;
2. Disrupting the sources of revenue used by terrorist organisations, by targeting their capacity to raise funds.

The EC First Vice-President Frans Timmermans, said: “In the coming months the Commission will update and develop EU rules and tools through well-designed measures to tackle emerging threats and help national authorities to step up the fight against terrorist financing and cooperate better, in full respect of fundamental rights. It's crucial that we work together on terrorist financing to deliver results and protect European citizens' security”

Amendments to the Fourth Anti-Money Laundering Directive

In particular, the plan proposes a number of targeted amendments to the Fourth Anti-Money Laundering Directive, which was adopted in May 2015. The following measures will be implemented by the end of the second quarter of 2016:

• Ensuring a high level of safeguards for financial flows from high risk third countries. This means that financial institutions will have to carry out compulsory checks (due diligence measures) on financial flows from countries with strategic deficiencies in their national anti-money laundering and terrorist financing regimes, to be applied in all EU member states.
• Enhancing the powers of EU Financial Intelligence Units and facilitating their cooperation.
• Centralised national bank and payment account registers or central data retrieval systems in all EU countries. The Directive will be amended to give Financial Intelligence Units easier and faster access to information on the holders of bank and payment accounts.
• Tackling terrorist financing risks linked to virtual currencies. To prevent their abuse for money laundering and terrorist financing purposes, the Commission proposes to bring virtual currency exchange platforms under the scope of the Anti-Money Laundering Directive, so that these platforms have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges.
• Tackling risks linked to anonymous pre-paid instruments (e.g. pre-paid cards). The Commission proposes to lower thresholds for identification and widening customer verification requirements. Due account will be taken of proportionality, in particular with regard to the use of these cards by financially vulnerable citizens.

All measures contained in the action plan will be carried out by the end of 2017 at the latest, with some measures coming into force in the coming months.

More information is available in this EC factsheet: Action plan to strengthen the fight against terrorist financing.