The European Commission, the executive arm of the European Union, announced on Tuesday that it has adopted a proposal to further reinforce EU rules on anti-money laundering (AML) to counter terrorist financing and increase transparency.

The terrorist attacks in the European Union highlighted the need for policies and legislations aimed at preventing and fighting terrorism. For this purpose, an action plan was put forward by the Commission in February. In a recent press release, the Commission said that this proposal is the first initiative to implement the action plan for strengthening the fight against terrorist financing and is also part of a broader drive to boost tax transparency and tackle tax abuse.

"Today's proposals will help national authorities to track down people who hide their finances in order to commit crimes such as terrorism. Member States will be able to get and share vital information about who really owns companies or trusts, who is dealing in online currencies, and who is using pre-paid cards. Making public the information on who is behind companies and trusts should also be a strong deterrent for potential tax-evaders”, First Vice-President Frans Timmermans said.

Among the various measures proposed to prevent the financial system from being used for funding terrorist activities included tackling terrorist financing risks linked to virtual currencies. The Commission has proposed to bring virtual currency exchange platforms and custodian wallet providers under the scope of the Anti-Money Laundering Directive. These entities will have to apply customer due diligence controls when exchanging virtual for real currencies, ending the anonymity associated with such exchanges.

Adopted on 20 May 2015, the Fourth Anti-Money Laundering Directive sets high standards to prevent money laundering, such as the requirement for member states to put in place national registers of beneficial owners of companies and some trusts. Member states have committed to implement the package more swiftly than initially planned, at the latest at the end of 2016.  

A European Parliament committee held a public hearing on the pros and cons of virtual currencies such as Bitcoin in Brussels earlier in January. The committee discussed the possibility of regulating digital currencies following the recent terrorist attacks in Paris. Topics included the risks and challenges posed by publicly traded virtual currencies, as well as the impact of blockchain and distributed ledger technology.

In addition, the EC also presented a ‘Communication’, in response to the recent Panama Papers revelations. It sets out the next steps to boost tax transparency in order to fight tax evasion and avoidance in the EU. Key actions include providing tax authorities with the information they need, extending the information available to authorities, increasing cross-border transparency on beneficial ownership, improving oversight of tax advisor’s activities, promoting good tax governance and protecting whistle-blowers.