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Emerging Technologies: Changing Nature of Irregular Warfare

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This era of most cutting-edge innovations and inventions in science and technology (S&T), has the potential to revolutionize governmental structures, economies, international security and wars. Emerging technologies epitomize doomsday situation and the military use of such technologies carry greater potential to fundamentally shift the balance of power. Today S&T means the intersection of Cyber and Artificial Intelligence with various emerging technologies such as nanotechnology, including meta-materials; robotics, including lethal autonomous systems; artificial intelligence and machine learning; the cognitive neurosciences; biotechnology, including synthetic and systems biology; high energy weapons; additive manufacturing called 3D printing, space weapons, and the intersection of each with information and computing technologies. Such concepts and the underlying defense needs were articulated at the multi-national level in NATO’s May 2010 New Strategic Concept paper: “Less predictable is the possibility that research breakthroughs will transform the technological battlefield .The most destructive periods of history tend to be those when the means of aggression have gained the upper  hand in the art of waging war.”

According to the New America Foundation’s Future of War program technological advances are driving “changes in the nature of warfare”. But the question arises that how technological development will s shape the future of war and the state? This is one of the important questions that is causing much anxiety in both academic and policy-making circles. Nevertheless technology is being extensively used in warfare strategies to create asymmetric advantage for one actor to impose his will over another. Multiple scholars have argued asymmetry potentially gives the weak actors, advantage over the strong actor in irregular warfare, when technological advantages are employed in irregular warfare. Because the weak do not have the capability to face strong actors conventionally, they complicate the environment by operating when and where they choose, with weapons that attack weaknesses of the strong and in a manner that often are invisible to a stronger actor.

However, the shifting nature of technological progress may bring enhanced or entirely new capabilities. Many of these capabilities are no longer the exclusive domain of any of the state. Analytical assessments suggest that emerging technologies often expose the gaps within the mainstream scholarship on international security, understanding of the military technological innovation and acquisition processes, and fundamental understanding of the underlying science.

In context of South Asia currently cyber technology and Artificial intelligence are dominating the irregular warfare. Now a days war are being fought below the level of threshold, as it  is evident, wars are now being fought while sitting in the rooms through computers and media (including social, print and Television) rather than in the battle fields. With the passage of time Cyber technology and Artificial intelligence has become the most sought after means for waging irregular warfare. They serve as a tool for propaganda, phishing, and data manipulation, dissemination of information, identity theft and establishment of cyber physical weapons along with Advanced Persistent threats (APTs) to be used against critical infrastructure of states. However on the other hand Artificial intelligence is also changing nature of irregular warfare because of its potential to significantly enhance intelligence, surveillance and reconnaissance (ISR) capabilities. AI-enabled satellite imagery and remote sensing may help states to interpret each other’s actions correctly which may make nature of irregular warfare more complex and ambiguous. Under the regime of Modi increased Indian intrusions in Pakistan’s sovereign assets, marked the aggressive approach of towards Pakistan. Due to Indian military modernization and acquisition of sophisticated weaponry of cyber and AI, peace and stability of South Asian region is at stake.  Indian aggression and illicit breaches can lead to the wreckage of the region.

Emerging technologies will introduce new and sophisticated class of weapons that will alter the geopolitical landscape. Security issues in South Asian region will be unresolved underlying the use of potentially disruptive technologies will have acute implications for defense policy, arms control regimes, international security, regional stability and security.Currently there exist two schools of thoughts regarding the future of irregular warfare: those who are in favor of prioritizing the role of technology, and those who are skeptical and still reluctant. One must be skeptical of slipping into a technological deterministic mindset and cognizant as well. This is the belief that technology alone, being the most important factor, can determine the outbreak or outcome of conflict and this is may be true to some extent. In the coming decades states may stick to the idea that emerging technologies can be a blessing and a curse at the same time.

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Cyberwar between the United States and China

Giancarlo Elia Valori

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How is the new “Cold War 2.0”,which currently characterizes the ever less collaborative relations between the United States and China, developing?

Some data may be interesting in this regard. On March 3, 2020 the Chinese cybersecurity company Qihoo 360 accused CIA of having hacked many Chinese companies for over 11 years.

 They are – almost obviously – aviation companies, large global commercial Internet networks, research institutions and certainly also Chinese government agencies.

Not to mention the cryptocurrency operations often organized by people and entities traceable to the North Korean government.

Both the Chinese and the US governments, in fact, use various and complex entities and mechanisms to operate in cyberwar. Firstly, the “front companies”. Just think of the Chinese group APT40, which even hires hackers – as everybody does, after all. Secondly, the intrusions to collect cyberdata in the large multinational companies, or even in State agencies, which often remain blocked for a few days and, in that phase, transfer vast masses of data to the “enemy”.

 Thirdly, the theft of IP and trade secrets- another mechanism that everybody uses.

Obviously this is not the case of Italian Agencies, which, at most, can entrust a small, but good Milanese company to do some hacking, possibly in accordance with the law.

 It now seems that the Italian ruling classes are composed above all of what in the 1920s Gaetano Salvemini called “the Paglietta of the Naples Court”.

On the military level, the United States believes that today the Chinese Joint Chiefs of Staff can hit well and quickly any opposing C3 system (Combat, Control, Communication) and that it can also carry out automated, but smart warfare operations, from the very first moments in which a significant regional military clash occurs.

Although many US experts in the sector also maintain that, still today, the United States hasa better base of action and, probably some advanced technologies that could enable the United States to have a better and wider cyber action. Nevertheless, this is not necessarily the case.

Certainly China is well aware that the Western and especially North American response to a harsh cyberattack would entail an even harsher, immediate and ruinous reaction against Chinese targets in the homeland and in the other regions.

Hence cyberwar’s parallel IT operations are mainly carried out by Russia: just think of the attack on French TV5Monde in 2015 or on Ukrainian energy companies in late December 2015, as well as on Sony in 2014. We can also mention the 2017 attack – through the use of a computer virus, WannaCry – which, however, was a cyberattack attributed by the United States to North Korea.

 On the technical-legal level, the Chinese legislation that governs the Chinese cyberwar is mainly contained in the National Security Law of 2015 and finally in the Intelligence Law of 2017, in which it is laid down that cyber operations can be conducted both by the Ministry of National Security, the old guoan, and by the Office for Internal Security of the Public Security Ministry.

 The operations abroad normally concern the Centre for the Evaluation of Intelligence and Technology (CINTSEC), which is an integral part of the Ministry for State Security.

 The other autonomous cyber networks operating within the People’s Liberation Army(PLA) add to this official network.

At geopolitical level, China does not want to trigger any conflict with the United States. Neither a traditional conflict nor a cyber one. Quite the reverse.

China’s current real goal is to bridge the technological and operational gap between the two cyberwars, both on a strictly military level and, above all, on the economic and technological one.

 China knows that – as Napoleon said – “wars cost money” and it is good not to make them if they can be avoided.

 For the United States, China needs cyberwar to win “particularly informationalised local wars”.

Conversely, for Chinese theorists, cyberwar is the only real strategic war of the 21st century, as it was the case for nuclear war in the 20th century.

 In other words, the technological and doctrinal area that allows to win a medium and large conflict and then sit at the peace negotiating table with of Phaedrus’s motto Quia sum Leo.

 Also on a global and commercial level, China even plans to build a large private company that can compete on an equal footing with what in China is called “the eight Kongs”, namely Apple, Cisco, Google, IBM, Intel, Microsoft, Oracle and Qualcomm.

 Therefore, at military level, China wants first of all its full cyberspace security so as to ensure the security of critical intelligence, both of regions and economic activities.

Also on the American side, however, there is currently a tendency to reduce the Chinese cyber penetration power, both at military and commercial levels. Some analysts maintain that,in recent years, the Chinese cyber presence has been very exaggerated.

There is a psywar operation – this time, certainly, of North American origin, but recently present on the Web – which currently makes us add a further analytical factor on the intelligence cyberwar and, above all, on the implementation of cyber criteria in psywar.

Nowadays there is a sort of “Report of a Military Contractor” available on the Web- as it is officially entitled – which is supposed to reveal just what the United States would like to hear still today, i.e. that Covid-19 is just a “Chinese virus” that was designed and made in the now very famous Wuhan laboratory.

 This report was drafted by a previously unknown Multi-Agency Collaboration Environment (MACE), a group of cyber and non-cyber experts, whose site is only part of the Sierra Nevada Corporation.

However, it is still a current relevant contractor of the US Department of Defence.

Hence the usual “external centre” that is used to say things that it would be unreasonable to say directly.

 The report states it is based on evidence related to the posts of the intra-and extra social networks, both of the laboratory and its employees, as well as on the data provided by non-military satellites and finally on the positioning data of mobile phones.

 All this in view of even saying that “something” happened – probably by chance and accidentally, but in any case extremely severe and uncontrolled – in the Wuhan laboratory, only with regard to the Covid-19 virus.

 This is a further phase of the modern misinformation technique: at first, it was said that the virus deliberately came out of the Hebei laboratory, while now it is underlined that it probably “escaped” unintentionally from its microscopic cage.

It is easy to understand what they really want to communicate: even if the Chinese government were not responsible, international lawsuits for claiming damages would still be possible.

 Nowadays, at least in the West, misinformation is carried out at first by hardly hitting the opponent and later possibly apologizing for saying something inaccurate or wrong. A psychological warfare technique that creates the “aura” of the case without later supporting and corroborating it. It is very dangerous.

 A really dangerous tactic, especially in the presence of an increasingly evolved and advanced Network.

The document, however, does not report as many as seven locations of mobile and institutional phones within the Wuhan laboratory – too great a flaw to be accidental.

 MACE also states that, allegedly, a whole conference inside the Hebei laboratory was “cancelled”, due to an unspecified disaster, while, again in the documents of the laboratory, there are pictures with a clear internal date concerning precisely that event, the conference of November 2019.

 One of these pictures was also found in the social media of a Pakistani scientist who had participated.

 Even the aerial photographs provided by the company Maxar Technologies are a sign of obvious and normal repairing of roads, certainly not specific roadblocks placed due to an unforeseen and very severe event.

A few days ago President Trump stated that the “virus came out of the lab because someone was stupid”. Too easy and, I believe, useless even for a legal and insurance case against the Chinese government itself.

 Moreover, these is the more or less manipulated data which, however, has certainly been useful to develop and spread the theory of “Chinese fault” for the outbreak of the epidemic and then pandemic, just in the midst of the great “acquisition of intelligence data” to which Trump and Pompeo referred.

 All this just to reaffirm, without any reasonable doubt, the wilful or culpable guilt of the Chinese government in the outbreak of the coronavirus pandemic, and hence to stop the development of China and make it retreat, – with huge legal costs – from a development rate that was already within reach.

 Moreover, the aforementioned MACE report lacks some data that we would simply call cultural intelligence, i.e. not knowing that the first week of October is a “golden” week for China, e.g. the National Day which commemorates the foundation of the People’s Republic of China, announced by Mao Zedong in a very famous speech at the Square of Heavenly Peace Square, with an even more famous phrase: “the Chinese people have stood up!”

 How can they not know this, even believing they are intelligence people?

 The same happened with a US report on the coronavirus issue transmitted from US to Australian intelligence agencies and later immediately published in a Sydney newspaper. Obviously everyone also “manipulate” documents to defame the opponent, but there are many ways and means of doing so.

On a more strictly doctrinal level, however, the issue brings us back to the analysis developed in 1999 by the two famous PLA Colonels, Quiao Lang and Wang Xiangsui, entitled Unrestricted Warfare.

 It was a manual on what we would today call asymmetrical warfare.

Today, however, Quiao Liang thinks that – even at this stage of the conflict -war is still linked to the manufacturing industry. This means you can have excellent scientific research and a good network of research centres, but if you do not turn all this into mass and important industrial products, as Quiao Liang says, “you have just won a medal, but nothing more”.

 Liang also maintains that the United States is therefore using up its weapons and industrial equipment stocks.

Furthermore, the more the coronavirus crisis worsens -considering the scarcely effective reaction of the US economic and health system – the more the consumption of North American military and civilian stocks increases, although the ability to produce them decreases more than proportionally.

Hence has the United States still have a manufacturing and mass industry, as well as the ability to turn technological evolution into mass products, to wage an asymmetrical or conventional war but, above all, to continue it until the final victory?

  The Chinese Air Force General seems to imply that this is not the case.

Hence, in his mind, currently the only reasonable solution for China is to expand its production system, but never underestimate the “traditional” medium-low technology manufacturing industry, which is the one that reproduces and expands production forces and enables it to last over time, which is the only real guarantee of victory.

 You do not eat fintech products, but rather Californian tomatoes and Midwest meat.

 Those who want to collect technological jewels can certainly do so and – as the General maintains – obviously also China must do so, but what is still and always needed is the great mass production and items that, coincidentally, have become scarce all over the world: masks, respirators, food, traditional infrastructure, as well as means of transport.

It is fine if you believe that war and the economy are a superhero scenario, but you have to win, i.e. “to last one minute more than your opponent” – hence you need to go back to a mass, industrial, stable and growing civilization for the “real” economy.

 The myth of high technology as the key to everything, induced by the development of the current United States, has made everyone else in the world lose the true sense of modernization, the key concept of the Chinese political narrative, from Deng Xiaoping to present days and in the future.

You cannot think of a future civilization in which social verticalisation is such that a share of over-rich countries slightly higher than 1% follows the vertical impoverishment of all the others.

 A mass impoverishment which also leads to a reduction of manufacturing production. The products are later sent to “Third World” countries to trigger a process of social pyramidalization that is almost unprecedented in human history. And what is it for? For uselessly spending the mad money produced by fintech?

 Therefore, the Chinese General believes that a US decoupling from China – as all the economists close to the White House preach-is needed to prevent China from taking all the most important technological and defence patents. In his opinion, however, also China must not decouple from the USA at all. This is not useful for high technology, but if anything, to avoid doing the same as the United States on a mass level.

 If there is decoupling – as the current US economists preach – the Chinese products will become more competitive compared to the US and US-related products. Hence the US monetary hegemony would soon disappear and the same would be true for the its double use of the dollar that made an old FED Governor say to his European colleagues: “the dollar is our currency,but it is your problem”.

Therefore, in the long run, it will also be impossible to let China – with its low-cost productions – be replaced by Vietnam, Myanmar and the other countries in the so-called “pearl necklace” of Southeast Asia.

Moreover, if after the coronavirus crisis, there will be further robotization of the workforce, how will it be possible to maintain many and sufficiently high wages which, after the pandemic, will obviously be distributed to a smaller number of available workers?

 Low wages – and hence also scarce tax revenues – as well as crisis of State spending and decrease in social and military spending, especially in the high tech sector, which always has a very high unit cost.

 Therefore, just to recap, the Empire is facing severe danger.

 As the Chinese General maintains, “we must not dance with wolves”, i.e. we must not follow the pace of US dance to reap only the technological fruits, but rather maintain and expand the great manufacturing production and, above all, even avoid taking up the cultural, industrial and scientific traits of the United States, which the Chinese General deems to be at the end of its civilization cycle.

According to Chinese analysts, the United States is a “country that has gone directly from dawn to decadence”, just to put it in the words of a French ambassador.

Hence China needs to solve the Taiwan issue autonomously, as well as also harshly oppose the actions against Huawei, by reacting blow-for-blow with the U.S. companies in China, such as IBM, Cisco, etc., and stopping their activities in China, where necessary. Anything but hybrid warfare.

 Here we are at a commercial and quasi-conventional war between two powers, i.e. an old Western power,on the one side, and an Asian power on the other which, however, does not want at all to be relegated and closed in the Pacific, as implied and assumed by the new US military projects for closing the Ocean, from California to Japan, or for trying to block the expansion of the Silk Road or still trying to block the expansion line to the South and East of China, as President Xi Jinping has recently advocated.

Certainly China is currently not lagging behind on the cyberwar issue. Nevertheless it does not want to use it as a substitute for conventional war or psywar for dual-use technologies, nor to play the game of the total defeat of a hypothetical “enemy”.

China can now avail itself of the Third Department of the People’s Army, the network dedicated to cyberwar within the PLA, but also of the Strategic Support Force.

 This will be the new “Cold War 2.0”, i.e. a series of IT, economic and industrial guerrilla warfare actions, and of actions of defamation – specifically at military level – of confidential information to be stolen from the enemy in a tenth of a second, as well as of cultural manipulation and-eventually, but only in the end-of fake news.

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Reconciling Public Safety and National Security Via A Renewed Focus on Biosecurity

M Waqas Jan

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As the broad ranging consequences of the COVID-19 pandemic wreak havoc across the global political economy, there have also simultaneously come up several issues pertaining to policy and governance particularly related to International Security. These include for instance the growing emphasis now being laid on biosecurity which under the current context of an unprecedented global pandemic has greatly exposed the failings and lack of preparedness of even some of the world’s most developed countries.

One has to merely glance at the fast-rising death tolls in the US, UK, Italy and Spain to gauge how some of the world’s foremost economies and health services have been left devastated owing to a severe lack of preparedness. Countries which boast some of the world’s most robust military industrial and technological complexes, have been unable to otherwise safeguard not only the health and safety of their own populations, but also to preserve what can be only described as their entire way of life. Something for which they have been more than ready to go to war in the past.

Its hence no surprise that the US for instance, in its incessant need to scapegoat (or to just simply bomb) and divert mounting public outrage has been consistently directing blame towards China. This has ranged from alleging China to have deliberately engineered the virus, to holding the Chinese government accountable for having initially covered up the severity of the outbreak in a bid to safeguard its own economic and diplomatic standing. While it is unlikely that the US would go to war with China solely over this, the dramatic deterioration in relations that has been witnessed in the kind of rhetoric and proposals that have been coming out from both countries stands as cause for grave concern for the world at large.

Yet, what’s lost amidst this blame game that has dominated headlines for over a month, has been perhaps the more important and timely discussion that had arisen on the importance of incorporating more robust bio-security measures. This is understandable considering how the term biosecurity has itself over the last two decades come to be associated more in relation to enacting safeguards against bio-terrorism and bio-chemical weapons. Aspects that were directly based for instance on the anthrax and smallpox scares that had dominated US policy discourse shortly after the September 11 attacks. Or for instance from the more recent threats issued by ISIS regarding the use of such weapons against Western targets. The above linked report from the Hudson institute for instance evaluates the US’s need to enact such biodefense (or biosecurity) measures within exactly such contexts.

However, it is this very context related to terrorism and homeland/national security which in dominating US policymaking circles is more attuned towards focusing on the perpetrators of such threats; be they state or non-state actors. Consequently, the whole aim of the US – and also arguably its closest allies -has been to justify its more interventionist and hands-on approach to mitigating such threats before they reach US shores. Hence, the emphasis being more on preventing such biological ‘attacks’ from occurring in the first place as opposed to dealing with them once they’ve ‘hit’.

While justifiable in its own right, what this approach however misses in its overarching focus on national security, is perhaps the more pressing need to address public health and safety domestically. Which in essence is what national security is premised on defending in the first place – an effective Civil Defense of sorts.

For instance, a widely cited comparison of the ‘Western’ response to the Coronavirus with that of certain East Asian countries such as Taiwan, Singapore, South Korea and Japan shows how these latter countries’ more recent experiences in dealing with the SARS and MERS outbreaks had contributed immensely to their relatively better responses to this pandemic. By already having in place certain contingency and policy directives grounded more in a domestic public health and safety perspective – as opposed to an outward looking national security one –each of these states was able to mount a more coordinated, timely and socially aware response to this crisis. Most importantly their responses had public support and sympathy directly built in to their policies which saw the overall public perception of their governments’ measures as wholly necessary and compulsory; as opposed to being forced and reactionary. This latter aspect for instance is manifest in how several countries have witnessed severe public and political backlash towards the social distancing and lockdown policies that were enacted the world over. This includes backlash witnessed in countries ranging from the US to Pakistan, where the economic costs of such policies – which once again are tied directly to externally inspired national security concerns – were given unassailing primacy over domestic public health and safety.

Talking specifically of Pakistan and its long history of being portrayed as a security state, such threats to national security from a potential biochem attack, are already prioritized along the lines of a potential WMD attack considering the primacy such threats hold for a Nuclear Weapon State. However, even within such military dominated approaches to bio-security, there is a still a public safety and awareness component from a Civil Defense perspective, that even in the case of any WMD attack remains already lacking.Thus, belying the prioritization afforded to deterring external threats, rather than on eliminating such shortcomings within, just like the US.

The current global pandemic has provided a rare chance to have this conversation regarding the very premises and priority this concept of Bio-security has been accorded within government policy circles.It has afforded a previously unfound impetus and political capital to enact and fund such measures. Instead of being squandered however, such impetus should be used to mitigate such lapses that have now been brought to the forefront of governance and policy discourse the world over. Unless these realities are adapted to, life is likely to become even harder in a world that has changed dramatically in just the last few months.

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Explainer: The fight against money laundering and terrorist financing

MD Staff

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The European Commission put forward a series of measures designed to further strengthen the EU’s framework to fight against money laundering and terrorist financing:

  • An Action Plan for a Comprehensive EU policy on Preventing Money Laundering and Terrorist Financing
  • A refined and more transparent methodology to identify high-risk third countries
  • An updated list of high-risk third countries

To ensure inclusive discussions on the development of these policies, the Commission launched a public consultation today on the Action Plan. Authorities, stakeholders and citizens will have until 29 July to provide their feedback.

Action Plan for a Comprehensive EU policy on Preventing Money Laundering and Terrorist Financing

Why is the Commission adopting this Action Plan now?

While current EU rules are far-reaching, and even go beyond international standards, they are not applied in a fully coherent manner across the EU. This leads to fragmentation between Member States. The challenge lies not only with specific pieces of legislation but with how these rules are implemented effectively across the EU. There is a clear need to tackle this lack of coherence and ensure a more harmonised implementation of the rules across the EU.The recent increase in criminal activities in the context of the Coronavirus pandemic is a reminder that criminals will exploit all possible avenues to pursue their illicit activities to the detriment of society. The EU needs to be equally determined in ensuring that they do not benefit from the proceeds of these crimes.

In July 2019, the Commission adopted an Anti-Money Laundering Communication, which highlighted a number of measures that could be taken to remedy the weaknesses in the EU’s current anti-money laundering rules.

Following this, the European Parliament and the Council invited the Commission to investigate what steps could be taken to achieve a more harmonised set of rules across the EU, including better supervision at an EU level and improved coordination among Member States’ Financial Intelligence Units (FIUs).

Today’s Action Plan is the Commission’s reply to these calls and is a first step towards a new, comprehensive framework to fight money laundering and terrorist financing in the EU.

How is the EU going to stop money laundering and terrorist financing?

Money laundering is a difficult crime to detect. Its consequences can have a severe impact on the EU’s economy and on its financial system. Therefore, the EU needs to have a multi-faceted approach to properly tackle money laundering and terrorist financing. Action is needed on several levels.

This is why the Commission has today put forward a series of measures aimed at closing any loopholes or weak links in the EU’s anti-money laundering rules.

Today’s Action Plan is built on six pillars, each of which is aimed at improving the EU’s overall fight against money laundering and terrorist financing, as well as strengthening the EU’s global role in this area. When combined, these six pillars will ensure that EU rules are more harmonised and therefore more effective. The rules will be better supervised and there will be better coordination between Member States’ authorities.

The six pillars are as follows:

Effective application of EU rules: the Commission will continue to monitor closely the implementation of EU rules by Member States to ensure that the national rules are in line with the highest possible standards. In parallel, today’s Action Plan encourages the European Banking Authority (EBA) to make full use of its new powers to tackle money laundering and terrorist financing.

A single EU rulebook: while current EU rules are far-reaching and effective, Member States tend to apply them in a wide variety of different manners. Diverging interpretations of the rules therefore lead to loopholes in our system, which can be exploited by criminals. To combat this, the Commission will propose a more harmonised set of rules in the first quarter of 2021.

EU-level supervision: currently it is up to each Member State to individually supervise EU rules in this area and as a result, gaps can develop in how the rules are supervised. In the first quarter of 2021, the Commission will propose to set up an EU-level supervisor.

A coordination and support mechanism for Member States’ Financial Intelligence Units:Financial Intelligence Units in Member States play a critical role in identifying transactions and activities that could be linked to criminal activities. In the first quarter of 2021, the Commission will propose to establish an EU mechanism to help further coordinate and support the work of these units.

Enforcing EU-level criminal law provisions and information exchange: Judicial and police cooperation, on the basis of EU instruments and institutional arrangements, is essential to ensure the proper exchange of information.The private sector can also play a role in fighting money laundering and terrorist financing. The Commission will issue guidance on the role of public-private partnerships to clarify and enhance data sharing.

The EU’s global role: the EU is actively involved within the Financial Action Task Force (FATF) and on the world stage in shaping international standards in the fight against money laundering and terrorist financing. We are determined to step up our efforts so that we act as a single global actor in this area. In particular, the EU will adjust its approach to third countries with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes that pose significant threats to our Single Market. The new methodology issued alongside this Action Plan today provides the EU with the necessary tools to do so. Pending the entry into force of this revised methodology, today’s updated EU list ensures better alignment with the latest FATF (Financial Action Task Force) list.

What about the effective implementation of current EU rules?

The Commission closely monitors the implementation of all EU rules in its Member States. For example, infringement proceedings were opened in February 2020 against all those Member States that failed to notify transposition of the 5th Anti-Money Laundering Directive.

In parallel, we continue to verify that Member States have fully and correctly transposed the 4th Anti-Money Laundering Directive. The Commission has also started checking how Member States are implementing this Directive in practice. This is done in the context of the European Semester cycle. The Commission has also contracted a study by the Council of Europe, which has extensive experience in such checks. This study will feed into the report on effectiveness that the Commission is required to submit by 2022 under the Anti-Money Laundering Directive.

The Commission expects the European Banking Authority (EBA) to use its new powers to improve the effectiveness of supervisory action in the financial sector by conducting on-site examinations to assess AML framework across the EU.

Will this Action Plan lead to a new Regulation? What rules will be harmonised in the future?

This will be subject to a thorough analysis to ensure that we reach as high a level of harmonisation as possible. Current EU rules do function but Member States tend to apply them in a wide variety of different manners. Diverging interpretations of EU law therefore lead to loopholes in our system, which can be exploited by criminals. To combat this, the Commission will propose a more harmonised set of rules in the first quarter of 2021.

A number of areas where divergence should be minimised were highlighted, namely the list of obliged entities, customer due diligence requirements, internal controls, and reporting obligations.

Is current supervision sufficient or should an Agency at EU level be created?

Following recent EU reforms, the European Banking Authority (EBA) has been empowered to act quickly and decisively in the fight against money laundering and terrorist financing. It is now equipped with concrete tools to ensure the exchange of information between anti-money laundering and financial supervisors.

The latest amendments of the Anti-Money Laundering Directive also give national authorities more powers to act where banks, or financial and non-financial entities, breach their anti-money laundering obligations. These amendments also improve the exchange of information between authorities.

Nevertheless, as outlined in a Commission Report on the assessment of recent alleged money laundering cases, some structural weaknesses in the EU’s anti-money laundering framework persist, even after all the new measures have been fully implemented.

These weaknesses may endanger the security and reputation of the EU’s financial system. Therefore, it is essential that the EU’s anti-money laundering rules can also be supervised at an EU level.

The role and scope of this EU-level supervision – as well as the supervisory body that should be tasked with carrying out this role – will be proposed following a thorough assessment of all options, also based on the feedback we will receive in the open public consultation launched today.

The EU-level supervisor will be established as part of a comprehensive new policy to fight money laundering and terrorist financing. The Commission has set the political objective to achieve this within this mandate, and we count on the support of the European Parliament and the Council to ensure that the legislative work will progress as swiftly as possible.

Will all operators be supervised by this EU-level supervisor?

This matter will be thoroughly analysed. As the Action Plan notes, there are several options regarding the scope of EU-level supervision, ranging from a narrow to a broad scope. Each of these options has pros and cons, and the Commission’s proposal will be based on a careful assessment of all options, also based on the feedback we will receive in the open public consultation launched today, ensuring that the future supervisory framework is of the highest quality and leaves no weak links nor loopholes in the system.

What about the national Financial Intelligence Units (FIU)?

Financial Intelligence Units(FIUs)in Member States play an important role in identifying transactions and activities that could be linked to criminal activities. However, several technical difficulties in the functioning of the secure communication channels (FIU.net) have created difficulties.

Several Financial Intelligence Units fail to comply with their obligation to exchange information with other Financial Intelligence Units. In addition, some Financial Intelligence Units have not managed to engage in a meaningful dialogue by giving quality feedback to private entities, as required by the Anti-Money laundering Directive. The Action Plan sets the ground for the creation of an EU support and coordination mechanism for these Units.

The aim of this mechanism is to remedy the weaknesses that were identified in how Financial Intelligence Units work. This support and coordination mechanism would support cross-border cooperation and analysis. It would also streamline how information is exchanged between Member States’ FIUs and the FIUs of third countries. Finally, this support mechanism will operate as the host and as a secure communication channel for the FIU.net.

The private sector can play a critical role in fighting money laundering and terrorist financing. What will the Commission do to support its involvement?

Private operators are the gatekeepers of our financial system and our economy. They are the first ones to detect whether a transaction or activity might be suspicious. With their day-to-day experience, they can certainly contribute to fighting money launderers and those who fund terrorist activities.

The Commission fully recognises the benefits of the public and the private sector working together in this area. At the same time, it is important that these partnerships develop in a sound manner. To this end, the Commission will issue guidance, including sharing of good practices, and will consider whether to request the opinion of the European Data Protection Board in this work.

Will the list of private operators subject to anti-money laundering/terrorist financing requirements be expanded?

We will analyse whether the current scope of operators subject to these rules is adequate. Recent reviews of international standards suggest that, as a minimum, virtual asset service providers should be requested to comply withthe relevant rules.

This is also an area where we can learn from Member States’ experiences. Some countries have expanded the list of professionals subject to these rules to include, for example, crowdfunding platforms. All these examples should be analysed, also based on the feedback we will receive in the open public consultation launched today, to arrive at a harmonised list of obliged entities.

New methodology for identifying high-risk third countries

Why do you need a new methodology to identify high-risk third countries?

Identifying and tackling money-laundering activities is a moving target. Criminal techniques develop fast and take into account the latest technological developments. The new methodology aims at tackling these issues and updating our capacity to successfully identify high-risk third countries with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes that pose significant threats to our Single Market.

In addition, under the Anti-Money Laundering Directive (AMLD), the Commission has a legal obligation to identify high-risk third countries with strategic deficiencies in their legal systems regarding money laundering and terrorist financing. This is to ensure that enhanced due diligence measures are applied, for example, by relevant EU businesses when carrying out financial transactions involving those third countries.

The 5th AMLD, adopted in July 2018, further strengthened the criteria for the identification of high-risk third countries, going beyond the criteria of the Financial Action Task Force (FATF), in particular as regards beneficial ownership information.

The Council objected to the list presented by the Commission on 13 February 2019. The Commission has worked within that legal framework to address concerns expressed by the Council as regards the transparency of the process and the need to incentivise third countries and respect their right to be heard.

The key new elements of today’s refined methodology for identifying high-risk third countries concern: (i) the interaction between the EU and FATF listing process; (ii) an enhanced engagement with third countries subject to the autonomous assessment; and (iii) reinforced consultation of Member States experts. The European Parliament and the Council will have access to all relevant information at the different stages of the procedures, subject to appropriate handling requirements.

What are the criteria used for listing a third country at EU level?

The 4th Anti-Money Laundering Directive (AMLD) sets out the technical criteria for identifying high-risk third countries. These requirements have been revised by the 5th Anti Money Laundering Directive in order to provide even more robust criteria.

Under the AMLD, the Commission takes into account strategic deficiencies of those countries, in particular in relation to the legal and institutional AML/CFT (anti-money laundering / countering the financing of terrorism) framework such as:

o   criminalisation of money laundering and terrorist financing,

o   customer due diligence and record keeping requirements,

o   reporting of suspicious transactions,

o   the availability and exchange of information on beneficial ownership of legal persons and legal arrangements;

o   the powers and procedures of competent authorities;

o   their practice in international cooperation;

o   the existence of dissuasive, proportionate and effective sanctions.

As a general requirement, the effectiveness in applying those AML/CFT safeguards will be considered. When carrying out its assessment, the Commission considers relevant evaluations, assessments or reports drawn up by relevant international organisations and standard setters – in particular those issued by FATF – as well as other information sources.

Once the new methodology is in place, who will be consulted?

Member State experts will be consulted at every stage of the process regarding the assessments of third country regimes, the definition of mitigating measures, third countries’ implementation of “EU Benchmarks” and the preparation of the Delegated Regulation. This consultation will include specific Member State competent authorities (law enforcement, intelligence services, Financial Intelligence Units). The European Parliament will be fully involved in those consultations.

The Commission is committed to ensuring appropriate reporting to the European Parliament. Both the European Parliament and the Council will have access to all relevant information at the different stages of the procedures, subject to appropriate handling requirements.

How often will the list be updated?

The EU list will be updated one month following the publication of an updated FATF list, which the Commission considers as a baseline. In addition, the Commission will identify further third countries based on its own autonomous assessment, after having engaged with those countries as set out in the refined methodology published today. The Commission will immediately identify those countries that refuse to take commitments to address their strategic deficiencies (“non-cooperative jurisdictions”) or those third countries that have an overriding level of risk. Third countries taking commitments to address concerns, as part of the Commission’s autonomous assessment, will benefit from a 12-month observation period. In case they do not implement those commitments within the agreed period, the Commission will proceed with a listing.

How does the FATF lists interact with the EU list?

Third countries listed by the Financial Action Task Force (FATF) will in principle also be listed by the EU. For countries de-listed by FATF, the Commission will assess whether the reasoning for de-listing is also sufficiently comprehensive from the EU’s point of view.

With regard to EU Accession countries, the Commission may develop other mitigating measures in the context of the accession negotiations that address the identified strategic deficiencies. Accession countries could take commitments that go beyond the FATF action plans. This will be closely monitored by the Commission. This option does not apply to third countries that are not in the process of acceding to the EU.

In specific circumstances – for example, if a third country has strategic deficiencies in its anti-money laundering and countering terrorist financing regime that pose a significant threat to the EU or if certain requirements related to beneficial ownership transparency are in question – certain EU requirements can “top up” the existing FATF Action Plan.

If a third country presents a risk and is not yet subject to the FATF procedure, the Commission or Member States should flag this in FATF before considering adding this country to the EU’s autonomous list.

What is the link between the AML listing process and the EU’s list of non-cooperative tax jurisdictions?

The EU list of non-cooperative tax jurisdictions and the EU’s AML lists may overlap on some of the countries they feature, but they have different objectives, criteria, compilation processes and consequences. The EU’s tax list is a Council-led process, whereas the EU’s anti-money laundering (AML) list is established by the Commission based on EU anti-money laundering rules. The high-risk third country (AML) list aims to address risks to the EU’s financial system caused by third countries with deficiencies in their anti-money laundering and counter-terrorist financing regimes. On the basis of this list, banks must apply higher due diligence controls to financial flows involving those high risk third countries. The anti-money laundering list is compiled by the Commission. On the other hand, the common EU list of non-cooperative tax jurisdictions addresses the external risks to Member States’ tax bases, posed by third countries that do not comply with international tax good governance standards. It is managed directly by the Member States, through the Code of Conduct Group, with the support of the Commission. The Code of Conduct Group decides which jurisdictions should be listed and makes a recommendation to EU Finance Ministers, who take the final decision. Nonetheless, the two lists complement each other in ensuring a double protection for the Single Market from external risks.

Why does the Commission not propose a “grey list” of countries being assessed?

Unlike the EU’s list of non-cooperative tax jurisdictions, the Anti-Money Laundering Directive only provides for one single list of “high risk third countries” based on identification of strategic deficiencies in the anti-money laundering and counter terrorist financing regime in a given country. It does not provide for a “black list” or “grey list.” As a result, the Commission considers that such a “grey list” cannot be issued, as no firm conclusion would be reached on the existence of strategic deficiencies. The Commission will, however, ensure full transparency with the European Parliament and Council throughout the process of engaging, in cooperation with the European External Action Service, with third countries, so that the co-legislators can monitor progress in the implementation of this new methodology, including in the drafting of EU benchmarks and assessing their implementation within the given timeframe.

New EU list of high-risk third countries

Why is the Commission presenting a new list of high-risk third countries?

Criminals and terrorists are not sitting back during the Coronavirus pandemic. Europol has provided a recent assessment of new threats posed by criminal groups trying to take advantage of the pandemic.

The EU is committed to protecting the integrity of its financial system and preventing financial flows involving countries with strategic deficiencies in their anti-money laundering and countering terrorist financing regimes. In line with the risk-based approach, banks and other obliged entities must apply enhanced due diligence in case of financial flows to/from high-risk third countries identified in the EU list.

As defined under the 4th and 5th Anti-Money Laundering Directives, the EU has to establish a list of high-risk third countries, to make sure that the EU’s financial system is equipped to prevent money laundering and terrorist financing.

The Commission issued the first such list in 2016, and updated it subsequently over the past years. Since the adoption of the 5th Anti-Money Laundering Directive, the criteria by which a third country is assessed have been extended substantially, thereby requiring the Commission to carry out an autonomous assessment. This required an adaptation of the listing process based on a refined methodology. This also follows calls from the European Parliament to have an autonomous list. Today, the Commission has amended the list of high-risk third countries, via a Delegated Act, in order for it to be better aligned with the lists published by FATF. This update is necessary since the EU list has not reflected the latest FATF lists adopted since October 2018. Further updates will take place once the Commission has engaged with third countries subject to the EU’s autonomous assessments, according to the refined methodology published today.Given the Coronavirus crisis, the date of application of today’s Regulation listing third countries – and therefore applying new protective measures – only applies as of 1 October 2020. This is to ensure that all stakeholders have time to prepare appropriately. The delisting of countries, however, is not affected by this and will enter into force 20 days after publication in the Official Journal.

What countries have been added to the EU list?

The Commission took into account the latest lists issued by FATF. As a consequence, the Commission has listed 12 new countries on the EU list. Based on the FATF “Compliance documents”, the Commission considers that The Bahamas, Barbados, Botswana, Cambodia, Ghana, Jamaica, Mauritius, Mongolia, Myanmar, Nicaragua, Panama and Zimbabwe meet the criteria set out in article 9(2) of Directive (EU) 2015/849. Those countries have expressed a high-level political commitment to implement an action plan agreed with FATF to address their strategic deficiencies. We welcome those commitments and invite those jurisdictions to implement them swiftly.Given the Coronavirus crisis, the date of application of today’s Regulation listing third countries – and therefore applying new protective measures – only applies as of 1 October 2020.

What countries have been removed from the EU list?

Following progress made, the Commission has removed 6 countries from the EU list. The Commission’s review concluded that Bosnia-Herzegovina, Guyana, Lao People’s Democratic Republic, Ethiopia, Sri Lanka and Tunisia addressed their strategic deficiencies and should therefore be delisted.This decision will enter into force 20 days after publication in the Official Journal.

What is the situation of other countries recently delisted by FATF?

For those countries delisted by FATF since the adoption of Delegated Regulation (EU) 2016/1675, the assessment by the Commission is still ongoing (i.e., Afghanistan, Iraq, Trinidad and Tobago and Vanuatu).

Regarding Iraq and Afghanistan, the available information and the security situation in the countries did not allow the Commission to conclude, at this stage, whether they effectively addressed their strategic deficiencies. This is due in particular to the fact that those countries were delisted by FATF based on a former procedure that did not assess the effective application of AML/CFT measures. Effective application of AML/CFT measures is a criteria explicitly included in the requirements set out in the AML Directive.

Regarding Vanuatu and Trinidad and Tobago, the available information did not allow the Commission to conclude, at this stage, whether they addressed their strategic deficiencies, notably as regards the transparency of beneficial ownership, which is a specific requirement set in the AML Directive.

The Commission will review the anti-money laundering regime of those countries as a matter of priority and will engage with them as appropriate, based on the refined methodology.

What is the situation of Albania with regard to its AML/CFT regime?

The assessment of high-risk third countries is applicable to enlargement countries – which can be listed in case strategic deficiencies are identified. As set out in the methodology, the Commission can also address these issues in the framework of the accession process where the Candidate Countries are requested to fulfil a set of stringent criteria. Therefore, alternative mitigating measures can be put in place in such instances within the framework of other EU policies, as part of the enlargement policy.

In February 2020, Albania made a high-level political commitment to work with FATF and the Council of Europe to strengthen the effectiveness of its AML/CFT regime. Similarly, the Commission developed additional mitigating measures that were put in place to address key concerns. Albania expressed a high-level political commitment towards the Commission to implement further mitigating measures, notably further aligning with the EU Anti-Money Laundering Directive and putting in place registers of beneficial ownership. These commitments go beyond the action plan agreed with FATF. Therefore those mitigating measures are considered as appropriate to address risks posed to the EU financial system at this stage. This option does not apply to third countries that are not in the process of acceding to the EU.

What are the consequences of the listing for financial institutions?

Under to the 4th Anti-Money Laundering Directive, banks and other financial institutions (“obliged entities”) have to apply extra checks (“enhanced customer due diligence requirements”) for transactions involving high-risk third countries identified on the list.

Customer due diligence corresponds to a series of checks and measures that a bank or an obliged entity has to use in case they have suspicions of high risk of money laundering or terrorist financing. Enhanced due diligence measures include extra checks and monitoring of those transactions by banks and obliged entities in order to prevent, detect and disrupt suspicious transactions.

The Fifth Anti-Money Laundering Directive clarifies the type of enhanced vigilance to be applied, which includes obtaining additional information on the customer and on the beneficial owner or obtaining the approval of senior management for establishing a business relationship.

The listing does not entail any type of sanctions, restrictions on trade relations or impediment to development aid but requires banks and obliged entities to apply enhanced vigilance measures on transactions involving these countries.

What are the consequences of the listing for the financial system?

According to the 4th AMLD, banks and other obliged entities are required to apply enhanced vigilance in transactions involving high-risk third countries (so called “enhanced customer due diligence requirements”). This is also in line with international obligations, where FATF already calls on its members to apply enhanced due diligence to high-risk jurisdictions. Those enhanced measures will lead to extra checks and monitoring of those transactions by banks and obliged entities in order to prevent, detect and disrupt suspicious transactions.

These measures do not entail any type of sanctions, restrictions trade relations or impediment to development aid but it aims to apply enhanced vigilance measures in those cases. In order to further clarify the type of enhanced vigilance to be applied, the 5th AMLD, adopted in June 2018, harmonises those enhanced measures.

What is the impact of the EU anti-money laundering list on EU-funded financial operations?

The listing process does not affect EU humanitarian assistance, EU development policy or the provision of grants, procurement and budget support.

The use of EU funded financial instruments and budgetary guarantees is subject to stricter provisions in relation to anti-money laundering and countering terrorist financing. According to the EU’s Financial Regulation and the European Fund for Sustainable Development Regulation, there is a prohibition against “Implementing Partners” (such as International Financial Institutions or National Promotional and Development Banks) entering into new or renewed operations with entities established in countries on the EU’s list of high risk third countries, when carrying out financial operations supported by the EU budget.

There is however an exemption when the action is physically implemented in the third country in question (subject to the absence of other risk factors). That means that when an action is physically implemented in a listed jurisdiction (i.e. when the financial operation supported by the Union budget is implemented in a listed jurisdiction exclusively for the purpose of financing a project in that same jurisdiction), the Implementing Partner can still carry out financial operations with entities established in that jurisdiction with the support of the EU. Therefore, there should be no adverse effect with regard to actions physically implemented in listed jurisdictions.

Why will the new protective measures only apply as of 1 October 2020?

The very exceptional and unpredictable situation arising from the Coronavirus pandemic has a global impact and is leading to significant disruption for economies and national administrations around the world. Therefore, the date of application of today’s Regulation listing third countries – and therefore applying new protective measures – only applies as of 1 October 2020. This is to ensure that all stakeholders have time to prepare appropriately. The delisting of countries, however, is not affected by this and will enter into force 20 days after publication in the Official Journal.

Will there be any technical assistance available for the countries identified as high-risk third countries?

The EU is committed to providing technical assistance to the countries identified as high-risk third countries. The Commission is one of the world’s leading donors when it comes to providing targeted support to tackle anti-money laundering / countering terrorist financing. The Commission currently has a programme (€20 million) under the Global Facility (AML/CFT) to support countries in the world to monitor, disrupt and deny the financing of terrorism and money-laundering. The Commission aims at supporting more partners to address AML/CFT issues. This process is demand-driven – i.e. countries will have to define their needs and request technical assistance to improve their AML/CFT regimes in the framework of the external aid policy of the Commission.

What are the next steps?

The Delegated Regulation has now been transmitted to the European Parliament and to the Council for a 1-month scrutiny period (extendable by 1 more month). If there is no objection during this period, the Delegated Regulation will be published in the Official Journal in view of its entry into force. The Commission will re-initiate its reviews under the autonomous assessment and come up with, at an appropriate time, a new autonomous list. These assessments will be subject to consultation of Member States’ experts and appropriate engagement with third countries, in cooperation with the European External Action Service (EEAS), as set in the refined methodology. The European Parliament and the Council will have access to all relevant information at the different stages of the procedures, subject to appropriate handling requirements. The Commission will continue to engage in FATF in order to ensure increased synergies between the EU and the FATF listing process.

Finally, as part of the planned review of AML/CFT rules at EU level, the Commission will conduct an impact assessment and propose legislative proposals in early 2021. Input from today’s open public consultation will feed into this impact assessment. The legislative proposals should ensure that risks posed by third countries are appropriately addressed.

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