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No 14 (October 98/Octobre 98/Oktober 98)
The EU Directive on combating money laundering is to be made yet more effective by a forthcoming proposal to extend its scope. The proposal will extend the Directive's obligations to activities and professions outside the financial services sector, such as auditors, legal professions, real estate agents and casinos. It will also extend the definition of suspicious transactions to cover the proceeds of other serious crimes besides drug trafficking. Such an extension of the Directive will bring EU rules into line with the latest international recommendations, in accordance with the Amsterdam European Council's Action Plan to combat organised crime and requests from the European Parliament.
The announcement is featured in a Commission Report on implementation of the 1991 Directive. The Report concludes that the existing Directive is working well in all Member States and has been successful in terms of denying access for 'dirty money' to the EU's financial system, as witnessed by the growing number of suspicious transactions reported. Money laundering is now a specific criminal offence throughout the Union, whereas this was the case in only one Member State when the Commission proposed the Directive in March 1990.
I. Extension of the EU Directive
The money laundering Directive (91/308/EEC) has provided the basis for Member States' efforts to prevent criminal money entering the financial system, which is a crucial part of the campaign against drugs trafficking and organised crime in general. Indeed, the Directive serves as a reference at the world level for other countries' measures to counter money laundering. The cornerstone of the Directive is the obligation on credit and financial institutions (including 'bureaux de change') to require identification of all their customers when beginning a business relationship (particularly the opening of an account or offering safe-deposit facilities), when a single transaction or linked transactions exceed ECU 15,000 or when they suspect laundering.
All Member States except Austria have implemented the Directive in full. The Commission decided in October 1997 to refer Austria to the Court of Justice regarding anonymous savings accounts (see SMN N°10). Many Member States have gone beyond the strict requirements of the Directive in a number of areas (e.g. lower thresholds and coverage of non-financial professions).
The Report concludes that the Directive is working well, but now needs to be updated and extended in line with recent international developments in the anti-money laundering effort. Work has therefore started on a proposal for a second money laundering Directive.
In consultation with the Member States, the Commission is considering amendments to the Directive in the following areas:
II. Situation in the Member States
In accordance with the request of the European Parliament, the European Commission's latest report on the application of the EU Directive on the prevention of money laundering (91/308/EEC) features detailed information concerning Member States efforts to combat money laundering, including measures above and beyond what is required under the terms of the Directive.
1. Criminal activities covered by Member States' legislation
The current Directive requires Member States to implement measures to counter the laundering of the proceeds of drug trafficking, but because the Directive is based on the EU Treaty, it cannot oblige Member States to amend their criminal legislation. In practice, however, all Member States have made laundering of the proceeds of drug trafficking a criminal offence and most have extended the definition of money laundering to cover laundering the proceeds of many other serious crimes.
The specific anti-money laundering legislation (Law of 11-1-1993, as amended) covers the laundering of proceeds linked to crimes involving: terrorism, organised criminality, drugs trafficking, illicit trafficking in arms and other goods, trafficking in clandestine labour, trafficking in human beings, prostitution, illegal use of hormones in animals, trafficking in human organs or tissues, fraud prejudicing the financial interests of the EU, serious and organised tax fraud, corruption of public officials, investment irregularities, swindling, hostage-taking, theft or extortion with violence and threats and fraudulent bankruptcy.
The Spanish Money Laundering Law (of 23-12-1993) has as its objective to combat the laundering of the proceeds of organised crime, terrorism and drugs trafficking.
However, a draft law currently before the Luxembourg Parliament would extend the range of predicate offences to any crime (carrying a penalty of more than 5 years imprisonment), to offences ("délits") involving organised crime and to certain offences involving minors, prostitution, corruption of young people and arms and munitions.
2. Non-financial sector activities covered by the Member States' legislation
The current Directive applies to credit and financial institutions, but many Member States already apply their anti-money laundering legislation to professions and activities beyond the financial sector, or have draft legislation pending that would do so.
Belgium: A draft law would extend coverage to notaries, bailiffs (huissiers de justice), accountants and auditors, estate agents, casinos and security firms that transport money.
Germany: Casinos, auctioneers, other businesses not already subject to the obligation to cooperate under the money laundering law and any person who administers another person's assets against payment.
Spain: Casinos, real-estate management companies, estate agents, jewellers, antique dealers, companies trading in coins and stamps.
France: All persons who professionally advise upon, execute or control operations involving capital movements are obliged to notify the authorities of any transactions which they know to be related to money laundering. Certain limits are also placed on cash transactions (such as car purchases).
Ireland: Government has announced its intention to cover solicitors, auctioneers, estate agents and accountants.
Italy: Transactions over LIT 20 million must be carried out through a financial intermediary. New legislation adopted in 1997 provides for an accelerated procedure whereby non-financial activities can be brought under the anti-money laundering legislation.
Luxembourg: A draft law would extend coverage to casinos, games of chance, auditors and notaries.
Netherlands: Casinos. Notaries have announced a voluntary scheme to report very suspicious transactions indicating serious cases of money laundering. Lawyers and accountants already have a similar voluntary arrangement.
Portugal: Casinos, real estate agents (brokers and dealers), real estate management companies, companies organising gambling or lotteries, antique/art dealers, jewellers, aircraft, boat and car dealers.
Finland: Draft legislation would cover casinos, betting offices and real estate agents.
Sweden: Companies administering trusts.
UK: The principal legislation covers all persons. The money laundering regulations cover all persons and institutions, including lawyers and accountants, when undertaking banking, investment or insurance-related business.
3. Cooperation between Financial Intelligence Units
The Directive implies that Member States must designate an authority or authorities to receive reports of suspicious transactions. These bodies are sometimes referred to as Financial Intelligence Units or FIUs. However, in different Member States FIUs take different forms, some are administrative/intermediary bodies while others are police or judicial authorities or a mixture.
As a result of the different legal nature of the FIUs, problems of cooperation and exchange of information can arise. Some of these problems can be overcome by bilateral cooperation agreements but certain Member States are prevented from concluding such agreements because their law provides that police services can only cooperate with other police services using existing channels.
Such obstacles to the free flow of information can hinder efforts to combat money laundering, and are due to be considered by the Commission in the context of revising the current Directive.
4. Number of suspicious transaction reports
The Report points out that the Directive has an important preventive role, by making it more difficult for 'dirty money' to enter the EU's financial system. That said, where suspicious transactions are reported, there needs to be an appropriate response from the criminal law system. For the moment, the Report notes that although the numbers of prosecutions and convictions are increasing, the results appear to be limited, partly because of the difficulties identified above concerning cooperation between Financial Intelligence Units.
5. International police and judicial cooperation
The Report points out that to be effective, the EU's defences against money laundering must be complemented by efforts at the international level, in view of the global nature of the money laundering problem. All Member States are members of the Financial Action Task Force, the leading world anti-money laundering body, which groups 26 countries plus the European Commission and the Gulf Cooperation Council.
The FATF established 40 Recommendations to counter money laundering in 1990, which were updated in 1996. These Recommendations cover measures in the fields of criminal justice and law enforcement, the financial system and its regulation and international cooperation which the FATF members have agreed to implement and which all countries are encouraged to adopt.
The Report notes all Member States have now ratified and implemented the United Nations Convention against illicit traffic in narcotic drugs and psychotropic substances (Vienna Convention). As for the complementary Council of Europe Convention on laundering, search, seizure and confiscation of the proceeds of crime (Strasbourg Convention), all Member States have signed it and all except Greece, Spain and Luxembourg have ratified and implemented it. Under the terms of the June 1997 Amsterdam European Council's Action Plan to combat organised crime, all Member States are due to ratify and apply the Strasbourg Convention before the end of 1998.
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