# EUR-Lex - 52012DC0168 - EN

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# 52012DC0168

**REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL on the application of Directive 2005/60/EC on the prevention of the use of the financial
system for the purpose of money laundering and terrorist financing /* */**
			 **

REPORT FROM THE COMMISSION TO THE
EUROPEAN PARLIAMENT AND THE COUNCIL
on the application of Directive 2005/60/EC
on the prevention of the use of the financial system for the purpose of money
laundering and terrorist financing
(Text with EEA relevance)
1.           Introduction
Directive 2005/60/EC (hereinafter referred
to as the Third AMLD) sets out the framework designed to protect the soundness,
integrity and stability of credit and financial institutions (FIs) and
confidence in the financial system as a whole, against the risks of money
laundering (ML) and terrorist financing (TF). The EU rules are to a large
extent based on international standards adopted by the Financial Action Task
Force (FATF) and, as the Directive follows a minimum harmonisation approach, the
framework is completed by rules adopted at national level[1].
The FATF has undertaken a fundamental
review of the international standards, which culminated in the adoption of a
new set of recommendations in February 2012[2].
In parallel to the international process, the European Commission has been
undertaking its own review of the European framework. This review has comprised
an external study published by the Commission on the application of the Third
AMLD (hereafter the Deloitte study)[3],
extensive contacts and consultations with private stakeholders and civil
society organisations[4]
, as well as with representatives of EU Member State regulatory and supervisory
authorities.
The Third AMLD tasked the Commission with
presenting an implementation report to the European Parliament and Council,
including specific examination of the treatment of lawyers and other
independent legal professionals (Article 42). Another report was requested on
the threshold percentages with respect to the identification of beneficial
owners (Article 43).
The purpose of this report is threefold:
1.           to
provide feedback from the Commission's review process on how the Directive has
been applied;
2.           to
fulfil the obligations set out in Articles 42 and 43 of the Third AMLD;
3.           to
consider the need for possible changes to the framework in light of both the
Commission's own findings as well as the newly adopted international standards.
Following the adoption of this report, the
Commission invites all interested stakeholders, to provide it with their
feedback. The Commission intends to proceed with preparation of legislative
texts with a view to adoption in autumn 2012.
2.           Application
of the Directive
This report has been structured along a
number of identified key themes, which are central to the Third AMLD’s
objectives. Under each theme, consideration is given to how the existing rules
have been applied, which factors may drive changes (in particular resulting
from the international revision process), and what might be the possible
options for changing the existing EU rules. In addition to the thematic review,
there is a specific analysis devoted to the issues identified in Articles 42
and 43 of the Directive. Finally, the annex to this report addresses a closely
related matter, namely cross-border wire transfers.
2.1.        Applying
a risk-based approach (RBA)
A risk-based
approach enables a more targeted and focussed approach to assessing risks and
applying resources to where they are most needed. The existing EU framework
already contains elements which allow an RBA to be applied both by Member
States, authorities involved in supervision, and by the institutions and
persons responsible for applying AML/CFT rules (hereinafter referred to as "obliged
entities").
The Directive
leaves room for countries to design their own RBA and to decide on the degree
of risk-based measures that may be applied by obliged entities. The Deloitte
study reported that a wide diversity of national measures can complicate
cross-border compliance, and that there is a lack of practical guidance
available.
The new FATF standards broaden the
application of the RBA. At national level, countries are obliged to identify,
assess and understand ML/TF risks, and to apply resources to mitigate those
risks. Countries need to ensure that higher risks are identified and mitigated,
but may permit simplified measures for certain requirements when lower risk has
been identified. The FATF acknowledges that AML/CFT risk assessments at a
supranational level should be taken into account. The FATF also recognises that
supervisors should apply a risk-based approach to supervision, based on their
understanding of the ML/FT risks present in the country and within the entities
they supervise. The FATF requires obliged entities to assess risks for customers,
countries/geographic areas and product/services/transactions/delivery channels.
Consideration could be given to incorporating
the following elements of the risk-based approach in the forthcoming revision
of the Directive:
·
National/supranational risk assessments: introducing obligations for Member States to conduct and update risk
assessments, in line with the new FATF recommendations. A common approach
between Member States might be considered in order to facilitate better
coordination and more consistency, as well as the development of a
supranational approach to risk assessments, where appropriate.
·
RBA to supervision: the use of an RBA to supervision could be given more detailed
recognition in the EU framework, including the need for supervisors to be aware
of the risks faced by the entities they supervise. This might include provision
of sectoral guidance. For example the AMLC[5]
could be commissioned to provide guidance on issues affecting financial sector
supervision.
·
RBA applied by FIs and Designated Non
Financial Businesses and Professions (DNFBPs):
explicitly introducing a requirement that risk-based procedures designed by
obliged entities are appropriate to the size and nature of the entity, and have
to be documented, updated and available to competent authorities.
2.2.        Criminalisation of ML/TF
The current approach towards
criminalisation at EU level is based on Framework Decision 2001/500 of 26 June
2001[6], a former third pillar legal
instrument. The 1990 Council of Europe Convention on Laundering, Search,
Seizure and Confiscation of the Proceeds from Crime and on the Financing of
Terrorism (updated in 2005)[7]
also specifies ML and TF offences.
Article 1.1 of the Third AMLD requires
Member States to ensure that ML and TF are prohibited. Criminalisation of these
offences, a key requirement of the FATF standards, has largely been left to
Member States to introduce via their legal systems.
Criminalisation at EU level could be
envisaged. However, a revision of the Third AMLD, based on Article 114 of the
Treaty, would not provide a suitable legal basis for such a criminalisation
of ML/TF. Consideration could therefore be given to introducing an obligation for
Member States to criminalise ML and TF in a specific instrument based on
Article 83(1) TFEU, which was introduced by the Lisbon Treaty.
2.3.        Scope
2.3.1.     Serious
crimes
The offence of money laundering (Article 1(2))
is committed when the proceeds of “criminal activity” are laundered. Article
3(5) sets out a range of “serious crimes” that are considered to be criminal
activities. Beyond the listed offences, the Directive takes a general approach
with respect to all other offences which carry a punishment of imprisonment
based on a mixture of maximum and minimum thresholds[8].
The new FATF standards have included “tax
crimes (related to direct taxes and indirect taxes)” as a predicate offence,
but the FATF does not provide further guidance as to how this should apply.
Consideration could therefore be given to:
·
Whether the existing "all serious crimes"
approach remains sufficient to cover tax crimes;
·
Whether tax crimes should be included as a
specific category of "serious crimes" under Article 3(5); and/or
·
Whether further definition of tax crimes is
required.
2.3.2.     Broadening
the scope beyond the existing obliged entities
(a)
The gambling sector: The Third AMLD includes “casinos”
within its scope, but without providing any definition. The Directive also
covers activities “performed on the Internet” (recital 14), thus also covering
on-line casinos. Consultations have indicated general support in favour of a
broader definition of gambling in the Directive, but with the precise scope to
be determined on a risk-based basis at national level. Consideration
could be given to capturing gambling activities which pose higher AML/CFT
risks, while avoiding the imposition of an excessive burden on lower risk activities.
The Commission services are planning to adopt
an action plan on on-line gambling in 2012 , and it will therefore be
appropriate to ensure a consistent approach between any initiatives proposed to
tackle money laundering in this sector and the revisions to the Third AMLD.
(b)
Other types of financial agent: Over the course of consultations with Member States, some
respondents suggested that the scope of the Directive be
extended to all agents operating on behalf of FIs. Some suggested that there may
be AML risks linked to the activities of financial agents. Consideration could
be given to reflecting the role of agents either in their own right or within
the obligations applied to FIs, in particular where they provide cross-border
financial services (this issue is further addressed under Section 2.10 –
supervision).
(c)
National central banks: During consultations, it has been
suggested that consideration should be given to explicitly
applying the Directive to Central Banks by extending it in a way which
takes into consideration the specificities of their operations, supervision,
and the necessity of safeguarding their independence.
(d)
Real Estate/Letting agents: Article 2(1)(3)(d) includes real estate agents in the scope of the Directive but does not define
their activities. With respect to the activities of letting agents, there is
evidence to suggest that this sector is also vulnerable to money laundering. The
revised FATF standards are silent on this issue. During consultations with
Member States, a suggestion was made to consider whether the Directive should
apply explicitly to letting agents.
(e)
Dealers in precious stones and metals: The general clause in Article 2(1)(3)(e)
covering “any natural or legal
person trading in goods, only to the extent that payments are made in cash in
an amount of EUR 15 000 or more” covers dealers in precious stones and metals. There is also specific
reference to them in Recital 18. The Commission has been made aware of concerns
from some private sector stakeholders that criminals are taking advantage of
the absence of Customer Due Diligence (CDD) in some Member States to launder
the proceeds of crime in this sector.
Consideration could be given to whether
measures might be needed to address the specific ML/TF risks in this sector.
(f)
Exemptions: Article 2(2) of the Directive allows Member States to decide that legal and natural persons who
engage in a financial activity on an occasional or very limited basis and where
there is little risk of money laundering or terrorist financing occurring can
be exempted from its scope. The revised FATF standards
stipulate that transferring of money or value cannot benefit from such an
exemption.
Consideration could be given to amending the
Directive to take account of this revision.
2.4.        Customer
due diligence
The Third AMLD sets out requirements for
customer due diligence ("CDD") on three levels: regular CDD, enhanced
CDD ("EDD") and simplified CDD ("SDD"). Regular CDD imposes
a duty on the obliged entity to identify and verify their customers and customers'
beneficial owners, to understand the nature of the business relationship as
well as to conduct ongoing monitoring. In the case of EDD, the obliged entity
must take a number of prescribed further steps, albeit on a risk sensitive
basis. SDD permits obliged entities to perform reduced customer due diligence measures
for certain types of customer or business.
Regular CDD: the Deloitte study concluded that the main divergences in the
application of the Directive concern the threshold established to require CDD
measures for occasional transactions. Respondents to the Commission’s review
process have requested a number of clarifications to the existing rules.
Consideration could be given to:
·
Reducing the €15,000 threshold in Article 7(b)
in respect of occasional transactions;
·
Reducing the €1,000 threshold for electronic
fund transfers in Regulation 1781/2006;
·
Harmonising the approach to identification
and/or compiling a list of EU-wide recognised identity documents issued by
Member States in order to facilitate customer identification/verification;
·
Clarifying the obligations on both parties for
third party reliance.
Enhanced CDD: a number of stakeholders have
suggested that a more flexible approach could be applied as to when and which EDD measures need to be applied commensurate to
the risks that are being addressed. For example, some Member
States have asked for re-consideration of the approach whereby non face-to-face
situations are automatically classed as high risk, and to ensure that the
Directive appropriately takes account of new payment methods/new technologies.
Consideration could be given to an approach which incorporates the FATF
revisions, looking at types of factors that ought to be considered (e.g.
customer risk, geographical risk and product, service or delivery channel risk
factors), whilst recognising that risk is variable and the factors should not
be considered in isolation.
Simplified Due Diligence: the EU
framework provides that certain types of customer or product that present a
lower risk of ML may be subject to an exemption from normal CDD requirements,
although obliged entities are still required to conduct ongoing monitoring to
detect unusual transactions. This approach has been criticised in some FATF Mutual
Evaluation reports as, allegedly, constituting an absolute exemption rather than a simplified regime. A study carried out by the AMLC on
SDD has found differences regarding the way it is applied in the different
Member States. While some Member States grant their institutions a full
exemption from CDD, others require them to demonstrate a minimum level of CDD
measures.
The FATF
standards permit countries to allow FIs to apply SDD measures “where the risks of money laundering or
terrorist financing are lower...and provided there has been an adequate analysis
of the risk by the country or by the financial institution.” The
standards set out factors and examples of lower risk situations.
Consideration
could be given to:
·
Clarifying that SDD is not a full exemption from
CDD;
·
Whether the Directive should set out the risk
factors that need to be taken into consideration when determining if SDD is
appropriate, or whether it should provide specific examples of when SDD might
apply;
·
Whether further guidance on risk factors should
be elaborated (for example by the AMLC in the case of the financial sector);
·
Whether to specify (either in the Directive or
via guidance) a minimum set of measures that have to be taken by the obliged
entities in SDD situations;
·
Introducing, in line with the new FATF
standards, a risk-based approach with respect to whether or not to apply SDD
when opening a business relationship with another FI licensed in the EU or
treated as an equivalent third country.
2.5.        Politically
Exposed Persons (PEPs)
The Third AMLD
defines “politically exposed
persons” as natural persons who are or have been entrusted with prominent
public functions and immediate family members, or persons known to be close
associates, of such persons. Obliged entities are required to apply enhanced
customer due diligence measures in respect of PEPs residing in another
Member State or in a third country.
The FATF standards have introduced risk-based
requirements for domestic PEPs, so that the new standards will apply different
levels of obligation in respect of foreign and domestic PEPs, both as customers
and beneficial owners of customers. According to FATF, PEPs are persons who
have been entrusted with prominent public functions by foreign countries or
domestically or by an international organisation. The requirements for foreign
PEPs do not involve a residency requirement. The FATF has also introduced specific
requirements to ascertain whether the beneficiary of a life insurance policy is
a PEP.
Some stakeholders
responding to the Deloitte survey considered that the definition of PEP is too
broad. Difficulties have been reported relating in particular to the wide
definition of family members and close associates. There are also issues
related to the availability, cost and accuracy of information available from
databases, as well as uncertainties as to how long a person needs to be in
public function before he becomes a PEP, and whether the Directive's provision
that a person ceases to be a PEP one year after leaving office adequately
addresses the risk they potentially pose. In addition, there is some
uncertainty as to whether the reference in the recital to the Directive that
senior management approval includes “the immediate higher level of the hierarchy of the person seeking
such approval” is sufficient,
as this could entail a relatively junior member of staff.
There is also a recurrent claim from
private stakeholders for supporting measures which might address the
availability, reliability and cost of data available to obliged institutions on
names/categories of PEPs, and the data protection considerations arising
therefrom. The feasibility and appropriateness of such measures would have to
be carefully assessed.
Consideration could be given to clarifying
the Third AMLD and the implementing Directive[9]
in order to take account of the FATF changes, e.g. by:
·
Incorporating the new FATF provisions for
domestic PEPs and PEPs in international organisations;
·
Removing the
residence criteria;
·
Including provisions relating to life insurance;
·
Clarifying that a risk-based approach should be
applied to PEPs even beyond one year after they have left office;
·
Clarifying the definition of “senior
management”.
2.6.        Beneficial ownership
This section takes the analysis beyond
the issue of a threshold, and undertakes a broader examination of the other
issues related to beneficial ownership in the Third AMLD.
2.6.1.     The 25% beneficial
ownership threshold
Article 43 of the Third AMLD requires
the Commission to present a report to the European Parliament and the Council
on the threshold percentages in Article 3(6), “paying particular attention to the possible expediency and
consequences of a reduction of the percentage in points (a)(i), (b)(i) and
(b)(iii) of Article 3(6) from 25% to 20%.”
Article 3(6) of
the Third AMLD defines “beneficial
owner” as the natural person(s)
who ultimately owns or controls the customer and/or the natural person on whose
behalf a transaction or activity is being conducted. Further clarification is
provided on minimum requirements in case of corporate entities and in case of
other legal entities and arrangements which administer and distribute funds.
When the Third AMLD was agreed, a 25% threshold of ownership or voting rights
or, in the case of administered funds, the beneficiary of 25% or more of the
property, was deemed to be a sufficient threshold to regard a person as a
“beneficial owner”, for AML/CFT purposes.
The Deloitte study concluded, on the
basis of its survey of stakeholders and Member State authorities, that there were
a significant number of stakeholders who would not favour lowering the
threshold. It was felt that lowering the threshold would not bring significant
advantages but would increase cost of compliance and administrative burden. The
Commission has not received any further evidence of the need to modify the
threshold.
The Commission will carefully consider
whether it is appropriate to modify the 25% thresholds.
2.6.2.     Beneficial
ownership – implementation issues
The AMLC[10]
has found that the way in which Member States determine how the threshold
should be calculated differs. Certain Member States consider that the ultimate
beneficial owner (“UBO”) is the person(s) who owns/controls at least
25% of the customer, whilst other Member States interpret the UBO as the
person(s) that owns/controls at least 25% of the customer, or of any entity
that owns at least 25% of the customer.
Other aspects of the definition give rise
to uncertainties or different interpretations by Member States, in particular
what “otherwise exercising control
over the corporate entity” means
in Article 3. These differences may pose difficulties and increase costs at
group level when designing customer identification procedures and assessing
customer risk. They may also affect the level playing field for FIs and DNFBPs
across Member States. Effective implementation has also been hindered by
uncertainty amongst private sector stakeholders as to the concept of “adequate” measures.
The revisions to the FATF standards set
out an approach for identifying and verifying beneficial ownership, with
measures aimed at finding a natural person with a controlling ownership
interest, or (if none can be found or if there are doubts that the person with
the controlling ownership interest is the beneficial owner) the natural person
exercising control through other means. If the above steps result in no natural
person being identified, then the identity of a natural person holding the
position of senior manager should be identified. There has been broad support
amongst Member States to following this approach, although there is general
agreement that the final option (identification of a senior manager) should not
be seen as a way of circumventing the need to understand who ultimately
controls a legal person.
2.6.3.     Availability
of beneficial ownership information
The absence of
public information about the beneficial owner is seen by some stakeholders as hindering
the practical implementation of the requirements. Obliged
entities, with support from civil society organisations, have made a strong
plea for public support initiatives in this area. The
European Commission's Internal Security Strategy has also highlighted this
issue and suggested, "in the light of discussions with its international
partners in the Financial Action Task Force, revising the EU Anti-Money
Laundering legislation to enhance the transparency of legal persons and
legal arrangements"[11].
The European
Parliament’s Resolution of 15th September 2011 called for rules to “make the fight against anonymous shell
companies in secrecy jurisdictions (...) a key element of the upcoming reform of
the Anti-Money Laundering Directive”[12].
The new FATF
standards require countries to ensure that there is a set of basic information
available in business registries and/or held by the company itself. For legal
arrangements, the standards recognise the role of the trustee as holder of the
beneficial owner information and introduce a requirement for trustees to
disclose their status when they engage with reporting parties.
2.6.4.     Further considerations
Consideration could be given to
introducing a number of changes into the Directive, for example:
·
Clarifying the definition of the beneficial owner,
in the light of the revisions agreed by the FATF and
the AMLC's conclusions;
·
Including, either into the AML Directive or in
another existing legal instrument in the company law area, measures to promote
the transparency of legal persons/legal arrangements.
2.7.        Reporting
obligations
Article 22(1) of the Third AMLD requires
obliged entities and persons to promptly inform the FIU if there are reasonable
grounds to suspect money laundering or terrorist financing. This should be done
directly, or "promptly and unfiltered" via a self-regulatory body if
a country has designated one in respect of certain non-financial professions. Article
35(3) of the Third AMLD requires Member States to ensure that, wherever
practicable, timely feedback be given on suspicious transaction reports.
Some concern
has been expressed as to the consistency of statistical data relating to
suspicious transaction reports[13].
Eurostat has collected a considerable amount of information relating to key
indicators from FIUs[14].
In addition, with respect to the filing of reports, a Commission Staff Working
Paper[15]
has clarified to which country's FIU they should be sent in cross-border
situations.
Consideration could be given to introducing
a number of clarifications and new provisions in the Directive:
·
The new EU framework could reinforce the
existing provisions requiring FIUs to provide timely
generic feedback to reporting entities;
·
Introducing an explicit role for self-regulatory
bodies in the reporting process (e.g. establishing guidelines);
·
Introducing an explicit requirement that
reporting be done to the host country FIU;
·
Clarification that in cases where Member States
conclude that transmission of Suspicious Transaction Reports (STRs) is being
filtered, they should actively consider requiring reporting to be made direct
to the FIU.
·
Reinforcing the requirement under Article 33
with respect to statistical data in order to ensure more comprehensive and
comparable statistics.
2.8.        FIUs
Article 38 of the Third AMLD establishes a
role for the Commission to facilitate coordination between FIUs, but does not
otherwise deal with FIU cooperation.
The current framework for FIU Cooperation is
based around a Council Decision dating back to 2000[16]. Discussions at the FIU
platform[17]
have revealed a number of shortcomings with the existing
arrangements: cooperation on terrorist financing is not foreseen in the
Decision and past international events have brought to light difficulties for
FIUs to cooperate on the basis of lists of designated persons, or to take
action before an STR has been filed. Practical experience has demonstrated the
types of problems that result from different interpretations about the legal
basis granted by the Decision to undertake specific types of cooperation, such
as the automatic exchange of information when links are found with another
Member State. Some of the problems in exchanging information stem from the
different powers that FIUs have at national level, including the possibility to
access information, and this has consequences for the effectiveness of
cooperation.
The Stockholm Programme for 2010-2014[18] calls on the Commission and Member
States to “further
develop information exchange between the Financial Intelligence Units (FIUs)” in order to tackle
corruption and economic crime.
Consideration could be
given to taking into account recent developments at the FATF with respect to
FIUs, where some of the relevant changes include
clarifying that FIUs should be able to access the information obtained by any
obliged entity to comply with AML/CFT requirements, that countries should have
mechanisms in place to identify in a timely manner whether natural or legal
persons hold or control accounts and that a request for cooperation should
trigger the same powers as for an STR filed domestically. In the specific context of
the EU, consideration could be given to reinforcing EU FIU cooperation beyond
the international standards, harmonising powers available to FIUs at national
level and to taking on board work which is currently being developed in this
respect by the EU FIU Platform. Consideration could also be given to integrating
provisions concerning FIU Cooperation into the future AML Directive.
2.9.        Group
compliance
Article 34 of the Directive requires
obliged persons and institutions to establish “adequate and appropriate” AML/CFT risk management policies and procedures.
In their 2009 Working Paper[19], the Commission services
reported that FIs operating in a cross-border context have generally chosen to
develop an AML policy at group level, especially within the EU. The new FATF
standards introduce a requirement (which largely mirrors work carried out by
the Basel Committee on Banking Supervision) that financial groups implement
group-wide programmes against money laundering and terrorist financing,
including policies and procedures for sharing information within the group.
Consideration could be given to incorporating
new requirements into the Directive, taking into account that the current
Directive already contains a number of underlying assumptions of group level
compliance in Articles 31(1) and 34(2). Additional clarifications might also be
considered in order to address problems identified in the Commission Staff Working
Paper, as follows:
·
The notion of “group” is currently only
incorporated in Article 28(3), providing for exemptions to the prohibition of
disclosure of the fact that an STR has been filed or that a ML/TF investigation
is being carried out. A definition of “group” could be
incorporated into Article 3 to allow a broader scope of application;
·
Introducing an explicit possibility of allowing
intra-group flows of information on potentially suspicious transactions prior
to the filing of a report, while respecting data protection obligations;
·
The possibility of allowing information flows to
the auditors of the Head Office. Independent auditors do not fall within the
definition of “group”, and therefore would not benefit from the
exemption in Article 28(3).
2.10.      Supervision
Article 37 of the Third AMLD obliges Member
States to require competent authorities to monitor and take measures to ensure
compliance with the requirements of the Directive by obliged persons and
institutions.
The Commission Staff Working Paper[20], although it deals with AML
supervision of and reporting by payment institutions, has wider implications
with respect to home/host issues in other areas. The Commission's paper clarifies
how the host state AML rules should be complied with, in particular with
respect to:
·
Allocation of supervisory powers between home
and host authorities;
·
The preventative and enforcement powers of host
state authorities;
·
The ability, subject to the condition of
proportionality, of host state authorities to impose an obligation for a super-agent/central contact point for agents, or to have a
compliance officer on their territory.
The AMLC is working on its own protocol
which will give practical application to the Commission's clarifications.
Consideration could be given to introducing
further clarifications into the new Directive, as well as to clarifying the
articulation between the passporting provisions in the Payment Services and
E-Money Directives on the one hand, and the compliance with host state AML
rules on the other. Clarification could be given to how AML supervisory powers apply in cross-border situations, for example,
stipulating that the host authority should have ability to impose sanctions,
including termination of activity where CDD procedures are not sufficiently implemented,
or through provisions which place the onus on co-operation, information sharing
and delegation of responsibilities. Finally, consideration could also be given
to introducing provisions in the new Directive addressing cooperation between
authorities.
2.11.      Self-Regulatory
Bodies
Article 37(5) of the Third AMLD allows self-regulatory
bodies in certain sectors (auditors, external accountants, tax advisors,
notaries and other legal professionals) to monitor and ensure compliance with
AML requirements, while Article 23 allows the designation of an appropriate
self-regulatory body to channel suspicious reports to the Financial
Intelligence Unit.
The FATF standards recognise the role of
self-regulatory bodies, provided that such an organisation can ensure that its
members comply with their AML/CFT obligations. The standards include the
possibility that such bodies could also establish guidelines and provide
feedback on how to apply national measures, in particular with respect to
reporting suspicious transactions. Over the course of the Commission's consultations,
some Member States have questioned the appropriateness of continuing to task self-regulatory
bodies with such functions.
Consideration could be given to whether self-regulatory
bodies should continue to be tasked with ensuring compliance with AML
standards, or whether their role needs to be further defined, for example by explicitly
tasking them to provide guidance on AML compliance and reporting, in line with
the FATF standards. It has also been suggested, in the course of the
Commission's consultations, that consideration might be given to the
possibility of extending the Directive’s provisions to allow professional
bodies in the real estate sector to also take on responsibilities for AML
monitoring and ensuring compliance, provided that they meet the conditions set
out in Article 37(2) of the Third AMLD.
2.12.      Third
Country Equivalence
The Third AMLD allows lighter CDD measures
to be applied in the case of FIs situated in EU/EEA countries. These lighter
measures are extended to institutions situated in third countries which impose
AML requirements considered to be "equivalent" to those laid down in
the Directive. Article 11(4) of the Third AMLD contains an obligation for
Member States to inform each other and the Commission of cases where they
consider that a third country meets EU AML/CFT standards. In order to co-ordinate
their approach on equivalence, Member States have agreed on a regularly updated
list of "equivalent third countries" in accordance with a Common
Understanding on the Procedures and Criteria for the Recognition of Third
Countries' Equivalence[21].
The Third AMLD does not mandate the
European Commission to establish a binding “positive” list of
equivalent third countries. The assessment of third country equivalence remains
a Member State competence. The Commission plays a facilitating role in this
process, and, should the system be maintained, is committed to ensuring a credible
and transparent process for the establishment of the third country list. Given
the move towards a risk-based approach, some Member States have queried whether
it will still be appropriate, in the new Directive, to maintain the concept of
equivalence.
Consideration could be given to
ascertaining:
·
whether an equivalence regime is needed in the new
Directive, in light of the increasing move towards a risk based approach;
·
whether the process of establishing equivalence "lists"
is still needed, and if so, whether there is a role to be played at EU level
(e.g. prescriptive approach to be set out in the Directive, maintaining the
existing intergovernmental approach, mandating the AMLC with work in this area,
etc.);
·
whether it is still appropriate to maintain a
provision in the Directive (currently Article 40(4)) on "black listing",
given that this has never been used;
·
whether a coordinated approach at EU level might
be needed in order to coordinate measures in response to the FATF listing
process.
2.13.      Administrative Sanctions
for Non Compliance with the Directive
Article 39(2)
of the Third AMLD obliges Member States to impose appropriate administrative
measures or sanctions against FIs for infringements of national provisions
which stem from the Directive. The measures and sanctions must be effective,
proportionate and dissuasive.
The Deloitte
Study concludes that all Member States have implemented a national sanctioning
regime applicable in cases of non-compliance with the provisions of the
Directive, and that such sanctions are applied in practice. However, the study
also remarks that “the variety
in national penalty regimes is so large that it is not possible to compare
penalties through all Member States”.
Consideration could be given to following an
approach similar to the one set out in the Commission's Communication “Reinforcing
sanctioning regimes in the financial sector”[22],
which would involve a greater harmonisation of the sanctioning regime by
proposing a set of minimum common rules to be applied to key aspects of the
sanctioning regime.
2.14.      Protection of Personal Data
(DP)
Most private stakeholders believe that
there is a need to ensure better interaction between AML and personal data protection
obligations. A study[23]
done in 2008 by the FIU-Platform sought to identify possible convergence points
as well as areas where difficulties might need to be reconciled between the
respective legislation. The 2009 Commission Staff Working paper[24] concluded that the interaction
of AML rules with national data protection rules appeared to be a main factor impacting
bank's AML policies at group level and hindering effective intra-group transfer
of information.
In June 2011, the Article 29 Working Party
on Data Protection issued its "Opinion 14/2011"[25]. The Opinion addresses the
interaction between AML and personal data protection provisions at a much wider
level than the mere transfer of information, and calls for more detailed
consideration of DP issues in the AML/CFT legislation to provide for effective
data protection compliance. In particular the Opinion calls for “push” data
sharing schemes, privacy assessments of the model of global risk management and
introduction of data protection officers by different bodies or entities
involved in AML/CFT and favouring segmented risk management at local level. It
also calls for the establishment of clear and precise data retention periods in
the AML/CFT legislation. Some elements of the opinion are reflected in the
recently published proposals to update the EU's Data Protection legislation[26].
Consideration could be given to
introducing, in the revised Directive, clear and balanced rules which set out
how personal data should be handled in order to enable effective AML/CFT
compliance while respecting fundamental rights. In line with the aforementioned
developments in the data protection field, more detailed provisions might be
needed to take into account, among other things, the principles for personal
data processing, to grant a legal basis both for such processing and for the
proportionate restriction of the rights of the data subject when necessary to
achieve the goals of the AML/CFT Directive, provided there are adequate
safeguards and that there is consistency with data protection acquis. In
addition, consideration could be given to fostering further interaction between
AML regulators and data protection supervisory authorities to reach a balanced
application of the rules.
3.           Commission's assessment
of the Directive's treatment of lawyers and other independent legal
professionals
Article 42 of
the Third AMLD requires the Commission to present a report to the European
Parliament and the Council which includes a specific examination of the
treatment of lawyers and other independent legal professionals.
Under the Directive,
notaries and other independent legal professionals are broadly within scope,
subject to an exemption which Member States may apply on the obligation to
report suspicious transactions by virtue of Article 23(2), in respect of “information
they receive from or obtain on one of their clients, in the course of
ascertaining the legal position for their client or performing their task of
defending or representing that client in, or concerning judicial proceedings.”
In addition, Article 23(1) allows for the designation of “an
appropriate self-regulatory body of the profession” to, in the first instance, receive STRs
instead of sending them directly to the FIU. In
such a case, the self-regulatory body has the responsibility of forwarding the
information to the FIU “promptly and unfiltered”.
3.1.        Professional secrecy
According to information available to the
Commission, all Member States have opted to include the exemption of Article
23(2) of the Directive in their national legislation in relation to lawyers,
but without precise description of when reporting outweighs client
confidentiality. This situation creates some anxiety from legal professions,
who regularly express concerns that the obligations imposed by the Directive
allegedly violate the lawyer's obligation of professional secrecy and the
fundamental right to a fair trial and a fair defence.
The European
Court of Justice has ruled on this issue[27].
Although the judgement concerned Directive 91/308/CEE, the main findings of the
Court remain valid for the Third AMLD. Based on this ruling, it can be
considered that the AML obligations imposed on legal professionals do not
infringe the right to a fair trial as guaranteed by Article 47 of the EU
Charter of Fundamental Rights and Article 6 of the ECHR.
Indeed, the obligations in the Directive apply
to legal professionals only in so far as they advise their client in the preparation
or execution of certain transactions, essentially those of a financial nature
or concerning real estate (Article 2(1)(3)(b)), or when they act on behalf of
and for their client in any financial or real estate transaction. As a rule,
the nature of these activities is such that they take place in a context with
no link to judicial proceedings and, consequently, such activities fall outside
the scope of the right to a fair trial.
On the other hand, as soon as a legal
professional acting in connection with a real estate transaction is called upon
for assistance to defend the client or to represent them before the courts, or
for advice as to the manner of instituting or avoiding judicial proceedings, they
are exempted, by virtue of the second paragraph of Article 9(5) and of Article
23(2) of the Directive, from the requirements under the first paragraph of
Article 9(5) and from the information and cooperation obligations under Article
23(1) of the Third AMLD. This safeguards the right of the client to a fair
trial.
As to the implementation of the third AMLD,
the right to a fair trial should be protected in all applicable situations
through sufficiently detailed and clear national rules to allow legal
professionals to distinguish between the situations where the reporting
obligation applies and the situations where it does not.
When preparing its revision to the Directive,
the Commission will, subject to consultation of the relevant stakeholders, give
consideration to this issue in its impact assessment, and in particular to the
impact on fundamental rights, in line with the existing policy[28].
3.2.        Suspicious transaction
reports (“STR”s)
The Deloitte
study found that levels of reporting of suspicious transactions by some
non-financial professions (in particular lawyers) are low compared to those of FIs.
The issue of under-reporting in some jurisdictions remains a concern, and
consideration could be given to ways to improving levels, as set out in Section
2.7 above.
3.3.        Definition
of transaction
Article 2 (1)
(3) (b) sets the scope of the Directive to apply to “notaries and other independent legal professionals, when they
participate, whether by acting on behalf of and for their client in any
financial or real estate transaction, or by assisting in the planning or
execution of transactions for their client” concerning a number of listed activities (buying and selling of
real estate, managing client money, etc). Lawyers' representatives have queried
which “transactions” are covered, and consideration could be given
to a possible clarification in this respect.
3.4.        CDD measures
Lawyers’ representatives have called for
the possibility of allowing the fulfilment of CDD requirements within a
reasonable time frame and not always at the start of the relationship as required
in Article 7. The FATF standards[29]
require identification and verification to be carried out at the start of a
business relationship, although countries may permit verification to take place
as soon as practicable afterwards if the ML and TF risks are effectively
managed and if it is essential not to interrupt the normal conduct of business.
A similar provision already exists in Article 9 of the Third AMLD, and this is
a matter for Member State discretion.
There have also been
suggestions to remove the requirement to provide “on request” information on
the identity of beneficial owners in the case of pooled accounts held by
notaries and other independent legal professionals (Article 11(2)(b)). However,
the new FATF standards have removed the reference to pooled accounts as
examples of low risk scenarios. Consideration will need to be given on how to
reflect the treatment of pooled accounts in the new EU Directive.
*          *          *
The above findings would appear to suggest
that it may not be necessary to fundamentally revise the treatment of lawyers
in the new Directive. However, it may be appropriate to give further
consideration to the under-reporting of STRs.
4.           Conclusion
This report sets
out the various issues raised by the Commission's review of the Third AMLD, the
revisions of the FATF Recommendations, and the Directive's clauses that require
the Commission to report to the European Parliament and the Council. Generally,
the existing framework appears to work relatively well,
and no fundamental shortcomings have been identified which would require far-reaching
changes to the Third AMLD.. The Directive will have to be revised in order to
update it in line with the revised FATF Recommendations. In this context, one issue
that will need to be considered is the level of harmonisation of the future EU framework. An important challenge
for the future will be to focus efforts on improving the effectiveness of the
rules. This is an area of work that the FATF is currently developing.
The Commission
invites comments to the issues raised and the likely impact, including impacts
on fundamental rights as guaranteed by the Charter of Fundamental Rights of the
EU[30], of
any possible changes to the Third AMLD by 13 June 2012. Stakeholders are
invited to send their comments to the following email address:
MARKT-AML@ec.europa.eu
Comments will
inform the legislative proposals that will be put forward later this year to
revise the Directive. The responses received will be available on the
Commission website unless confidentiality is specifically requested, and the
Commission will publish a summary of the results of the consultation
*          *          *
Annex: Cross-border Wire Transfers
Although the regulation of cross-border
wire transfers falls outside the scope of the third AML Directive, it forms an
important element of the FATF standards. The EU has fully implemented the
existing FATF standards via a separate Regulation[31]. and, in order to respond to
its obligations under the review clause in Article 19 of the Regulation, a
study on the application of the regulation is under preparation. The results of
this study will be taken into account in the future proposal to implement the
recent changes to the FATF Recommendations. The new FATF standards in
particular include a requirement to include information about the beneficiary
in wire transfers, as well as an explicit obligation to take freezing action
with respect to UN Resolutions.
In particular, the study will gather evidence about how the Fund
Transfers Regulation (1781/2006) is working in Member States, and any problems
which have arisen, and will provide recommendations as to what improvements
might be made.
The Commission will ensure that the
introduction of new EU rules on fund transfers are synchronised with the
revision of the Third AMLD.
[1]               The
Directive is part of a broader set of legislative measures aimed at the
prevention of money laundering and terrorist financing, including Regulation
1781/2006 (information on the payer accompanying transfers of funds),
Regulation 1889/ 2005 on controls of cash entering or leaving the Community, Council
Decision 2000/642 concerning arrangements for cooperation between financial
intelligence units of the Member States in respect of exchanging information,
as well as EU legal instruments on the freezing of assets.
[2]               http://www.fatf-gafi.org/dataoecd/49/29/49684543.pdf
[3]               Final Study on the
Application of the Anti-Money Laundering Directive, Deloitte, December 2010, http://ec.europa.eu/internal_market/company/docs/financial-crime/20110124_study_amld_en.pdf
[4]               In
addition, 2 private sector stakeholder meetings were organised in 2011.
[5]               The
Joint Committee of the European Supervisory Authorities ́ Sub Committee on Anti
Money Laundering (AML Committee, AMLC)
assists the European Supervisory Authorities in a supervisory capacity, to
ensure a consistent implementation of the EU law.
[6]               http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2005:068:0049:0051:en:PDF
[7]               http://conventions.coe.int/Treaty/EN/Treaties/html/198.htm
[8]               Article 3(5)(f)
[9]               Commission Directive
2006/70/EC
[10]             Report on the legal, regulatory
and supervisory implementation across EU MS in relation to Beneficial Owner
Customer Due Diligence requirements under the Third Money Laundering Directive
26 September 2011.
[11]             Commission
Communication: "The EU Internal Security Strategy in Action: Five steps
towards a more secure Europe", COM (2010)673 final.
[12]             European
Parliament Resolution of 15 September 2011 on the EU's efforts to combat
corruption
[13]             Art. 33 of the Third AMLD sets
out the minimum statistical requirements that Member States are obliged to
collect.
[14]             See
Eurostat Working Paper Money Laundering in Europe, http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-RA-10-003/EN/KS-RA-10-003-EN.PDF
[15]             Commission Staff Working Paper
on Anti-money laundering supervision of and reporting by payment institutions
in various cross-border situations, SEC(2011) 1178 final, 4.10.2011, http://ec.europa.eu/internal_market/company/docs/financial-crime/20111104-paper_en.pdf
[16]             Council Decision 2000/642/JHA
of 17 October 2000 concerning arrangements for cooperation between financial
intelligence units of the Member States in respect of exchanging information.
[17]             The “EU
Financial Intelligence Units’ Platform” was set up in 2006 by the European
Commission,. It gathers Financial Intelligence Units from the Member States.
Its main purpose is to facilitate cooperation among the FIUs. .
[18]             (2010/C 115/01). Official
Journal of the European Union 4.5.2010
[19]             Commission Staff working paper
on “Compliance with the AML Directive by cross-border
banking institutions at group level” SEC (2009) 939 of 30
June 2009. http://ec.europa.eu/internal_market/company/docs/financial-crime/compli_cbb_en.pdf.
[20]             See footnote 15.
[21]             http://ec.europa.eu/internal_market/company/docs/financial-crime/3rd-country-common-understanding_en.pdf
[22]             Reinforcing sanctioning regimes
in the financial services sector, COM (2010) 716 final, 8 December 2010, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0716:FIN:EN:PDF
[23]             Report
on Confidentiality and data protection in the activity of FIUs,
http://ec.europa.eu/internal_market/company/financial-crime/index_en.htm#fiu-report-money
[24]             See footnote 20.
[25]             Opinion 14/2011on data
protection issues related to the prevention of money laundering and terrorist
financing, 01008/2011/EN, WP 186, 13 June 2011, http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2011/wp186_en.pdf
[26]             See the Commission's data
protection proposals (COM(2012) 11 final) and (COM(2012) 10 final). http://ec.europa.eu/justice/newsroom/data-protection/news/120125_en.htm.
[27]             ECJ
C305/05, Ordre des barreaux francophones et germanophone et al. V Conseil des Ministres, Para 33, Judgement
of the Court, 26 June 2007.
[28]             Strategy
for the effective implementation of the Charter of Fundamental Rights by the
European Union (COM (2010) 573).
[29]             Recommendation 11 (ex 10)
[30]             Strategy
for the effective implementation of the Charter of Fundamental Rights by the
European Union (COM 2010, 573 final) .
[31]             Regulation 1781/2006 on information on the payer accompanying
transfers of funds, 15 November 2006,