COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to the second subparagraph of Article 251 (2) of the EC Treaty concerning the common position of the Council on the adoption of a Directive of the European Parliament and the Council amending Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering

1. Background

On 14 July 1999 the Commission adopted a proposal [1] for a European Parliament and Council Directive amending Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering [2].

[1] COM(1999)352 final, OJ No C 177, 27.6.2000.

[2] OJ No L 166, 28.6.1991, p.77.

This Commission proposal was forwarded to the European Parliament and the Council on 20 July 1999.

The European Parliament gave its first reading opinion on 5 July 2000 [3].

[3] A5-0175/2000

The Council reached a political agreement on the proposal on 29 September 2000 and on 30 November 2000 unanimously adopted the Common Position which is the subject of this communication.

The Economic and Social Committee delivered its opinion on 26 January 2000 [4].

[4] CES 89/2000

2. Origin and objectives of the Commission proposal

The Commission proposal responded to the wishes expressed by the European Parliament and the Council for an updating and extension of the 1991 anti-money laundering Directive.

Accordingly, the Commission proposed a widening of the prohibition of money laundering. The 1991 Directive only obliged Member States to prohibit the laundering of the proceeds of drugs trafficking offences, while encouraging them to combat the laundering of a wider range of underlying (or predicate) offences. The proposal sought to bring the Directive into line with the increasing international trend towards a wide coverage of predicate offences.

Most importantly the Commission proposal sought the extension of the obligations of the 1991 Directive (in particular, customer identification and reporting of suspicions of money laundering) to a number of vulnerable non-financial professions and activities, including the legal and accountancy professions.

The proposal also envisaged a role for the anti-fraud office, OLAF, in the area of co-operation and exchange of information with the Member States' anti-money laundering authorities in matters affecting the Community's financial interests.

Additional guidelines were envisaged for the increasingly frequent case where there is no face-to-face contact between the financial institution and the client.

Lastly, the proposal made a number of more technical adjustments to the 1991 Directive.

3. Comments on the Common Position

(a) General

The political importance of this dossier was recognised by the European Council, which, at its meeting in Tampere in October 1999, called for the proposal to be adopted "as soon as possible".

The Finnish, Portuguese and most recently the French Presidency have treated this proposal as a matter or priority.

The European Parliament adjusted the pace of its own work to see whether it might be possible to achieve adoption on the basis of a single reading.

This was not possible, mainly because of ongoing discussions in the Council working party on two main questions, namely the range of predicate offences that should form the basis of the prohibition of money laundering and the safeguards to be introduced as regards the lawyer-client relationship in order to protect the traditional role of the legal professions.

These two problems were resolved by the ECOFIN Council at its meeting on 29 September. The Commission considers that the solutions adopted by the Council, and since embodied in the Common Position of 30 November 2000, are generally in line with the philosophy of the Commission proposal, meet the main concerns of the European Parliament and constitute a major step forward in the European Union's effort to combat money laundering.

(b) Specific comments on the individual provisions

The definitions of "credit institution" in Article 1(A) and of "financial institution" in Article 1(B) have been amended to take account of the adoption on 20 March 2000 of the codifying banking directive 2000/12/EC [5]. Parliament called for this change in its Amendment No 9. The same amendment also sought a specific reference to the electronic money Directive 2000/46/EC [6]. This is in fact not necessary as Directive 2000/28/EC [7] has now amended the definition of "credit institution" in Directive 2000/12/EC. It is thus clearly established that the concept of "credit institution" includes electronic money institutions. The intent of Parliament's amendment is thus fully respected.

[5] OJ No L 126, 26.5.2000, p.1.

[6] OJ No L 275, 27.10.2000, p.39

[7] OJ No L 275, 27.10.2000, p.37.

The definition of "financial institution" has also been expanded in the Common Position to include "a collective investment undertaking marketing its units or shares". This includes and goes beyond the inclusion of collective investment institutions sought by Parliament in its Amendment No 10. Any reference restricted to the coverage of Directive 85/611/EEC [8] would, in the Commission's view, have been too narrow.

[8] OJ No L 375, 31.12.1985, p.3.

Article 1 ( C) and (D) and (F), which the Commission proposal took over verbatim from the 1991 Directive, are unchanged.

Article 1 (E), the definition of "criminal activity", in the Common Position is wider than that in the Commission's initial proposal. Criminal activity is now defined in terms of "criminal involvement in the commission of a serious crime". The concept of "serious crimes" is explained in five indents.

The reference to the drugs offences covered by the Vienna Convention in the first indent remains the same (apart from minor drafting changes) as in the Commission proposal.

In the second indent, the undefined reference to organised crime in the Commission's proposal is replaced by a reference to "the activities of criminal organisations" as defined in the third pillar Joint Action (98/733/JHA) of 21 December 1998 [9]. This reflects the spirit of Parliament's Amendments Nos 4 and 12, which pointed to the need for an appropriate definition.

[9] OJ No L 351, 29.12.1998, p.1.

The reference in the Commission proposal to "fraud, corruption or any other illegal activity damaging or likely to damage the European Communities' financial interests" has been reorganised in the Common Position. The reference to Community fraud in the third indent of Article 1 (E) of the Common Position has been made more specific and must at least cover serious cases. This is in line with Parliament's Amendment No 13, which sought this reference to serious cases via a different route (namely Article 1(e) of the Second Protocol to the Convention on the protection of the European Communities' financial interests). The reference to "other illegal activity", which was criticised as being imprecise has been dropped, and corruption is now covered on a general basis in a separate fourth indent. The coverage of corruption is thus wider than that sought in Amendment No 13. The Commission maintains, however, as an objective that the predicate offences that should form the basis of the prohibition of money laundering should cover all the criminal activities within the scope of Article 280 of the Treaty.

Lastly, a fifth indent is added referring to offences generating substantial proceeds and carrying a severe sentence of imprisonment. The definition of what is meant by "substantial" and "severe" will be left to the appreciation of each Member State. This solution reflects the compromise reached in the Council between the Member States which wanted to base the prohibition of money laundering on the concept of "serious offences" as defined in the Joint Action (98/308/JHA) of 3 December 1998 [10] and those which maintained that such coverage might be too wide. The compromise reached in the Council and reflected in the fifth indent gives Member States flexibility on this question for a transitional period, but records the unanimous agreement to bring the definition of the fifth indent into line with the definition of serious crime in the 3 December 1998 Joint Action within three years of the entry into force of the new directive. To that end the Commission will table a proposal for this further updating of the Directive.

[10] OJ No L 333, 9.12.1998, p.1.

Given the difficulty of reaching agreement on the important question of predicate offences in the Council, a difficulty related in part to the differing structure of the Member States' criminal codes, the Commission believes that the solution in the Common Position is a good compromise that will enable the fight against money laundering to be conducted on a broad front, in line with the policy of the Financial Action Task Force on Money Laundering (FATF) and the Council of Europe, while leaving Member States greater flexibility in the short term. The Commission will, however, in fulfilling its obligation under Article 17 of Directive 91/308/EEC monitor whether the implementation of the (amended) Directive by the Member States reflects a broad-based fight against money laundering and shall pay particular attention to the protection of the Communities' financial interests.

The definition of "competent authorities" in Article 1 (F) has been amended slightly as compared with the Commission proposal. The Council agreed that the Directive does not oblige Member States to create such authorities where they do not exist.

In the new Article 2a, the coverage of persons and professions under the Common Position is very similar to that as proposed by the Commission.

Tax advisors are now included in line with the wishes of Parliament (see Amendments Nos 7 and 16).

However, the Common Position does not follow Parliament's wish, as expressed in Amendments Nos 15 and 16, that tax consultants and accountants should, like the notaries and legal professions, be included within the scope of the Directive only in respect of certain specified activities. On this point the Common Position is in line with the Commission proposal.

The reference to transporters of funds has been deleted as a majority of Member States saw no need to include this activity. Individual Member States remain free to include this activity in their national anti-money laundering law if they wish.

To the Commission proposal's reference to "dealers in high-value goods, such as precious stones or metals", the Common Position has added the following words "whenever payment is made in cash, and in an amount of EUR 15 000 or more". This solution continues to leave Member States flexibility as to the coverage of this requirement but establishes the need to pay particular attention to large cash purchases. Parliament's Amendment No 18 had proposed a general coverage of persons selling luxury goods costing in excess of EUR 50 000.

The Common Position does not take up Parliament's proposals in Amendments Nos 17, 19 and 20 to include art dealers, auctioneers and customs and tax officials. Neither the Commission nor the Council believe it would be appropriate to cover the latter officials under the Directive. Regarding art dealers and auctioneers, and other dealers in high value items, it is clear that technical discussions will have to continue on the possible coverage of such dealers and in particular on the means available to control whether any obligations imposed on such dealers are being respected in practice.

Article 2a(5) of the Common Position, dealing with the notaries and other independent legal professionals, adopts a wording and layout somewhat different to that proposed by the Commission, while ensuring very much the same coverage. The text now differentiates between two sets of circumstances in which the legal professions can fall within the scope of the Directive. The first case refers to the participation by legal professions "by assisting in the planning or execution of transactions for their client" in respect of essentially the same list of activities as was proposed by the Commission. The second case is more general and applies where the legal professional is "acting on behalf of and for their client in any financial or real estate transaction". As was intended in the Commission proposal the term "assisting", as used in the Common Position, covers the case where the legal professional is advising his client in respect of the listed activities. The Council agreed with the Commission that the exclusion from the scope of the Directive of all advisory activities, as advocated by Parliament in its Amendments Nos 34, 45, 16 and 26 would be going too far. Nevertheless, and in line with the wishes of the European Parliament, the Common Position incorporates far-reaching safeguards to protect the advisory and defence roles of the legal professions. These safeguards are described under Article 6(3).

Article 3 is concerned with the identification requirements. The Common Position follows the text of the Commission proposal, unchanged on the 1991 Directive, as regards Article 3 (1) and (2) first subparagraph. The Commission believes that the wording "when entering into business relations" allows Member States some flexibility as regards the application of this provision, since an element of duration is understood. The Common Position does not therefore take up Parliament's Amendments Nos 21 and 22.

As regards the second subparagraph of Article 3 (2), the Common Position follows Parliament's amendment No 33 in deleting the annex proposed by the Commission regarding customer identification in situations where there is no face-to-face contact with the financial institution. The annex is replaced by a new Article 3 (10), which is dealt with below.

The Common Position text of Article 3 (3) and (4) corresponds to the Commission proposal and to the text of the 1991 Directive. Parliament's Amendment No 24, proposing an increase in the amounts for an identification waiver in respect of certain insurance contracts, has not therefore been taken up. The Commission would agree with Parliament that these amounts need to be reviewed. The Commission believes that this issue might be reconsidered at a future date on the basis of detailed technical work in the Contact Committee.

The identification requirements for the clients of casinos are set out in Article 3 (5). Member States must require that their casinos identify either all their clients or alternatively only those who exchange at least EUR 2 500 in cash into gambling chips or exchange an equivalent amount of chips for a casino cheque. This choice of identification procedure is in line with the spirit of Parliament's Amendment No 25.

Article 3 (6) and (7) correspond to the Commission proposal.

Article 3 (8) of the Common Position departs from the Commission proposal in allowing Member States to widen the dispensation from the identification obligation to also include the case where the customer is itself a credit or financial institution from a third country which imposes requirement similar to those required by the Directive. Member States will be allowed some flexibility in applying this provision. However the Contact Committee will monitor the practice in this area to ensure a coordinated approach.

Article 3 (9) follows the text of Article 3 (8) of the Commission proposal.

Article 3 (10) of the Common Position replaces the provisions on non face-to-face identification originally included in the annex to the Commission proposal. Parliament itself proposed in Amendment No 33 that the annex be deleted and in Amendment No 23 that specific provisions be included in Article 3. However, the Council and the Commission now believe that it would be a mistake to adopt excessively prescriptive provisions in this area of rapid technological developments (internet banking, development of electronic signatures and authentication, etc.). The text of the Common Position therefore stresses the need to take particular care where there is no face-to-face contact and sets out examples of possible checks to ensure that the client is adequately identified in such cases. There correspond closely to the checks referred to in Parliament's Amendment No 23, though the obligatory nature sought by Parliament is not retained. This is another area in which the Contact Committee will be called on to pursue its detailed technical work.

The Common Position adopts, with slight drafting changes, the technical modifications to Articles 4. 5, 8 and 10 proposed by the Commission. The Common Position does not therefore follow Parliament's Amendment No 28 regarding an exception to the "no tipping off rule" in the case of the professions.

Article 6 of the Common Position deals in particular with the obligations regarding the reporting of suspicions of money laundering.

The first subparagraph of Article 6 (3) of the Common Position follows the Commission proposal in allowing a Member State option, in the case of the notaries and independent legal professionals, to use the appropriate professional body as the office to which such reports may be made. The text in the Common Position makes it clear, however, that in such cases the professional body is not to be treated as the anti-money laundering authority. In other words, the professional body will not be a Financial Intelligence Unit.

The second subparagraph of Article 6 (3) deals with the safeguards for the professions to enable them to fulfil their traditional role and maintain the confidence of their clients. The Commission proposal provided for such safeguards only in the case of the independent legal professionals. However, the Council considered that the considerations that applied to the legal professions also applied under certain circumstances to auditors, external accountants and tax advisors, and the same safeguards are therefore given to these professions. Under the Common Position, Member States are not required to impose any reporting obligation on the legal and these other professions when they obtain information that might be indicative of money laundering "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". The Council and the Commission are satisfied that these safeguards ensure that the text of the Common Position is fully compatible with the European Convention for the Protection of Human Rights and Fundamental Freedoms. While the text of the Common Position does not correspond to the precise text of any of Parliament's amendments the Commission believes that the spirit underlying a number of Parliament's amendments (e.g. No 16 or No 26) seeking adequate protection for the traditional role of the legal professions in particular is reflected in the Common Position.

Article 6 (4), on the use of suspicious transaction reports, corresponds to the Commission proposal, which itself reproduces the corresponding provision of the 1991 Directive. Parliament's Amendment No 27 has therefore not been followed.

Articles 7 and 9 of the Common Position are largely unchanged as compared with the Commission proposal. Parliament's Amendment No 29, which seeks to modify the good faith standard determining the immunity from liability in respect of reports to the authorities, is not taken up in the Common Position.

Article 11 of the Common Position introduces certain changes as compared with the Commission proposal. The provisions relating to internal control and training measures reflect the Commission proposal. A new paragraph 2 deals with feed-back to the persons and institutions subject to the Directive on money laundering practices. This has long been sought by the financial sector in particular. This new provision corresponds to part of Parliament's Amendment No 30. However, in contrast to the objective of that same amendment, Article 11 of the Common Position is not limited to the financial sector. The Council and the Commission believe that the terms "adequate procedures of internal control" and "appropriate measures" for staff training provide sufficient flexibility to avoid an excessive burden on the professions and activities now to be brought within the scope of the amended Directive.

With reference to Article 12 (2), the Commission reiterates, taking into account the close links between serious economic crime, such as money laundering, and EC-fraud (points 49 and 51 of the Tampere conclusions, its intention to establish between OLAF and the competent national anti-money laundering authorities of the Member States a mechanism for co-operation and the exchange of information in matters relating to the fight against fraud affecting the European Communities' financial interests. The Commission takes note of the declaration made by the Council in this respect when reaching its political agreement on 29 September 2000. The Council states that it is aware of the desirability of such a mechanism from a practical point of view and consequently invites the Commission to submit a new proposal. The Common Position has therefore deleted Article 12 (2). As a result of these changes, Parliament's Amendments Nos 31 and 32 are not reflected in the Common Position. The Commission will prepare a proposal based on Article 280 of the Treaty (as referred to in Parliament's Amendment No 41). This proposal shall comprise aspects of information exchange with the participation of the Commission, including administrative measures necessary for tracing assets and detecting funds for the purpose of recovery, as well as other related measures, such as checks on cash movements which might be linked to the laundering of the proceeds of EC-fraud.

The preamble to the Directive has been adapted to bring it into line with the articles of the text as approved by the Council in the Common Position. The recitals as adapted incorporate Amendments Nos 3 and 34 (in part), while Nos 1, 5, 7, 45 and 35 have not been taken up.

4. Conclusions

The Commission considers that the Common Position adopted by the Council on 30 November 2000 is generally faithful to the spirit of the Commission's proposal of July 1999, which itself was tabled in response to concerns expressed by the Council and the European Parliament.

In general where the Common Position departs from the Commission proposal it is in a sense that seeks to broaden the scope of the proposal; this is particularly true in the matter of the predicate offences.

As regards the professions, and the legal professions in particular, the Common Position seeks, in line with the Opinion of the European Parliament, to ensure that adequate safeguards are envisaged so that the professions can continue to fulfil their traditional role of providing advice to their clients and of representing them in proceedings. The Commission believes that the Common Position has achieved the delicate balance of bringing the professions within the scope of the anti-money laundering defences without undermining the basis of trust on which their relations with their clients are traditionally based.

The Commission therefore commends this Common Position to the European Parliament.