COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering, including terrorist financing and Proposal for a Regulation of the European Parliament and of the Council on information accompanying transfers of funds
Date: 2013-02-05
Institutions: European Commission
Subjects: coordination of EMU policies, economic cooperation, economic offence, money laundering, terrorism

EUROPEAN 
COMMISSION 

Strasbourg, 5.2.2013  
SWD(2013) 22 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a Directive of the European Parliament and of the Council on the 
prevention of the use of the financial system for the purpose of money laundering, 
including terrorist financing 

and 

Proposal for a Regulation of the European Parliament and of the Council on 
information accompanying transfers of funds 

{COM(2013) 44 final} 
{COM(2013) 45 final} 
{SWD(2013) 21 final}

EN 

   EN 

 
 
 
 
 
  
 
 
 
INTRODUCTION  –  THE  NEED  TO  UPDATE  THE  EXISTING  ANTI-MONEY  LAUNDERING  AND 
TERRORIST FINANCING FRAMEWORK 

The  EU  has  in  place  a  developed  framework  to  combat  money  laundering  and  terrorist 
financing.  Over  the  years  the  rules  have  evolved  and  the  scope  has  expanded,  with  each 
change aimed at closing down additional possible avenues that criminal and terrorists might 
exploit. 

However  the  system  is  continually  confronted  with  reminders  that  no  framework,  however 
robust,  is  immune  from  money  laundering.  The  recent  admission  of  money  laundering  by 
HSBC is just the latest example of what can happen when vigilance is lifted and controls are 
not sufficient. Increasingly heavy fines imposed by regulators in such circumstances are both 
confirmation of the international resolve to ensure enforcement of the rules, and a warning to 
other stakeholders of the potential consequences of any failings in their systems.  

Regulators  and  policy  makers  must  not  become  complacent  to  the  risks.  Criminals  are 
continually  searching  out  new  vulnerabilities  they  can  exploit.  The  amount  of  criminal 
proceeds  seeking  to  enter  the  financial  system  and  to  conceal  their  illicit  origins  is  truly 
staggering.  A  recent  study  by  the  United  Nations  has  estimated  that  the  amount  of  funds 
available  for  money  laundering  annually  is  somewhere  in  the  region  of  $1.6  trillion, 
equivalent  to  2.7%  of  global  GDP.  However  they  also  estimated  that  less  than  1%  of 
laundered funds are intercepted by law enforcement, and actual seizures amount to less than 
0.2%. 

For these reasons, work has been underway to update and strengthen the existing international 
standards. The Financial Action Task Force (FATF) published a new set of revised standards 
in  February  2012,  and  will  begin  the  process  of  evaluating  the  conformity  of  national 
jurisdictions  at  the  end  of  2013.  The  new  standards  will  enable  national  authorities  to  take 
more effective action against money laundering and terrorist financing at all levels – from the 
identification of bank customers opening an account through to investigation, prosecution and 
forfeiture of assets. They will also better address the laundering of the proceeds of corruption 
and tax crimes and strengthen the requirements for higher risk situations and allow countries 
to take a more targeted risk-based approach. 

In  parallel  to  this  process,  the  European  Commission  has  also  been  undertaking  its  own 
review  of  the  EU  framework,  and  published  a  report  on  the  application  of  the  Third  Anti-
Money Laundering Directive ("Third AMLD")1 in April. 

The  implications  of  this  work  are  that  the  EU  framework  will  need  to  evolve  and  adjust  to 
changes  which  should  see  an  increased  focus  placed  on  the  effectiveness  of  regimes  to 
counter money laundering and terrorist financing, greater clarity and consistency of the rules 
across  Member  States,  and  a  broadened  scope  designed  to  address  new  threats  and 
vulnerabilities. 

1 

Directive  2005/60/EC  on  the  prevention  of  the  use  of  the  financial  system  for  the  purpose  of  money  laundering  and  terrorist 
financing 

2 

 
 
                                                 
1. 

PROBLEM DEFINITION 

The problems of Money Laundering and Terrorist Financing – who is affected, and how. 

There  is  a  general  consensus  globally  and  across  political  spectrums  that  immense  damage 
can result if financial systems are insufficiently protected from criminal or terrorist abuse. In 
particular,  systems  which  fail  to  prevent  money  laundering  and  terrorist  financing  expose 
themselves to:  

•  Societal risk, stemming from the feedback of criminal and terrorist funds into criminal 

and terrorist activities; 

•  Negative  economic  impacts,  arising  from  disruptions  to  international  capital  flows, 

reduced investment and lower economic growth; 

•  Financial market instability, resulting from reluctance of other financial intermediaries 
to engage in business, loss of reputation, drop in confidence and prudential risks. 

A  broad  range  of  stakeholders  is  affected  by  money  laundering  and  terrorist  financing  in 
different ways: 

•  Those obliged entities that are expected to keep the system safe by applying checks 
and controls, who face consequences should their systems be found to be inadequate; 
•  Public authorities who need to enforce the rules and protect the system from criminal 

or terrorist abuse; 

•  Customers of obliged entities, who need to bear the burden of increased controls and 

potentially reduced access to certain services; 

•  The  business  community,  which  bears  the  burden  of  controls  and  restrictions,  but 

which benefits from a sound and secure financial system; 

•  Perpetrators  of  money  laundering  and  terrorist  financing,  who  continually  seek  to 

exploit – and must prevented from exploiting – any weaknesses in the system; 

•  Citizens and Society within the EU, who must be protected against terrorist acts, or 
the damage caused by increased criminality fed off the proceeds of crime, or loss of 
welfare resulting from tax evasion, damage to market integrity or trust; 

•  Society  and  governments  in  third  countries  if  the  EU  system  is  used  in  order  to 
channel illicit proceeds resulting from corruption and criminality in those countries.  

The EU Preventative system 

The  EU  has  in  place  a  framework  designed  to  keep  the  financial  system  safe  from  money 
laundering ("ML") and terrorist financing ("TF").  The framework is based, to a large extent, 
on the international standards adopted by the FATF of which the European Commission is a 
founder member. The EU framework has rules in place that require financial institutions and 
other  obliged  entities  and  persons  to  take  measures  to  prevent  them  being  used  for  the 
purposes of ML and TF.   

The Problem Drivers 

3 

 
 
 
 
As the risks posed to the financial system by those involved in money laundering or terrorist 
financing constantly evolve, the framework for its prevention needs to be robust, flexible and 
up-to-date.    The  Commission  services  have  identified  three  main  areas  where  the  current 
framework is in need of modification: 

1.  The existing rules are inconsistent with recently revised international AML/CFT 
standards.  -  Mutual  Evaluations  of  Member  States  (by  the  Financial  Action  Task 
Force  or  Moneyval)  have  revealed  certain  inconsistencies  between  the  Third  AMLD 
and the FATF Recommendations.  In addition, the FATF has made several extensions 
to the existing Recommendations which would render parts of the existing framework 
out-of-date.  For example, the Third AMLD requirements on simplified customer due 
diligence have been  criticised in mutual evaluation reports as being out of step with 
the  FATF  Recommendations.    The  FATF  has  also  extended  the  scope  of  its 
Recommendations  to  include  a  larger  category  of  politically  exposed  persons.    Not 
being  in  compliance  with  the  international  standards  has  reputational  impact  for 
Member States and the European Union as a whole.  

2.  The  existing  EU  rules  are  differently  interpreted  across  Member  States.  -  The 
Commission's  review  process  has  revealed  several  areas  where  the  existing  rules  are 
differently  interpreted.    Examples  include  the  requirement  to  identify  the  beneficial 
owner of a legal entity and the consistency of statistical data.  This poses risks to the 
Internal  Market  and  creates  compliance  difficulties  for  business  operating  across 
borders. 

3.  There are inadequacies and loopholes associated with the current EU rules.- Given 
the  evolution  of  ML  and  TF  risks,  it  is  important  that  the  EU  framework  is  able  to 
respond in a robust but flexible way.  The Commission's review process has revealed 
concerns about the scope of the current Directive in respect of gambling services and 
traders  in  high  value  goods,  where  the  rules  are  perceived  as  not  being  sufficiently 
robust.  Strengthening the rules will be a step towards addressing these risks, and will 
place EU legislation ahead of the international standards. 

The baseline scenario 

The  ever-changing  nature  of  the  threats  posed  by  ML  and  TF  require  a  response  which  is 
proportionate to the threats posed.  If no action were to be taken, the following consequences 
would result: 

1.  The EU framework would not be in line with international standards.  Given the risk 
that  Member  States  would  receive  poor  mutual  evaluation  reports,  Member  States 
might be tempted to adapt their own frameworks, resulting in fragmentation and a lack 
of convergence; 

2.  The uncertainties due to different application of the rules at national level would persist 

and would undermine the Internal Market; 

3.  Failing  to  better  target  resources  at  the  risks  of  ML  and  TF  would  leave  the  EU 

vulnerable to emerging threats.   

2. 

ANALYSIS OF SUBSIDIARITY 

Flows  of  dirty  money  and  terrorist  financing  can  damage  the  stability  and  reputation  of  the 
financial  sector  and  threaten  the  internal  market.  However,  any  measures  adopted  solely  at 

4 

 
 
 
Member  State  level  could  have  adverse  effects  on  the  EU  Single  Market  and  result  in  a 
fragmented response. EU action is justified to in order to address the overall threat of money 
laundering and terrorist financing and to maintain a level playing field across the EU.   

3. 

OBJECTIVES OF EU INITIATIVE 

The overarching objective for the revision of the AML framework is to protect the financial 
system and the single market from abuse by criminals seeking to launder illicit proceeds, or 
from terrorists seeking to fund terrorist activities or groups.  The Commission has identified 
four  general  objectives,  namely  strengthening  the  Internal  Market  by  reducing  complexity 
across  borders,  safeguarding  the  interests  of  society  from  criminality  and  terrorist  acts, 
safeguarding  the  economic  prosperity  of  the  European  Union  by  ensuring  an  efficient 
business  environment  and  contributing  to  financial  stability  by  protecting  the  soundness, 
proper  functioning  and  integrity  of  the  financial  system.    These  are  backed  up  by  specific 
policy objectives linked to improving the effectiveness of AML/CFT regimes and maintaining 
the  EU  financial  system's  reputation.    Operational  objectives  linked  to  the  problem  drivers 
complete  the  framework  in  which  the  various  options  for  changing  the  legislation  were 
considered. 

4. 

POLICY OPTIONS 

In terms of policy options, the Impact Assessment assesses a variety of measures/dimensions 
aimed at fulfilling the three operational policy objectives:  

1.  With  respect  to  ensuring  consistency  with  the  international  standards,  different 

options are considered with respect to:   

•  The inclusion of tax crimes into the EU framework; 

•  The introduction of a risk-based approach; 

•  The  approach  regarding  equivalence/non-equivalence  of  third  countries'  AML 

regimes; 

•  The introduction of risk-based supervision; 

•  The  introduction  of  new  requirements  for  domestic  PEPs/PEPs  working  in 

international organisations; 

•  The best way to improve availability of beneficial ownership information; 

•  The  adjustment  of  the  Fund  Transfers  Regulation  to  the  new  international 

standards (inclusion of beneficiary information, exemptions from scope).   

2. With respect to ensuring consistency between national rules and where appropriate 
flexibility in their implementation through the strengthening and clarification of 
current requirements, different options are considered with respect to:  

5 

 
 
• 

Improved collection and reporting of statistical data; 

•  Clarifying how the 25% threshold for the identification of the beneficial owner is 

meant to apply; 

• 

Introducing  new  rules  to  clarify  that  branches  and  subsidiaries  situated  in  other 
Member  States  than  the  head  office  apply  host  state  rules  and  reinforcing 
cooperation arrangements between home and host supervisors; 

•  Strengthening administrative sanctions. 

3.  With  respect  to  ensuring  that  the  rules  are  risk-focused  and  adjusted  to  new 
emerging threats, different options are considered with respect to: 

•  Broadening  the  scope  of  the  Directive  beyond  casinos  to  cover  the  gambling 

sector; 

•  Clarifying the interaction between AML/CFT and data protection requirements; 

•  Addressing vulnerabilities in the high value goods sector; 

•  Strengthening FIU powers and cooperation. 

5. 

ASSESSMENT OF IMPACTS 

It  is  not  possible  to  provide  an  accurate  quantitative  estimate  of  the  benefits  of  having  in 
place  up-to-date,  internationally  compliant  rules  which  are  coherent  across  the  Internal 
Market. However the World Bank describes the benefits as follows: "..an effective framework 
for  anti-money  laundering  (AML)  and  combating  the  financing  of  terrorism  (CFT)  have 
important  benefits,  both  domestically  and  internationally,  for  a  country.  These  benefits 
include lower levels of crime and corruption, enhanced stability of financial institutions and 
markets, positive impacts on economic development and reputation in the world community, 
enhanced risk management techniques for the country’s financial institutions, and increased 
market integrity."2 

The  adaptation  of  the  framework  to  stricter  international  standards,  coupled  with  the 
additional  changes  which  are  proposed  as  a  result  of  the  Commission's  own  review  process 
are expected to represent a substantial strengthening of the overall framework. The envisaged 
changes should mean that: 

•  a broader scope will address additional areas of risk,  
•  cross-border compliance should be strengthened,  
•  greater coherence between national rules achieved,  
•  greater effectiveness should result from more targeted and risk-sensitive rules. 

2  

Reference  Guide  to  Anti-Money  Laundering  and  Combating  the  Financing  of  Terrorism  Second  Edition  and  Supplement  on 
Special Recommendation IX, The World Bank/IMF, 2006. 

6 

 
 
  
                                                 
In terms of cost impacts, the impact assessment acknowledges that the implications will be 
very  different  according  to  the  situation  of  various  stakeholders.  The  most  significant  cost 
factors  associated  with  AML  compliance  are  those  connected  with  initial  one-off  costs 
associated with the introduction of new systems, training, consultancy, etc. On the basis of a 
previous Commission study3, it is already clear that how high those costs are likely to be will 
very  much  depend  on  the  type  of  strategy  adopted  to  ensure  compliance  (e.g.  focus  on 
automated, as opposed to manual processes). It will also depend on the degree of AML/CFT 
risk  associated  with  the  nature  of  each  business.  It  is  not  expected  that  existing  obliged 
entities will be unduly impacted by the envisaged changes, as they have already made systems 
investments  which  should  be  relatively  easily  adapted  without  the  need  for  heavy  new 
investments.  The  same  cannot  however  be  concluded  with  respect  to  entities  which  were 
hitherto  outside  the  scope  of  the  AML  framework  but  which  will  need  in  future  to  apply 
AML/CFT  rules.  This  is  notably  the  case  for  the  gambling  sector,  where  in  a  number  of 
Member  States  only  "traditional"  casinos  are  currently  within  the  scope  of  national  rules4. 
Where  existing  measures  are  extended  (for  example,  in  the  case  of  Politically  Exposed 
Persons) additional resources will be needed to make the necessary checks.  Supervisors will 
also face greater burdens due to the broadened scope.   

Giving greater prominence to the risk-based approach will have implications for governments 
(who will have to organise risk assessments), competent authorities and obliged persons and 
entities.    However,  these  costs  should  be  balanced  by  more  targeted  and  effective  measures 
aimed at dealing with the risks of money laundering and terrorist financing, which will mean 
that time and resources are not  spent on  technical compliance  which might not be  targeting 
actual risks.  Customers are unlikely to be directly affected by the changes, although there will 
changes  in  the  level  of  information  they  are  required  to  give  (for  example  if  they  are 
politically exposed persons, or if they are the customer of one of the newly scoped entities). 

In  terms  of  other  impacts,  the  impact  assessment  gives  detailed  consideration  to  how  the 
envisaged measures would affect:  

•  Stakeholders – both those falling under the scope of the existing framework, and other 

stakeholders affected by the changed rules. 

•  Fundamental rights, where it is particularly important to ensure an appropriate balance 
between  effectiveness  of  AML/CFT  measures  and  the  respect  to  data  protection  and 
privacy.  

•  SME's, where a distinction is drawn between the impacts on SME's which fall under 

the scope of the AML/CFT framework, and the impacts on SME's in general. 

•  The environment – where no significant impacts are foreseen. 
•  The  international  dimension,  where  in  particular  the  current  approach  towards 
recognition  of  third  country  equivalence  needs  to  be  adapted  to  the  risk-based 
approach, which should consequently mean that in future geographical location will be 
just one factor in a broader assessment of ML/TF risks. 

6. 

COMPARISON OF OPTIONS 

In terms of policy choices, the Impact Assessment concludes that a consistent EU approach to 
implement  international  standards  would  be  appropriate,  while  introducing  additional 

3  
4  

Europe Economics: Study on the Cost of Compliance with Selected FSAP Measures, 5 January 2009. 
This is further explored in Annex V. 

7 

 
 
                                                 
elements  of  harmonisation  to  improve  coherence  across  the  Internal  Market  with  sufficient 
flexibility to allow Member States to respond to new and emerging threats.  

In  terms  of  detailed  policy  choices,  the  Impact  Assessment  considers,  a  number  of  specific 
policy areas matching the identified problem drivers as follows: 

1.  The existing rules are inconsistent with recently revised international AML/CFT 
standards:  the  need  to  comply  with  international  standards  needs  to  be  met  with  a 
response that recognises the specificities of the single market.  With this in mind, the 
Impact  Assessment  concludes  that  that  there  should  be  changes  to  the  current 
framework to reflect the following: 

•  Tax crimes – are to be added as a predicate offence; 
•  National risk assessments – are to be required, with the option for elements of 

supra-national assessments. 

•  Simplified and Enhanced Customer Due Diligence rules - are to be revised in 

order to comply with the international standards; 

•  Third country equivalence – will be reviewed to focus on "non-equivalent" third 

countries. 

•  A  risk-sensitive  approach  to  supervision  –  is  to  be  given  specific  recognition, 

with the option for guidance to be provided on a sectoral basis; 

•  Politically  Exposed  Persons  –  the  Directive  will  propose  an  extension  of  the 

categories of individuals who are included in scope. 

•  Beneficial  ownership  information  –  will  be  made  available  to  competent 

authorities and obliged entities. 

•  Electronic  Fund  Transfers  –  Regulation  1781/2006  will  be  amended  to  cover 
the  recent  changes  to  the  FATF  standard  and  to  take  into  account  the 
Commission's review process.  

2.  The  existing  EU  rules  are  differently  interpreted  across  Member  States:  the 
different approaches adopted by Member States to the existing EU legislation highlight 
the  need  for  a  greater  level  of  harmonisation  in  the  framework.    However,  full 
harmonisation  would  not  necessarily  be  the  most  pertinent  solution  to  deal  with  the 
risks of ML and TF in the EU.  Given the need for a degree of flexibility to deal with 
the  emerging  risks,  the  conclusion  of  the  Impact  Assessment  is  that  the  Directive 
should propose the following changes: 

•  Statistical  data  –  improvements  are  needed  to  the  way  statistical  data  is 

collected across the EU; 

•  The definition of "beneficial owner" – will be clarified. 
•  Home and host supervisory responsibilities – will be clarified; 
•  The  availability  of  administrative  sanctions  –  will  be  harmonised  to  a  certain 

extent. 

3.  The  existing  rules  do  not  adequately  address  the  new  Money  Laundering  and 
Terrorist  Financing  risks:  The  need  for  a  robust  but  flexible  response  to  new  and 
emerging  threats  points  towards  introducing  more  risk-based  measures  but  without  a 
prescriptive  level  of  detail.    The  Impact  Assessment  concludes  that  the  following 
amendments to the legislation are appropriate: 

8 

 
 
 
 
 
 
•  Gambling - the scope of the Directive should be expanded to cover all types of 

gambling; 

•  Data  protection  rules  –  should  be  clarified  to  enable  the  proper  application  of 

AML/CFT rules; 

•  Traders  in  goods  –  the  threshold  for  inclusion  in  scope  and  customer  due 

diligence requirements will be reduced to €7,500; 

•  Cooperation between Financial Intelligence Units – will be strengthened in the 

Directive. 

7. 

MONITORING AND EVALUATION 

The  Commission  is  the  guardian  of  the  Treaty  and  will  therefore  need  to  monitor  how 
Member  States  have  implemented  the  changes  to  the  Third  AMLD  and  the  FTR.    Where 
appropriate and on request, the Commission services will offer assistance to Member States, 
throughout the implementation period, for the implementation of the legislative changes in the 
form of transposition workshops with all the Member States or bilateral meetings. Wherever 
necessary, the Commission will follow the procedure set out in Article 258 of the Treaty in 
case  any  Member  State  fails  to  respect  its  duties  concerning  the  implementation  and 
application of Community Law.  

The Commission will work with the joint Committee of the European Supervisory Authorities 
on  AML  (AMLC),  which  in  particular  produces  reports  on  the  implementation  of  the  third 
AML  Directive  in  some  specific  areas  in  order  to  monitor  the  application  of  the  new 
legislative framework. The Committee on the Prevention of Money Laundering and Terrorist 
Financing  (CPMLTF),  could  also  serve  as  a  forum  for  sharing  information  on  application 
issues.  The  Commission  services  may  also  use  the  findings  of  studies  carried  out  by 
stakeholders  or  Member  States  as  well  as  any  feedback  from  meetings  with  private 
stakeholders.  Consideration  will  also  be  given  to  commissioning  an  external  study  as 
appropriate.  

Monitoring of the application of the AML Directive will also take place indirectly through the 
mutual evaluation processes of the FATF (15 EU Member States are members of this body) 
as well as Moneyval (the other 12 Member States are members of this body). This peer review 
process is an essential and rigorous process to ensure that Member States comply, both in law 
and in practice, with FATF international standards, from which most of the requirements of 
the  AML  Directive  are  derived.  Evaluations  take  place  around  every  5-7  years  for  each 
country  and  can  be  complemented  by  follow-up  reports,  usually  every  2  years  (or  more 
frequently if the deficiencies identified require it).  

CONCLUSION 

The  Commission  considers  that  the  preferred  options  described  and  analysed  in  this  Impact 
Assessment are proportionate to the objectives. By ensuring a tailored and flexible approach, 
Member  States  should  not  be  constrained  from  adopting  measures  and  taking  actions  as 
necessary to counter important threats they may confront  at national  level. The inclusion of 
processes  at  EU  level  to  ensure  greater  coordination  and  the  development  of  supranational 
approaches,  together  with  further  harmonisation  in  specific  areas  should  ensure  that  EU 

9 

 
 
 
 
objectives  are  also  met.    Although  ensuring  an  effective  AML/CFT  system  entails 
considerable  costs  for  obliged  entities,  the  Commission  considers  that  the  (much  harder  to 
quantify)  benefits  associated  with  preventing  money  laundering  and  terrorist  financing  will 
continue  to  outweigh  the  costs,  including  the  new  costs  arising  from  the  changes  to  the 
framework. 

10