Brussels, 14 July 1999
Money laundering: Commission proposes to extend scope of EU Directive
A proposal to update and extend a 1991 Directive to counter money laundering has been put forward by the European Commission. The new proposal would oblige Member States to combat laundering of the proceeds of all organised crime and fraud against the budget of the European Union (EU), whereas the current Directive's obligations apply only to the proceeds of drugs offences. The new proposal would also extend the coverage of the current Directive (limited to the financial sector) to a series of non-financial activities and professions which are vulnerable to misuse by money launderers. Requirements as regards client identification, record keeping and reporting of suspicious transactions would therefore be extended to external accountants and auditors, real estate agents, notaries and lawyers carrying on financial transactions, dealers in precious stones and metals, transporters of funds and casinos. The proposed amendments were outlined in the Commission's report on the current Directive (see IP/98/654) and identified as one of the top priorities of the Action Plan for Financial Services (see IP/99/327) endorsed at the June 1999 Cologne European Council. The new EU rules would meet or go beyond international guidelines to counter money laundering established by the Financial Action Task Force (FATF).
"The 1991 Directive has worked well", declared Financial Services Commissioner Mario Monti, "but we must continue to strengthen the Single Market's defences against organised crime. The Action Plan for Financial Services set a target date for the proposal of mid-1999 and I was determined to respect that deadline".
The 1991 Directive (91/308/EEC) on prevention of the use of the financial system for the purpose of money laundering was a landmark in the fight against criminal money and the highly damaging effect it can have on the integrity of and confidence in the financial system. The Directive has provided the basis for Member States' efforts to prevent criminal money entering the financial system, which is a crucial part of the campaign against drugs trafficking and increasingly against organised crime in general. Indeed the Directive has served as a reference for non-EU countries' measures to counter money laundering. It requires financial firms (including 'bureaux de change' and money transmitters) to know the identity of their customers when opening an account or safe-deposit facilities or when a single or linked transactions exceed €15,000, to keep appropriate records and establish anti-money laundering programmes. Most importantly it requires banking secrecy to be suspended whenever necessary and any suspicions of money laundering (even when the transaction is below the threshold) to be reported to the authorities.
Since the Directive was adopted in 1991, both the money laundering threat and response to that threat have evolved. The EU Member States (in the recommendations of the Amsterdam European Council's Action Plan to combat organised crime) and the European Parliament (in two reports and resolutions) have called for a strengthening and widening of the EU efforts in this crucial area. Most Member States' rules already go beyond the requirements of the current Directive, in terms of lower thresholds and coverage of non-financial professions (see MEMO/98/53).
The new proposal widens the range of criminal activity covered by the Directive and its requirement to report suspicions of money laundering. Organised crime and fraud and corruption affecting the EU financial interests are added to the drugs trafficking offences already covered. This wider coverage corresponds to the dramatic increase in non-drugs based organised crime and would not only improve reporting of suspicious transactions but also, above all, facilitate international cooperation between judicial and police authorities in different countries.
As the money laundering defences of the banking sector have become stronger, money launderers have sought alternative ways of disguising the criminal origin of their funds. This trend has been clearly noted by the Financial Action Task Force (the foremost world anti-money laundering body, to which the Commission and all EU Member States belong together with 11 other countries and the Gulf Cooperation Council) and by the UN, with frequent reports of the services of lawyers and accountants being misused to help hide criminal funds. There have also been numerous cases where the real estate sector is used to launder money from criminal activity.
The proposal reflects the Commission's belief, shared by the Parliament and the Member States, that a number of professions and activities should now play a more active role in combating organised crime and the criminal money it generates. The proposal would therefore require the real estate sector, accountants and auditors and casinos to be fully involved in the fight against organised crime. These activities and professions would be obliged to properly identify their clients and report their suspicions of money laundering to the appropriate anti-money laundering authorities established by the Member States. These professions would be given protection against any liability under civil or criminal law arising from the reporting of money from a suspicious source.
In the case of notaries and other independent legal professionals the obligations of the Directive would apply in respect of specific financial or company law activities where the money laundering risk is the greatest (e.g. buying and selling of real property or business entities, handling clients' money, securities or other assets, opening or managing bank, savings or securities accounts, creation, operation or management of companies, trusts or similar structures).
Given the particular status of lawyers and their duty of confidentiality, as stressed inter alia by the Parliament, they would be exempted from any reporting requirement in any situation connected with the representation or defence of clients in legal proceedings. To make full allowance for lawyers' professional duty of discretion, Member States would also be given the option of allowing lawyers to communicate their suspicions of money laundering by organised crime not to the normal anti-money laundering authorities but to their bar association or equivalent professional body.
With this proposed special treatment for lawyers, the Commission is striving to include this profession in the anti-money laundering effort while safeguarding the special role of the lawyer in our society. Under the proposal, potential money launderers who attempted to misuse the services of the lawyer, possibly by providing inaccurate or incomplete information, would be liable to be reported to a higher authority. At the same time, lawyers would have the advantage of not being left to manage alone when faced with a suspicion of serious criminal activity.
The proposal would also add an annex to the Directive specifying appropriate methods for credit and financial institutions to identify of customers when they are not face-to-face (e.g. transactions by post, telephone or computer).