Why is the Commission proposing a Directive on the criminalisation of money laundering?
Terrorist organisations and organised crime need financing – to maintain their criminal networks, to recruit and supply, and to commit terrorist acts themselves. Money laundering allows criminal organisations to benefit from their illegal activities and maintain their operations. In essence, money laundering uses the earnings generated through a multitude of illegal cross-border activities – such as drug trafficking, trafficking in human beings, illicit arms trafficking and corruption – to acquire, convert or transfer property, while hiding the true nature of its origin, in order to use the revenues of these crimes in the legitimate economy. A strengthened criminal response to money laundering contributes to cutting off sources of finance and countering the financial incentives which drive crime, making a powerful contribution to the fight against terrorism and organised crime.
The current criminal law framework against money laundering in the EU is neither comprehensive nor sufficiently coherent to be fully effective. All Member States criminalise money laundering; however, existing differences in the definition, scope and sanctions of money laundering offences affect cross-border police and judicial cooperation between national authorities as well as the exchange of information. These differences in legal frameworks can also be exploited by criminals and terrorists, who could carry out financial transactions where they perceive anti-money laundering measures to be weakest.
In February 2016, the Commission set out an Action Plan to ensure that Member States have the necessary tools at their disposal to address new threats linked to terrorist financing. The Action Plan recognised that while Member States have criminalised money laundering, there are differences across the EU as to the definition of money laundering and the sanctions applied. To that end the Commission committed to propose a Directive harmonising money laundering offenses and sanctions by the end of 2016.
The measures proposed today will provide for a strengthened legal framework to combat money laundering in the European Union, improve enforcement in this area and reduce the threat from terrorist and organised crime organisations by hindering their capacity to finance their activities. They will further reinforce the EU's capacity to tackle organised crime and terrorist financing more effectively and more generally enhance the internal security of the EU and the safety of EU citizens.
What are the key objectives of the Directive?
Today's proposal for a Directive aims at tackling money laundering by means of criminal law. It proposes to establish minimum rules concerning the definition of criminal offences and sanctions in the area of money laundering, as well as common provisions to improve the investigation of those offences and to ensure better cooperation in the fight against money laundering.
The Directive aims at implementing international obligations on money laundering and terrorist financing such as the Warsaw Convention and relevant recommendations from the Financial Action Task Force (FATF).
In addition, the proposal will improve cross-border cooperation and the exchange of information between competent authorities. All Member States have criminalised money laundering, but there are differences between Member States both on the definition of money laundering and on the sanctions applied to such a crime. These differences create obstacles that hinder cross-border judicial and police cooperation to effectively tackle money laundering. The Directive aims to remove these obstacles by setting up a common definition of money laundering across the EU.
Finally, the measures will help to prevent criminals from exploiting the differences between national legislations to their advantage. A situation where there are widely differing sanctions for money laundering across the EU creates a risk of "forum shopping" by offenders, or in other words – criminals choosing to carry out their crimes where they are less likely to face serious sanctions.
What is the scale of the money laundering problem?
The United Nations estimated the total amount of criminal proceeds in 2009 at approximately USD 2.1 trillion, which is equivalent to 3.6% of global GDP. The amount of money generated from criminal activity in the main illicit markets in the EU has been estimated at €110 billion per year, corresponding to 1% of the EU GDP. For criminals to benefit fully from the proceeds of their crimes, these criminal proceeds need to be laundered.
Criminal investigations on money laundering involving several EU Member States are very frequent. As part of the Commissions consultation process, estimates in one Member State suggest that between 10 to 15% of cases have a cross border dimension. In two Member States the same estimate is 20%, and in a couple of Member States it reaches 70%. Five Member States estimate that the proportion of money laundering investigations with a cross-border element ranges between 38% and 50%.
Eurojust registered 724 cases on money laundering between 2012 and July 2015, rising from 193 cases in 2013 to 286 money laundering cases in 2015. Furthermore, a large number of Member States have estimated the number of Suspicious Transaction Reports (STRs) with a cross-border dimension to be between 30% and 50%. The number of requests for information and cooperation transmitted through FIU.Net, the information exchange tool of EU Financial Intelligence Units, increased from 12,076 in 2014 to 17,149 in 2015.
What are the links between money laundering and terrorist financing?
Large terrorist groups as well as smaller cells and individuals often finance their attacks and activities through crime. Organised crime can support terrorism, for example through the supply of illegal weapons. Terrorists can use money laundering schemes to convert, conceal or acquire the proceeds of criminal activities.
A strengthened EU legal framework to criminalise money laundering would both help to combat organised crime and contribute to tackling terrorist financing more effectively and reduce the threat from terrorist organisations by hindering their capacity to finance their activities.
This Directive will also complement the Directive on combating terrorism, which sets a comprehensive definition of the crime of terrorist financing, covering not only terrorist offences but also terrorist-related offences such as recruitment, training and propaganda.
How does this proposal fit in the overall EU framework to tackle money laundering and terrorist financing?
This proposal is an integral part of the EU response to money laundering and complements measures in place aimed at detecting, disrupting and preventing the abuse of the financial system for money laundering and terrorist financing purposes, notably the revised 4th Anti-Money Laundering Directive and the Transfer of Funds Regulation. While these measures help to prevent money laundering and facilitate investigations into money laundering offences, they do not address the absence of a uniform definition of money laundering.
The proposal also reinforces the criminal law framework with regard to offences relating to terrorist groups and the criminalisation of terrorism financing, as included in the proposal for a Directive on combating terrorism.
Will the Directive ensure that the EU is compliant with international standards?
This proposal aims to implement international requirements on the criminalisation of money laundering. The Directive will move the EU closer to meeting its international obligations in this area, such as those set out in the Council of Europe Warsaw Convention, as well as Financial Action Task Force recommendations.
Recommendation 3 of the Financial Action Task Force (FATF) calls on countries to criminalise money laundering on the basis of the UN Vienna Convention of 1988 and the UN Palermo Convention of 2001. It asks countries to criminalise the laundering of proceeds of all serious offences, with a view to including the widest range of predicate offences (see below for explanation), as well as ancillary activities unless this is not permitted by fundamental principles of domestic law.
The Warsaw Convention is the most comprehensive international convention on money laundering. It requests parties to adopt legislative measures to facilitate the prevention, investigation and prosecution of money laundering as well as the effective freezing and confiscation of proceeds and instrumentalities of crime.
The Warsaw Convention was signed by 26 EU Member States, of which 17 have so far ratified it. The EU signed the Warsaw Convention in 2009 but has not yet ratified it. This proposal for a Directive would be an important step towards ratification of the Warsaw Convention.
What is "self-laundering" and why has the Commission included it in the proposal?
Self-laundering refers to the situation where a person who has committed a crime tries to hide the illicit origins of the proceeds from that crime. Self-laundering is an additional crime, different to the predicate offence, which violates the integrity of the financial market and thus it's important to prosecute those who try and benefit from its proceeds.
As self-laundering is not criminalised in all jurisdictions, this can cause difficulties for some Member States in establishing a prosecutable offence and investigating and tracing the flow of illegally acquired funds. Eurojust indicates that the fact that self-laundering is not criminalised in all jurisdictions may cause difficulties for some Member States to establish a prosecutable offence and to investigate and trace the flow of “black money”.
What is a "predicate offence"?
In money laundering cases, a predicate offence is the underlying criminal activity which generated the property laundered. An example of a predicate offence can be drug trafficking which leads to profits which may then be laundered.
The definition of predicate offences can vary from country to country.
Why is it necessary to establish a list of predicate offences?
International conventions and FATF recommendations require the inclusion of a number of offences as predicate offences for money laundering such as terrorism, including terrorist financing, trafficking in human beings and migrant smuggling, illicit arms trafficking, environmental crime, fraud, corruption or tax crimes. However, these categories are simply listed and not defined, leaving wide scope for national differences in the range of predicate offences.
By establishing a list of predicate offences, this Directive will therefore make cross-border cooperation more effective, as well as fulfilling international requirements. All the predicate offences listed (except for cybercrime) come from the relevant international conventions which the Directive aims to implement. The references to EU law have been added only for those predicate offences where there is already an existing act at EU level requiring the criminalisation of a certain conduct.
Why did the Commission include cybercrime as predicate offence?
In the context of an increasing threat of cybercrime and attacks against information systems, the Directive also includes "cybercrime" in a list of offences related to terrorist financing. Computer crime is the only area of crime mentioned in Article 83 TFEU which is not listed in the categories of offences designated by the Financial Action Task Force (FATF) and the Warsaw Convention. The financial impact of cybercrime and the size of related proceeds are hard to quantify, but cases show that proceeds from cybercrime are laundered through sophisticated schemes, involving both traditional and new payment methods. In order to disrupt the financial incentive that drives many cybercrime activities, the proposal qualifies cybercrime as a predicate offence for money laundering.
Does this proposal go beyond international requirements?
In certain areas, this proposal goes beyond international requirements. It establishes the minimum level of the maximum sanctions and it also criminalises "self-laundering" (see above for explanation).
In addition to listing general categories of crime, the list provided in this proposal includes cybercrime and crimes where there is legislation at EU level defining the predicate offences, by making a reference to the relevant EU legislative acts.
What are the next steps of the proposal?
The proposal for a Directive on countering money laundering by criminal law will now be transmitted to the European Parliament and Council for adoption, in line with the normal legislative process. Once adopted, Member States have two years to transpose the provisions of the Directive into national law.
To which Member States does the proposal apply?
The proposal applies to all EU Member States except for Denmark, which is not taking part in the adoption of this Directive. The United Kingdom and Ireland can decide to take part in the adoption and application of this Directive.
For more information
Factsheet on the state of play of the European Agenda on Security
Third Progress Report towards an effective and genuine Security Union
Communication: Delivering on the European Agenda on Security to fight against terrorism and pave the way towards an effective and genuine Security Union