This snapshot, taken on 07/04/2010, shows web content selected for preservation by The National Archives. External links, forms and search boxes may not work in archived websites.
Consultations & legislation
29 September 1999
Proposal 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.
Submitted by HM Treasury
29 September 1999
The Council adopted a First Money Laundering Directive in 1991 (transposed into UK law through the Criminal Justice Act 1993 and the Money Laundering Regulations 1993). The Directive requires the Commission to submit reports to the Council and European Parliament on the implementation of the Directive.
2. In the second of its reports, issued in July 1998, the Commission noted that although implementation was generally satisfactory, the long-term and evolving nature of the threat from money laundering means that the "Directive risks appearing somewhat out of date in certain respects"(1) It concluded that a new amending Directive would be needed to bring the First Directive up to date and to extend its coverage. The Commission proposal reflects these conclusions.
3. The First Directive was designed to give legal force in the EC to the Forty Recommendations of the Financial Action Task Force (FATF), an international body linked to the OECD and established by the G7 Summit in Paris in 1989. These Recommendations set out an internationally-agreed benchmark of the measures that countries should take to deter and punish money laundering.
4. The key features of the First Directive are that:
a) Member States must ensure that money laundering is prohibited;
b) credit and financial institutions must require identification of their customers by means of supporting evidence when entering into business relations;
c) credit and financial institutions must maintain adequate records of transactions and identification for at least five years;
d) credit and financial institutions must cooperate with national law enforcement authorities and must inform them of any fact which might be an indication of money laundering;
e) credit and financial institutions must carry out adequate staff training to ensure that their staff are aware of the law and are trained to spot potentially suspicious transactions;
f) Member States must extend the provisions of the Directive to any businesses which engage in activities which are "particularly likely to be used for money-laundering purposes".
5. The UK has implemented this latter clause by including a range of financial services which ensures that, inter alia, bureaux de change, money transmitters and cheque cashers come within the scope of the Money Laundering Regulations.
6. The key features of the Commission's proposal are that the First Directive should be amended to:
a) extend coverage to the following activities:
i) External accountants and auditors;
ii) Real estate agents;
iii) Notaries and other independent legal professionals when assisting or representing clients in respect of the :
iv) dealers in high-value goods such as precious stones and metals;
v) transporters of funds;
vi) the operators, owners and managers of casinos.
b) make clear that investment firms as well as bureaux de change, money transmitters and cheque cashers are covered;
c) change the definition of 'criminal activity' to cover not just drugs trafficking but also all organised crime and illegal activities affecting the financial interests of the Communities as the basis of the prohibition of money laundering.;
d) make clear that where a branch of a bank or other financial institution is in a different Member State, it is a host state responsibility to deal with suspicious transaction reports and to monitor those branches' anti-money laundering compliance;
e) provide some exemption from the reporting requirements for lawyers on grounds of client confidentiality;
f) allow Member States to allow lawyers to pass suspicious transaction reports to bar associations and legal associations rather than direct to law enforcement agencies;
g) include provisions for the adequate identification of customers where no face to face contact between bank staff and customer occurs, such as in postal or telephone banking accounts;
h) include references to cooperation on fraud and corruption between the Community and money laundering regulation enforcement agencies in Member States to protect the EU Budget.
7. Chancellor of the Exchequer.
(i) Legal basis
8. Article 47(2), first and third sentences, and Article 95 of the EC Treaty.
(ii) European Parliament procedure
9. The co-decision procedure applies.
(iii) Voting procedure
10. Qualified majority voting in Council.
(iv) Impact on UK law
11. If adopted as it currently stands, the Directive would require the 1993 Money Laundering Regulations to be amended.
12. The proposal conforms to the requirements of subsidiarity.
13. The Government broadly supports the proposal. International work in the Financial Action Task Force on money laundering has developed and refined the approach taken to money laundering at the time of the first Directive. The Forty Recommendations referred to above have been revised to reflect the higher standards and more complex approach that can be developed now that minimum standards are already in place. Furthermore, as banks and other credit and financial institutions have taken the measures called for, so money laundering has diversified into other sectors and activities.
14. Whilst anti-money laundering legislation in the UK already covers lawyers and accountants, UK law enforcement authorities and regulators are concerned with the gap between the increasing use by criminals of solicitors and accountants to launder their money, and the low level of suspicious transaction reports made by these professions. From an overall total of 58,112 reports received by the National Criminal Intelligence Service (NCIS) over the period 1995-1998, solicitors made only 991 and accountants 256 reports. The number of reports also contrasts with the sizes of these professions: over 100,000 solicitors and 225,000 accountants.
15. Updating and extending the Directive makes sense, for these reasons, and because of the its very success so far. As regulations have closed down traditional means of legitimising 'dirty' money, so criminals have turned to new sectors not currently adequately regulated.
16. The Treasury carried out a review of the impact of the Money Laundering Regulations, and the general state of UK anti-money laundering policy, in 1996-1997. The financial services industry was consulted, as were the various law enforcement agencies and regulators. The main conclusions were that, while compliance with the regulations needs to be improved in some key areas, the regulations themselves were adequate for the sectors currently covered. Some changes to primary legislation on Money Laundering and the confiscation of criminal assets were proposed.
17. In view of the above, in negotiating the Directive, the Government will be looking to ensure that the following principles are satisfied:
i. that the Directive updates the First Directive in the light of experiences and global trends in money laundering over the last nine years, and in particular that it tackles effectively those activities and professions shown to be vulnerable to money laundering;
ii. that the Directive covers a wide range of predicate offences for money laundering (in other words, that it covers the laundering of proceeds from the widest possible range of criminal offences);
iii. that the Directive introduces consistency between the standards adopted in different member states, as part of the single market in financial services, and because significant differences in legal and regulatory frameworks can prevent effective cooperation in the fight against crime;
iv. that the Directive respects the principles of better regulation, and should only impose new burdens on industry where the total benefits exceed the total costs;
v. that the Directive brings other Member States into line with the high standards and extensive coverage of the legal and regulatory regime in the UK;
vi. that the Directive is consistent and complementary with the approach taken in other aspects of financial services, and with the approach taken in the Third Pillar;
vii. that the Directive is forward-looking and anticipates the challenges and opportunities presented by global technological changes such as the use of the Internet and e-money for commerce and banking.
18. In order to properly inform its approach to the Commission proposals, the Government is in the process of launching a consultation exercise on how and whether the Commission proposal adequately meets these principles.
19. The Government will conduct a full regulatory appraisal, in consultation with the relevant sectors, and will quantify the effects where possible. The impact will depend upon the extent to which the directive goes beyond the framework which already exists in the UK. As currently drafted, the Directive would impose new requirements on a number of sectors not currently covered by the Money Laundering Regulations 1993, who would be required to:
20. The relevant sectors are set out in paragraph 6(a) of this note. The requirements on accountants, auditors and legal professionals largely replicate the obligations already placed on those professions by the relevant professional bodies, but the Government will consult those groups to determine whether the directive would impose new costs over and above those existing requirements.
21. There may also be costs arising from the requirements on identity verification for situations in which face to face conduct with the client does not occur; although the Government's assessment is that these obligations do not go significantly further than existing UK industry guidelines.
22. The Government will consider, in consultation with each of the sectors and with law enforcement and regulatory authorities, whether any additional costs are justified by the vulnerability of those sectors to money laundering.
23. The Commission proposes that Member States should bring into force the laws, regulations and administrative provisions necessary to comply with this proposal no later than 31 December 2002.
MELANIE JOHNSON MP
Economic Secretary
HM Treasury
