Commission Adopts Report Calling For New EU AML Directive – In light of the adoption in February this year of revised international anti-money laundering (AML) standards by the Financial Action Task Force (FATF), and its own review process, a report on the application in the European Union (EU) of the Third Anti-Money Laundering Directive has been adopted by the European Commission (EC).

It was noted that, without effective rules to combat money laundering and terrorist financing, the soundness, integrity and stability of the financial system could be seriously compromised, while, as the associated threats are constantly evolving, the periodic revision of the rules’ legal framework is required.

The Third AML Directive, in force since 2005, sets out a framework which is designed to protect the financial system against money laundering risks. It applies to the financial sector as well as, for example, to lawyers, notaries, accountants, real estate agents, casinos and company service providers. Its scope also encompasses all providers of goods, when payments are made in cash in excess of EUR15,000 (USD19,700).

However, following the publication of the FATF’s revised set of international standards on 16 February 2012, the EC committed itself to a rapid updating of the EU legislative framework to incorporate the necessary changes, together with a review of the Third AML Directive, with a view to addressing any identified shortcomings.

The European Internal Market and Services Commissioner Michel Barnier said: “We are taking an important step towards updating and enhancing the European rules designed to safeguard the soundness, integrity and stability of the financial system. We are committed to rapidly incorporating the new international standards and to ensuring that the European system responds appropriately to evolving threats of money laundering and terrorist financing. Our aim is to propose clear and proportionate rules which both protect the Single Market and avoid overburdening market participants.”

The report now adopted by the EC has therefore analysed how the different elements of the existing framework have been applied and considers how the framework may need to be changed.

It contains an examination of the provisions of the Third AML Directive, and in general concludes that although the existing framework appears to work well and that no fundamental shortcomings have been identified which would require substantial changes, some modifications are necessary to adapt to the evolving threats posed.

However, the EC will give further consideration to accommodating changes to the international AML standards as were identified by the FATF, in order to incorporate more risk-based elements which should allow a more targeted and focussed approach to assessing risks and applying resources to where they are most needed.

Possible extensions of the AML rules will also be considered, for example to ensure a more comprehensive coverage of the gambling sector, as well as the incorporation of tax crimes as a new predicate offence for money laundering, as will a possible clarification of the rules on customer due diligence.

Current due diligence rules require that banks and other obliged entities have in place adequate controls and procedures so that they know the customers with whom they are dealing and understand the nature of their business. However, revised rules will need to ensure that simplified procedures are not wrongly perceived as full exemptions from customer due diligence.

Provisions will be incorporated to deal with “politically exposed persons” – at a domestic level and those working for international organisations – and to strengthen the powers and cooperation between the different national financial intelligence units, whose tasks are to receive, analyse and disseminate to competent authorities reports about suspicions of money laundering or terrorist financing.

In addition, how AML supervisory powers apply in cross-border situations will be clarified, and new provisions on data protection incorporated in light of the EC’s proposals published in January this year. The report also provides an assessment of the Third AML Directive’s treatment of lawyers and other independent legal professionals.

Publication and adoption of the report by the EC will be followed by a consultation to which all stakeholders are invited to send their comments by June 13, 2012. The EC plans to bring forward a legislative proposal for a Fourth AML Directive in autumn 2012.

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