Source: European Commission
Frequently asked questions: EU fight against money-laundering and terrorist financing moves up a gear: European Commission takes action to meet the revised international standards adopted by the Financial Action Task Force
1. What is money laundering? What is the Financial Action Task Force?
1.1 What is money laundering?
Money laundering is the conversion of the proceeds of criminal activity into apparently clean funds, usually via the financial system. This is done by disguising the sources of the money, changing its form, or moving the funds to a place where they are less likely to attract attention.
"Criminal activity" includes fraud, corruption, drug dealing and other serious crimes.
1.2 What is the Financial Action Task Force (FATF)? Who takes part in FATF?
The FATF is the global standard-setter for measures to combat money-laundering, terrorist financing, and (most recently) the financing of proliferation. It is an intergovernmental body with 36 members, and with the participation of over 180 countries through a global network of FATF-style regional bodies.
The European Commission is one of the founding members of the FATF and plays an active role in the working groups and plenary meetings which are held three times a year. In addition, 15 EU Member States are FATF members in their own right .
2. What is the EU already doing to fight money-laundering?
2.1 What is the current legal framework?
The current EU legislation, the so-called Third Anti-Money Laundering Directive (the 3rd AMLD), is in force since 2005. It provides a European framework around the international FATF standards (see IP/04/832).
The Directive is applicable to the financial sector as well as 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 €15.000.
Those subject to the Directive need to:
identify and verify the identity of their customer and of its beneficial owner, and to monitor the transactions of and the business relationship with the customer;
report suspicions of money laundering or terrorist financing to the public authoriti to the public authorities - usually, the financial intelligence unit; and
take supporting measures, such as ensuring the proper training of the personnel and the establishment of appropriate internal preventive policies and procedures.
The Directive introduces additional requirements and safeguards for situations of higher risk (e.g. trading with correspondent banks situated outside the EU).
Since the existing Directive is based on the international standards, it will need to be reviewed in order to reflect the new FATF standards (see question 4).
2.2 How do Member States cooperate in this field?
The 3rd AMLD requires Member States to provide appropriate assistance in order to facilitate coordination of AML matters. At the practical level, Member States take an active part in the EU Financial Intelligence Unit platform. At the policy level, Member States participate in regular meetings of the Committee for the Prevention of Money Laundering and Terrorist Financing (CPMLTF) and the Anti-Money Laundering Committee .
The "EU Financial Intelligence Units' Platform" is an informal group set up in 2006 by the European Commission, which gathers Financial Intelligence Units from the Member States. Its main purpose is to facilitate cooperation among the national financial intelligence units (FIUs), whose tasks are to receive, analyse and disseminate to competent authorities reports about suspicions of money laundering or terrorist financing. The European Commission participates in the Platform and provides support.
3. What is being done at global level to strengthen the fight against money laundering?
3.1. Why a revision of the international standards?
The original FATF standards on anti-money laundering were amended in the aftermath of the 9/11 attacks to include measures to counter terrorist financing. The Recommendations were fully revised in June 2003 to reflect an increased awareness of money laundering and terrorist financing issues; this was incorporated in the 3rd AMLD.
The latest revision of recommendations, adopted today, marks a continuation of this process with an increased focus on the effectiveness of regimes to counter money laundering and terrorist financing.
3.2. How will the international standards change with the new FATF agreement?
Key Changes introduced by the new Standards:
Introducing a risk-based approach: For the first time, the new standards introduce a risk based approach. This means countries more at risk of money laundering or terrorist financing need to do more than those less at risk. Countries need first to clearly understand the money laundering and terrorist financing risks which affect them, and adapt their Anti Money laundering/Counter Financing of Terrorism (AML/CFT) system to the nature of these risks - with enhanced measures where the risks are higher and the option of simplified measures where the risks are lower. Under the risk-based approach, countries will be able to target their resources more effectively and apply preventative measures that correspond to the risks of particular sectors or activities. A well-implemented risk-based approach means that the AML/CFT system will be more effective and less costly.
Improving Transparency measures: There is little transparency at the moment around some of the parties involved in various transfers, in particular electronic transfers making them vulnerable to misuse by criminals and terrorists. The new agreement has strengthened transparency requirements. This means requiring that there is reliable information available about the ownership and control of companies, trusts, and other legal persons or legal arrangements. It also means more rigorous requirements on the information which must accompany electronic funds transfers. Measures to improve transparency, implemented on a global basis, will make it harder for criminals and terrorists to conceal their activities.
Towards more effective International Cooperation: With the increasing globalisation of money laundering and terrorist financing threats, the FATF has also enhanced the scope of international cooperation between government agencies, and between financial groups (e.g. simplified extradition mechanisms).The revised Recommendations will allow more effective exchanges of information, tracing of, freezing of, confiscation of and repatriation of illegal assets.
Identification of clear Operational Standards: the FATF Recommendations concerned with law enforcement and Financial Intelligence Units have been expanded significantly. The revisions clarify the role and functions of the operational agencies responsible for combating money laundering and terrorist financing; and set out the range of investigative techniques and powers which should be available to them.
New threats & new priorities to be covered: The FATF will also address new and aggravated threats and respond to the priorities set out by the international community, e.g. through the G20, in particular:
Financing of Proliferation - The proliferation of weapons of mass destruction is a significant security concern, and a tough approach on financing can be an effective way to combat this threat. The FATF has adopted a new Recommendation aimed at ensuring consistent and effective implementation of targeted financial sanctions when these are called for by the UN Security Council.
Corruption & Politically Exposed Persons - The FATF Recommendations tighten the requirements on "politically exposed persons"; i.e. people who may represent a higher risk of corruption by virtue of the positions they hold. The requirement to apply enhanced due diligence to foreign politically exposed persons has been expanded with new recommendations also applying to domestic politically exposed persons and international organisations, and to the family and close associates of all politically exposed persons - reflecting the methods used by corrupt officials and kleptocrats to launder the proceeds of corruption.
Tax Crimes - The list of predicate offences for money laundering has been expanded to include tax crimes. Tax crimes are brought within the scope of the powers and authorities used to combat money laundering. This will contribute to better coordination between AML and Tax authorities, and remove potential obstacles to international cooperation regarding tax crimes.
Terrorist Financing - The financing of terrorism remains a serious concern for the international community, and remains a major focus of the FATF. The FATF recommendations reflect both the fact that terrorist financing is a long-standing concern, and the close connections between anti-money laundering measures and measures to counter the financing of terrorism.
4. How will the European Commission ensure that the FATF standards are implemented in the EU?
The European Commission, which is a full Member of the FATF, has participated actively in the development of the new international standards. As the FATF will start to check that their Recommendations are being implemented from the end of 2013, the Commission needs to act fast to incorporate the new standards into existing EU law.
To this end, the Commission has already launched a process to review the functioning of the relevant legislation, i.e. the 3rd AMLD, including the publication of an external application study and targeted consultations with private stakeholders and Member States.
At the end of March, the Commission will adopt a report on the application of the Third Anti-Money Laundering Directive, following which work will begin on an impact assessment and the accompanying legislation, with the intention of adopting a legislative proposal, amending the 3rd AMLD, by end 2012.