Select Committee on European Scrutiny Second Report


PREVENTION OF MONEY LAUNDERING


(a)
(22396)
7578/01



(b)
(22486)
9971/01
COM(01) 330


Draft Proposal amending Council Directive 91/308/EEC of 10 June 1991 on prevention and use of the financial system for the purpose of money laundering — outcome of the 2nd reading of the European Parliament (Brussels 2-5 April 2001).


Commission opinion on European Parliament amendments to the Council's common position regarding a draft 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.


Legal base: Articles 47(2) and 95 EC; co-decision; qualified majority voting
Document originated: (b) 13 June 2001
Forwarded to the Council: (b) 14 June 2001
Deposited in Parliament: (b) 26 June 2001
Department: HM Treasury
Basis of consideration: EM of 19 July 2001
Previous Committee Report: None; but see (20393) 10541/99: HC 34-xxviii (1998-99), paragraph 17 (20 October 1999) and HC 23-xxx (1999-2000), paragraph 11 (22 November 2000)
Discussed in Council: ECOFIN 16 October 2001
Committee's assessment: Politically important
Committee's decision: Cleared



Background

27.1 The Council adopted the First Money Laundering Directive in 1991. The previous Committee reported on 20 October 1999 on a Commission proposal to amend the Directive, and cleared that document on 22 November 2000, before the adoption of a common position by ECOFIN.

27.2 On 5 April 2001 the European Parliament voted on second reading for a total of 15 out of 27 amendments to the common position. On 13 June 2001 the Commission delivered a negative opinion on the amendments proposed by the European Parliament.

The Commission's opinion

27.3 In its opinion the Commission explained that it was unable to accept the 15 amendments of the European Parliament to the Council's common position. It considered that the amendments adversely reduced the scope of the Directive, imposed excessive obligations disproportionate to the risks addressed, were unnecessary, unclear or could not meaningfully stand alone where related amendments were not also adopted. The Commission accepted the principle of amendment 18, which raised the threshold that determines the exemption from the customer identification obligation in respect of certain insurance contracts.

27.4 The Commission opinion noted in particular the following amendments. Amendment 22, and its related amendment to the recitals, would change an optional provision of the common position into a prohibition on Member States from requiring lawyers to make suspicious transaction reports. The common position contained an exemption, by which a lawyer would not be required to make such a report where he was representing a client in proceedings, or advising a client, except in those cases where advice was being sought to further a criminal purpose. The common position allowed Member States to extend the exemption to auditors, external accountants and tax advisors.

27.5 The Commission expressed some sympathy with the Parliament's wish to make it obligatory not to require the reporting of suspicions of money laundering based on information obtained by lawyers and notaries in assisting their clients in legal proceedings or in advising them. The Commission did not accept that the same considerations applied in the case of the non-legal professions, and it considered that the Parliament's amendments would provide an excessive exemption for such professions.

27.6 The Commission did not accept the Parliament's amendment 22 which would prevent Member States from using information from persons making reports for purposes other than combating money laundering.

27.7 The Parliament's amendment 25 would replace the criterion of 'good faith' for disclosures of information to the relevant authorities (in which case the disclosure shall not be a breach of any duty owed in public or private law) by a test which would excuse such liability unless the information disclosed 'is untrue deliberately or owing to gross negligence'. The Commission considers that the good faith test corresponds to international standards and has not caused difficulties in practice.

The Government's view

27.8 In her Explanatory Memorandum of 19 July, the Economic Secretary to the Treasury (Ruth Kelly) indicates that the Government shares the concerns expressed by the Commission about the European Parliament's amendments. The Minister comments as follows:

    "It would not be acceptable to the UK authorities to be required to weaken our existing domestic anti-money laundering controls. One of the principles of the 1991 Directive was that it was permissive, allowing (indeed requiring) Member States to adopt more stringent controls where there were perceived risks to the integrity of their financial system. We have taken advantage of this permissiveness in a number of areas. Unfortunately, this principle has been undermined by the Parliament's amendments."

27.9 The Minister refers to amendments 22, 23 and 25 as ones to which the UK is strongly opposed, and comments on each amendment as follows:

    "Amendment 22

    "Reports from lawyers are currently required under UK law. Specifically excluding all forms of legal advice from a reporting requirement would weaken the UK's existing anti-money laundering controls, especially where the advice was sought to further a criminal purpose.

    "It is vital to include all gatekeepers to the financial system within anti-money laundering controls — this was one of the main advances agreed in the Council's Common position.

    "Amendment 23

    "In the UK, as in other Member States, we currently use intelligence gathered from Suspicious Transaction Reports for wider crime fighting purposes beyond combating money laundering. We believe that the ability for Member States to do this is necessary for the effective control of serious crime, and do not agree with the Parliament that doing so would be a contravention of the European Convention on Human Rights. Such use is already permitted under the 1991 Directive. Any restriction on our current use of this information would constitute a weakening of our law enforcement capabilities.

    "Amendment 25

    "We are concerned that Amendment 25 may be perceived by financial institutions as a weakening of the indemnity given to our reporting institutions when they breach client confidentiality, and as such may well lead to a loss of confidence in their ability to report all suspicions. Such doubts may at the very least, introduce greater delays into the reporting process, and may even lead to fewer reports being made. This would again be of great concern to the UK.

    "The UK agrees with the Commission's opinion that there are a number of other amendments where the Parliament has weakened the Directive, and on which we believe further dialogue with the Parliament would be helpful.

    "Nevertheless, the UK also recognizes that under the co-decision procedure, the Council will need to reach agreement with the Parliament and that a compromise may be possible with respect to some of the amendments without harming the UK's anti-money laundering systems. It is likely that such a compromise will have to be reached within the context of the conciliation procedure. The UK would be content to accept the Parliament's Amendment 18, which raises the threshold determining exemption from the customer identification obligation in respect of certain insurance contracts."

Conclusion

27.10 We are grateful to the Minister for her helpful Explanatory Memorandum on the Commission's opinion. We share the concerns expressed by her about the amendments proposed by the European Parliament, and believe it to be singularly inopportune to be weakening the existing system for preventing money laundering.

27.11 In particular, we think that amendment 25 would have the effect of imposing a duty on those making disclosures to make efforts to establish that the information they disclose is true. We believe this would be too burdensome and would seriously impede reporting. We consider that it should be sufficient that the disclosure is made in good faith.

27.12 We note the possibility that the Conciliation Committee may soon reach agreement on a joint text, which may be adopted shortly thereafter. In the meantime, we clear the present document.



 
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