EU Directives

Question 1

EU First Directive (1991)

Answer 1

Requires member states to achieve (by amending law if necessary) specified results. Required members to enact a law to prevent their domestic financial system from being used for money laundering

EU directives prevail over national law

Confined predicate offenses to money laundering to drug trafficking

Question 2

EU Second Directive (2001)

Answer 2

1. Extended the scope of the First Directive beyond drug-related crimes.
2. “Criminal Activity” was expanded to cover not just drug trafficking but all serious crimes including corruption and fraud.
3. Clarified that knowledge of criminal conduct can be inferred from objective circumstances
4. Brought bureaux de change and money remittance offices under AML coverage
5. Widened professions subject to directive to include lawyers, auditors, external accountants, tax advisers, real estate agents, and notaries
6. Clarified ML definition

Question 3

EU Second Directive ML definition:

Answer 3

1. conversion or transfer of property with knowledge that it was from criminal activity or assisting anyone trying to evade legal consequences
2. Concealing the nature, source, location, movement of property that came from illegal activity
3. Acquisition of property knowing it came from illegal activity
4. Participation or assisting in any of the aforementioned

Question 4

EU Third Directive (2005)

Answer 4

1. Defined ML and TF as separate crimes
2. Expanded to cover the collection of money/property for terrorist groups
3. Extended identification and SAR reporting to TCSPs, life insurance intermediaries, and dealers selling gods for cash > EUR 15k
4. Risk-based approach for CDD
5. Protected employees who report ML/TF
6. Required states to keep stats on use of and results of SARs
7. Required all financial institutions to identify/verify the beneficial owner of all accounts (BO controls directly/indirectly 25% of entity)

Question 5

Scope of 3rd EU Directives differs from the 2nd Directive in that

Answer 5

1. It specifically includes the category TCSPs
2. it covers all dealers trading in goods who trade in cash over EUR 15k
3. The definition of financial institution includes certain insurance intermediaries

Question 6

Points of contention with the Third Directive

Answer 6

1. definition of peps
2. inclusion of lawyers to include in sars
3. the role of “committology committee” tasked with overseeing implementation of acts proposed by the EU

Question 7

EU Fourth Directive

Answer 7

1. the threshold for entities obliged to report sars decreased from eur 15k to 10k
2. scope of obliged entities was enlarged to all providers of gambling
3. customer due diligence applied for transfers exceeding eur 1,000
4. new definitions for correspondent account, peps and senior management
5. tax crimes relating to direct and indirect taxes are included
6. an explanation of financial activity on an occasional or very limited basis
7. the European commission must submit a report every 2 years on the findings of risk assessment of ML and TF
8. The EU executive is also in charge of high-risk countries
9. special attention to peps
   10 for group this directive sets criteria for adequate compliance to 3rd parties and cdd
10. new requirements regarding beneficial ownership information
11. data in the statistics relevant to effectiveness of systems to combat ML and TF were enlarged to include for instance size and importance of cross border requests
12. obliged entities that are part of a group that required to implement group wid epolices and procedures
13. penalties for breach of the provisions set of administrative sanction and measures now range from “name and shame” to withdrawal of authorization
14. entire section of the directive dedicated to the rules for cooperation between member state fiu’ eurpean supervirsory authorities and EU commission
15. this legistlative act give some discretion to membe3r states on application of the provisions
    - SAR threshold decreased from 15000 EUR to 10000

• Scope of obliged entities enlarged from just casinos to all providers of gambling
• CDD applied to all funds transfers > 1000 EUR
• New definitions for correspondent relationship, PEP’s family members/close associates, senior management and others
• Tax crimes included in definition of criminal activity
• EU commission must submit a report every 2 years on ML and TF affecting the market
• EU executive in charge of identifying “high-risk third countries”
• Require EDD for all PEPs & family members/close associates
• set criterai for compliance related to 3rd parties for CDD
• Beneficial ownership data must be held in central registers in each member state and made avaiable to authorities
• Enlarged ML and TF data to include instance, size, importance of sectors, or number of cross-border requests
• Criminals convicted prevented from holding management functions or indirectly controlling certain entities
• Set administrative sanctions and measures, EUR 5 million or 10% of total annual turnover
• Rules of cooperation between FIu, European Supervisory Authorities (ESA), and EU commission
• Discretion to members on application of provisions (directive, not a regulation)
• Requests states conduct ML/TF risk assessment and deisgnate a responsible authority
• Responsible authority must make risk assessment based on customer risk, product/service risk, and geographical risk