18 Organised crime in the financial sector
| (25582)
8833/04
COM(04) 262
| Commission Communication on the prevention of and fight against organised crime in the financial sector
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| Legal base | — |
| Document originated | 16 April 2004
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| Deposited in Parliament | 30 April 2004
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| Department | Home Office |
| Basis of consideration | EM of 14 May 2004
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| Previous Committee Report | None
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| To be discussed in Council | No date set
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| Committee's assessment | Legally and politically important
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| Committee's decision | Cleared
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Background
18.1 A number of measures have already been adopted at EC and
EU level in relation to organised crime in the financial sector
and have concerned such matters as money laundering, counterfeiting
of the euro and fraud affecting the financial interests of the
Community. By way of example, the 1991 Money Laundering Directive[33]
gives effect to the recommendations of the Financial Action Task
Force on Money Laundering (FATF), an intergovernmental body established
by the G-7 Summit in 1989. A further Directive adopted in 2001[34]
extended the reach of the 1991 Directive to include auditors,
external accountants, notaries and lawyers, casinos and estate
agents.
The Commission's Communication
18.2 The Communication from the Commission reviews the action
taken by the Community on money-laundering and indicates that
the Commission intends to make a proposal for a third money laundering
Directive to take account of revised recommendations from FATF
made in June 2003. The Commission is considering whether the prohibition
on money laundering in the second Directive should be extended
to include the financing of terrorism and whether employees in
financial institutions should receive protection if they make
reports on suspicious transactions.
18.3 The Communication also refers to other money
laundering measures, such as the Framework Decision of 26 June
2001 on money laundering and the identification, tracing, freezing,
seizing and confiscation of the proceeds of crime,[35]
and calls on Member States to take steps to ratify the Council
Act of 30 November 2000 extending the competence of Europol to
money laundering, and the Protocol of 16 October 2001 to the Convention
on Mutual Assistance in Criminal Matters.
18.4 Possible future measures include encouraging
Member States to develop systems capable of tracking data provided
by entities subject to money laundering reporting requirements
in order to follow up suspicious transaction reports. The Communication
also suggests that Member States should consider the creation
of asset recovery bodies at national level, whether gross negligence
in complying with money laundering reporting requirements should
be made criminal and whether Member States should establish an
electronic database of currency transactions above a specified
amount to be accessible to police and judicial authorities but
subject to data protection requirements.
18.5 The Communication notes that the money laundering
Directives require Member States to designate an authority to
receive suspicious transaction reports, and that these authorities
are now generally referred to as Financial Intelligence Units
(FIUs). The Communication describes a pilot project led by the
Netherlands for an electronic network of seven FIUs, called FIU-NET,
for the exchange of financial intelligence. A parallel network
of FIUs is also being established in the new Member States.
18.6 The Communication outlines measures taken to
combat fraud, including the Framework Decision of 28 May 2001
on fraud and the counterfeiting of non-cash means of payment[36]
and the three year Action Plan adopted by the Commission to prevent
fraud and counterfeiting of non-cash payments (i.e. by cheque
and credit and debit cards). The Action Plan is based on close
cooperation between public authorities and the private sector
and involves exchanging experience and information and training
and development. The Commission indicates that it will explore
the scope for guidelines on how public and private agencies may
work together to combat fraud more effectively, but also comments
(but without referring to any evidence) that "the absence
of harmonised legislation in the fight against fraud is a significant
dampener on police and judicial co-operation in this area".
18.7 With respect to the Community's own financial
interests, the Communication comments that "the Community's
own resources suffer huge losses as a result of fraud, which generates
criminal proceeds with low risk and generally mild punishments
in case of conviction". It refers to the work of OLAF and
suggests that enhanced cooperation and exchange of information
with FIUs will have an important impact on OLAF's work. It also
considers that there is a need to explore "the establishment
of a common and comprehensive EC concept of fiscal fraud and the
harmonisation of penal sanctions" and reports that the Commission
will be conducting a comparative study of the definitions of fiscal
fraud and its financial consequences. The Communication calls
for greater use of the existing coordinating facilities of OLAF
and Eurojust and comments that "the creation of an independent
European Public Prosecutor responsible for detecting and prosecuting
offences directed against the Community's financial interests
would strengthen the fight against organised financial crime".
18.8 The Communication refers to measures to protect
the euro from counterfeiting and notes that the use of modern
digital equipment, which allows the relatively easy reproduction
of banknotes, is under review by the European Central Bank and
the Commission and that proposals for Community legislation are
being considered which would require EU-based manufacturers of
printers, scanners and image processing software to incorporate
appropriate detectors for the machine-readable features incorporated
into euro banknotes.
18.9 Under the rubric "horizontal tools to strengthen
the fight against organised financial crime," the Communication
refers to the need to enhance transparency and standards of integrity
in public administrations and private entities and to recommendations
by FATF on access to information on beneficial ownership. The
Communication notes the importance of financial investigations
as a method of disrupting organised crime and suggests that standard
rules for financial investigation bodies throughout the EU should
be considered, notably in connection with funding, training requirements
and cooperation. The Commission indicates that it proposes to
set up a working group of representatives of the Commission (including
OLAF), Europol and Eurojust to elaborate minimum standards for
national criminal intelligence systems so as to "facilitate
effective strategic and tactical analysis, forward planning and
operation" and lead to effective intelligence-led law enforcement
in the EU.
The Government's view
18.10 In her Explanatory Memorandum of 14 May 2004
the Parliamentary Under-Secretary of State at the Home Office
(Caroline Flint) comments that the agenda proposed in the communication
is wide-ranging and that many of the proposals will raise practical
and legal issues which will be considered in detail as formal
proposals are made.
18.11 On the money laundering Directives, the Minister
recalls that the UK has fully transposed the first and second
Directive and that in negotiating the third Directive a key issue
for the UK will be customer due diligence procedures and that
the UK will seek to ensure a flexible and proportionate outcome.
The Minister adds that the UK has stressed from the start the
importance of consulting the public and private sectors.
18.12 On the question of fraud the Minister explains
that the Government strongly supports effective measures to combat
fraud against the Communities' financial interests but that it
remains unconvinced that creating a European Public Prosecutor
is necessary or desirable. The Minister adds that the Government
supports increased cooperation in this field but believes this
should respect the diversity of the UK's legal systems and national
responsibilities for prosecution.
18.13 The Minister also points out that the Government
is concerned about the reference by the Commission to a need for
fraud law harmonisation, and comments as follows:
"Fraud can be dealt with effectively without
harmonising the substantive law of fraud. Experience within the
UK demonstrates this, as the Scots law of fraud is significantly
different from that in the other two UK jurisdictions. Our law
enforcers believe the priority should be to get systems and procedures
in place to ensure that the various EU agencies work together
against fraud. All EU countries should implement, in a consistent
way, the EAW[37] and
other already agreed judicial co-operation measures before considering
harmonisation of fraud law."
Conclusion
18.14 We thank the Minister for her helpful Explanatory
Memorandum. We firmly endorse the point the Minister has made
that the European Public Prosecutor is neither necessary nor desirable.
Indeed, we consider that the adoption of any such proposal would
be harmful and would cut across the proper lines of democratic
accountability.
18.15 We also endorse the point the Minister has
made as to the absence of any need to embark on the harmonisation
at EU level of the law relating to fraud. The Commission has produced
no evidence to support its assertion on this point, whilst the
Minister makes the telling point that differences between the
substantive law of England and Wales and Northern Ireland on the
one hand and the law of Scotland on the other have not prevented
effective dealing with fraud within the UK.
18.16 As the document does not make any formal
proposals, we are content to clear it, but we shall need to look
closely at the proposals if and when they are made.
33 Council Directive 91/308/EEC of 10 June 1991 on
prevention of the use of the financial system for the purpose
of money laundering. Back
34
Directive 97/2000/EC of the European Parliament and the Council
of 4 December 2001 on prevention of the use of the financial system
for the purpose of money laundering. Back
35
2001/500/JHA. OJ No. L 182, 5.7.01, p.1. Back
36
OJ No. L 149, 2.6.01, p.1. Back
37
The European Arrest Warrant. Back
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