50 Money laundering
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11134/04
COM(04) 448
| Draft Directive on the prevention of the use of the financial system for the purpose of money laundering, including terrorist financing
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| Legal base | Articles 47(2) and 95 EC; co-decision; QMV
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| Department | HM Treasury
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| Basis of consideration | Ministers' letters of 3 and 16 June 2005
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| Previous Committee Reports | HC 42-xxxii (2003-04), para 13 (13 October 2004) and HC 38-i (2004-05), para 14 (1 December 2004)
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| Discussed in Council | 7 June 2005
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
50.1 The first Money Laundering Directive, 91/308/EEC, imposed
anti-money-laundering obligations on the financial sector and
defined money laundering in terms of drugs offences. The second,
amending, Money Laundering Directive, 2001/97/EC, extended the
scope of the provisions to a number of new professions or activities
(for example lawyers, accountants, estate agents, casinos), as
well as the range of underlying crimes — so-called "predicate
offences" — to which money laundering relates. But
it left the precise definition of predicate offences open and
called on the Commission to table a further proposal in 2004 to
cover this.
50.2 The first Money Laundering Directive was based on the global
standard for these matters — the Forty Recommendations of
the Financial Action Task Force on combating money laundering
(FATF). In June 2003 these Forty Recommendations were amended
by FATF. In October 2004 our predecessors considered a draft Directive
to repeal and replace the existing legislation. It took account
of the revised global standard and specifically included the financing
of terrorism with either criminally or legally acquired money.
Customer due diligence requirements were much more detailed than
before, although tempered by a "risk-based approach"[184]
to such procedures. Our predecessors readily acknowledged the
need for up-to-date legislation to prevent money laundering but
were concerned that this proposal was being put forward before
it was possible to evaluate any weaknesses in the existing amended
legislation.
50.3 In December 2004 our predecessors noted the improvements
to the draft Directive which had been negotiated and the general
view of stakeholders that the proposal was appropriate, but decided
not to clear the document pending receipt of a full Regulatory
Impact Assessment. Nevertheless they said they were content for
the Government to join a political agreement even though the document
was still under scrutiny, whilst urging the Government to seek
a further lengthening of the implementation timetable. [185]
The Ministers' letters
50.4 The Paymaster General (Dawn Primarolo) said in her letter
of 3 June that further improvements to the draft Directive had
been secured during its consideration by the European Parliament.
In particular the implementation time for the proposal is now
two years rather than the one year originally proposed. She believed
that the Government's negotiating objectives had been fully met,
and indicated that the Government intended to join a political
agreement on the revised text.
50.5 The Economic Secretary to the Treasury (Mr Ivan Lewis) sends
us with his letter of 16 June the updated Regulatory Impact Assessment
— based in part on 48 responses from the regulated sector
to an informal consultation document. He repeats the Paymaster
General's apology for the delay, citing in particular the time
taken to obtain quantified costings. The Regulatory Impact Assessment
now available does have detailed quantitative costings and gives
a range of between £5 million and £46 million a year
as the total cost of the draft Directive, the actual cost depending
on the extent to which firms already comply with existing guidance
(some of which will be subsumed in the new legislation) and already
take a risk-based approach. The Regulatory Impact Assessment does
not show the quantitative benefits of the proposal but it does
give a detailed account of the expected qualitative benefits related
to combating money laundering and terrorist financing, law enforcement
and, indirectly, the regulated sector (integrity of the sector,
consistent standards throughout the Community and competitive
advantage for the UK's regulated sector). The Regulatory Impact
Assessment concludes that, on the basis of the information the
Government has on costs and benefits and of the improvements gained
in negotiation, the draft Directive now proposed warrants support.
50.6 Mr Lewis also tells us that the Government supported
the political agreement on the draft Directive at the Council
of 7 June 2005, even though the document had not yet cleared scrutiny,
because it took the view:
"that it was important for the UK to signal
our support for this Directive at political agreement, and that
not to sign up at this stage could be seen as the UK perversely
blocking a Directive that we are widely known to support now that
we have achieved our key negotiating objectives."
Conclusion
50.7 We are grateful for the latest information
provided by the Ministers, particularly that in the Regulatory
Impact Assessment. In the circumstances, including our predecessors'
decision of 1 December, we accept the Government's decision to
join the political agreement whilst the document was still under
scrutiny.
50.8 We have no further points to raise on the
draft Directive and clear the document.
184 Such an approach allows flexibility to those operating
under the legislation to identify, on the basis of detailed guidance,
the risks relevant to a particular sector, transaction or customer. Back
185
See headnote. Back
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