4 Money laundering and terrorist financing
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| (a)
(34681)
6230/13
+ ADDs 1-2
COM(13) 44
(b)
(34682)
6231/13
+ ADDs 1-2
COM(13) 45
(c)
(34950)
9968/13
—
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Draft Regulation on information accompanying transfers of funds
Draft Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing
European Central Bank Opinion on a draft Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing and on a draft Regulation on information accompanying transfers of funds (CON/2013/32)
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| Legal base
| (a)-(b) Article 114 TFEU; co-decision; QMV
(c) —
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| Department
| HM Treasury
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| Basis of consideration
| Minister's letter of 8 May 2014
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| Previous Committee Reports
| (a)-(b) HC 86-xxxv (2012-13), chapter 14 (13 March 2013), HC 83-xxv (2013-14), chapter 11 (18 December 2013) and HC 83-xxxviii (2013-14), chapter 8 (19 March 2014)
(c) HC 83-vii (2013-14), chapter 8 (26 June 2013), HC 83-xxv (2013-14), chapter 11 (18 December 2013) and HC 83-xxxviii (2013-14), chapter 8 (19 March 2014)
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| Discussion in Council
| Possibly late May or early June 2014
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| Committee's assessment
| Politically important
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| Committee's decision
| Not cleared; further information requested
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Background
4.1 The EU has in place legislation
to prevent money laundering and terrorist financing, currently
Directive 2005/60/EC (Third Money Laundering Directive or Third
MLD) and Council Regulation 1781/2006 (the Wire Transfer Regulation).
4.2 The draft Directive, document (b),
and the draft Regulation, document (a), were presented by the
Commission in February 2013 to revise and replace the Third MLD
and the Wire Transfer Regulation, to reflect recent changes made
to the international standards on anti-money laundering and counter
terrorist financing as set by the intergovernmental organisation,
Financial Action Task Force (FATF).[11]
4.3 The European Central Bank (ECB)
issued this Opinion, document (c), on the draft Directive and
the draft Regulation. The ECB was supportive of both proposals
and did not highlight any areas of real concern.
4.4 When we last considered these proposals,
in March, we heard that:
· indications were that the
Greek Presidency intended to agree a general approach on both
the draft Directive and the draft Regulation within the next few
weeks,
· Council negotiations on the
draft Regulation were to begin on 14 March; and
· while these were expected
to be short, it was yet unclear how long it would take for the
negotiating process to catch up with the draft Directive and allow
for a joint Council agreement on both legislative proposals.
4.5 We were also told that:
· since we had last considered
the matter, in December 2013, the European Parliament's ECON and
LIBE Committees had jointly voted to approve their amendments
to the Commission proposals for the Directive and Regulation;
· this position was expected
to be considered by the European Parliament plenary sessions in
March and April; and
· the legislative process would
restart in the autumn, once the new European Parliament was in
session, at which point the Government expected the new MEPs would
vote to retain the text agreed by the previous European Parliament.
4.6 We then heard about the Government's
negotiating approach on the draft Regulation and a summary of
the main outstanding issues being considered in Council discussions
on the draft Directive.
4.7 On the draft Regulation we were
told that:
· the Government welcomed the
Commission's proposal for the Wire Transfer Regulation which reflected
the new global FATF standards and would address areas where gaps
in transparency still remained;
· in particular it supported
the proposal in the draft Regulation to maintain the €1,000
(£823) threshold for wire transfers, below which information
was included but not verified, as this was consistent with the
FATF standards;
· this would address inconsistent
implementation across the EU, which would make it easier for firms
operating across borders or who operated in multiple EU jurisdictions;
· the Government supported
the extension of obligations to Intermediary Payment Service Providers,
providing this was balanced against the need for a smooth operating
system of payments for banks and money transmitters; and
· the Government continued
to engage with the private sector to ensure a proportionate approach
to the draft Regulation.
4.8 On the draft Directive we were told
that:
Company registry of beneficial ownership
· the Government continued
to encourage EU partners to lead from the front on this issue
through an ambitious approach in the draft Directive;
· the proposal was an opportunity
to secure EU wide commitment on transparency of company beneficial
ownership, ensuring that companies would know who owned and controlled
them and that this information would be accessible to law enforcement,
tax administrations and other relevant authorities, including
through central registries of company beneficial ownership information;
· the European Parliament's
ECON and LIBE Committees voted on 20 February to approve mandatory
registries of companies and trusts and some Member States continued
to call for registries of trust beneficial ownership;
· the Government recognised
the need to improve the transparency of trusts to help prevent
the use of trusts for illicit purposes and was committed to implementing
the relevant FATF standards in order to achieve this;
· but it took the view that
other mechanisms offered a more effective and proportionate way
to address the money laundering and terrorism financing risks
presented by higher-risk trusts;
Supranational risk assessments
· the draft Directive provided
for a Commission-led supranational risk assessment and the Government
did recognise the need for greater EU-level coordination on the
identification of common cross border risks;
· it continued, however, to
resist any proposals to give the Commission new powers to introduce
legally binding measures in response to a supranational assessment
of risk;
· there was significant support
for this position in the Council;
Third country policy
· the UK and others had successfully
resisted attempts to reintroduce a third country equivalence listing
process;
· there had been growing support
for the introduction of a new EU black list of third countries
with serious deficiencies in their anti money laundering/counter
terrorist financing regimes;
· the Government remained unconvinced
as to the added-value of such a EU listing process given the existing,
complex and resource intensive black lists of the FATF;
e-money (electronic money)
· the threshold below which
due diligence would not be required for e-money products had been
reintroduced, though there remained intense discussions on the
nature and scale of risk-mitigating conditions for this threshold
to apply;
· the Government continued
to work closely with industry representatives to ensure a proportionate
and effective approach to e-money products;
Gambling service providers
· the Government's call for
a risk-based approach to the gambling sector had received some
support and Council working group negotiations had progressed
positively;
· there remained some degree
of opposition to granting Member States sole responsibility for
exercising risk based exemptions over the sector and there had
been recent calls for the Commission to have a say in this matter;
· the Government remained of
the view that individual national risk assessment provided sufficient
evidence for Member States to exempt certain providers;
Cooperation between Financial Intelligence Units
(FIUs)
· the Government continued
to engage with the Commission and the Council Legal Service in
addressing concerns over JHA obligations — that is, that
requiring cooperation between FIUs needed an additional, Title
V TFEU, legal base for the draft Directive; and
· it continued to seek agreement
on a resolution prior to agreement being reached on the proposal.
4.9 Given the uncertain and compressed
timetable for the proposals and in the light of this update we
were asked to clear them from scrutiny, or grant, in terms of
the Scrutiny Reserve Resolution, a waiver, ahead of any Council
general approach that the Government was able to support. We noted
that a number of issues in relation to the draft Directive seemed
to be as yet unresolved and Council consideration of the draft
Regulation was only just beginning. So we were not willing yet
to clear the documents from scrutiny or grant a scrutiny waiver.
Rather we wished to hear about more certain improvement of the
texts before considering clearance again. We added that when a
further update was ready for us we would like confirmation that,
if the Government secured agreement to an additional, Title V,
legal base for the draft Directive, the three month period for
consideration of an opt-in would begin. Meanwhile the documents
remained under scrutiny.[12]
The Minister's letter of 8 May 2014
4.10 The Commercial Secretary to the
Treasury (Lord Deighton), telling us that the Greek Presidency
is aiming to secure a general approach in the coming weeks on
these proposals and has scheduled a final attaché meeting
on 16 May on both the draft Directive and the draft Regulation
to prepare discussions by Coreper on 28 May, now updates us, given
the potential for early Prorogation and that a deal could be tabled
for agreement at official level as soon as 28 May, with Council
consideration potentially days after, on the current state of
negotiations on the two proposals.
4.11 First, in relation to the draft
Regulation, the Minister says that:
· as anticipated, negotiations
have proceeded quickly and favourably following his March update
to us;
· there has been a broad consensus
on the need to align the scope and sanctions of the draft Regulation
with the draft Directive and the need for European Supervisory
Agencies to update their existing guidance on the present Regulation
and conclusive efforts in aligning the key definitions of the
draft Regulation and the Payment Service Directive II;[13]
· at the attaché meeting
on 16 May, the main bone of contention relates to the €1,000
(3823) threshold under which information is included but not verified;
· the Government secured useful
clarification by which firms may carry out additional checks below
the threshold on the basis of suspicion of anti-money laundering
and counter-terrorism — the private sector is content with
this level of flexibility;
· however several Member States
have since been pushing for a zero-threshold or the ability to
lower the threshold to a level set at national level should they
wish to do so on the basis of risk;
· both options are not proportionate
and are likely to create significant costs for firms operating
across the EU — the Commission is firmly against these proposals
and particularly fears a possible fragmentation of the single
market should they go ahead; and
· the Council seemed equally
split in the last round of negotiations and the Government continues
to engage accordingly, including looking at potential compromise
and liaising with the private sector.
4.12 Turning to the draft Directive
the Minister says that:
· the meeting on the 16 May
will be the first since February and no new compromise text has
been made available since then;
· similarly, there has been
no negotiation round as the Presidency aimed to get the draft
Regulation on the same level of consensus as the draft Directive
before resuming discussions;
· extensive engagement has
allowed the Government to get clarity, and in many instances positive
signs, on where the draft Directive is heading to on key issues
for the UK, including on the issue of supra-national risk assessment
and equivalence;
· on supra-national risk assessment
in particular the Government's views have been duly reflected;
· the Government may need to
show flexibility on black listing given its positive achievement
on white listing in particular;[14]
· the Government has stepped
up engagement with the Commission, the Presidency and Member States
on selected issues of concern;
· it has considered the fall-back
position and compromise options should there be a need for these
during the 16 May meeting and afterwards;
· it remains confident that
a good deal may be secured in the coming weeks;
· on companies' beneficial
ownership, the Government's active leadership on a mandatory registry
is bearing some fruit, however pressure continues to build for
a similar treatment of trusts;
· the Government's views remain
unchanged and it continues to argue that a mandatory registry
of trusts would be a disproportionate and ineffective means to
tackling the potential misuse of trusts; and
· it is working closely with
the Presidency, the Commission and EU partners to secure an acceptable
deal — significant progress has been achieved.
4.13 The Minister concludes by asking
us to give a waiver, in terms of the Scrutiny Reserve Resolution
of 17 November 1998, for the period between Prorogation and the
next time we meet (which is likely to be 4 June), so that the
Government would be able to freely support (potentially even to
cast a deciding vote on) any texts that would reflect positive
outcomes for the UK should the proposals be taken to Council before
our next meeting.
Conclusion
4.14 We are grateful to the Minister
for this update of where matters stand on these proposals. We
note both that progress towards meeting the UK's needs is being
made and that the Greek Presidency may succeed in moving for a
Council general approach during Prorogation. However we are not
convinced that there is sufficient certainty about a successful
resolution of the matters of concern for the UK. So we are not
prepared to give the scrutiny waiver the Minister requests. Instead
we wish to hear from him, in time for our next meeting, about
developments during the next few weeks.
4.15 We also remind the Minister
that we wish him to confirm that, if the Government secures agreement
to an additional, Title V, legal base for the draft Directive,
the three month period for consideration of an opt-in will begin.
4.16 Meanwhile the documents remain
under scrutiny.
11 See http://www.fatf-gafi.org/pages/aboutus/. Back
12
See headnote. Back
13
(35250) 12990/13 + ADDs 1 and 3-4: for the latest position on
this proposal see chapter 5 of this Report. Back
14
White listing or a 'Third Country Equivalence' process would consider
whether a third country has an anti-money laundering and counter
terrorism financing regime equivalent to those of Member States,
black listing, as an alternative to white listing, would concern
third countries with severe deficiencies in their anti-money laundering
and counter terrorism financing regimes. Back
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