7Criminal law measures to counter money laundering
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Committee’s assessment |
Legally and politically important |
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Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee |
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Document details |
Proposal for a Directive on countering money laundering by criminal law |
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Legal base |
Article 83(1) TFEU, ordinary legislative procedure, QMV |
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Department |
Home Office |
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Document Number |
(38422), 15782/16, COM(16) 826 |
Summary and Committee’s conclusions
7.1The Commission has proposed a Directive establishing minimum rules on the definition of money laundering offences and on criminal sanctions which would replace the money laundering provisions contained in a Framework Decision adopted in 2001.44 The Framework Decision is one of a number of EU police and criminal justice measures adopted before the Lisbon Treaty took effect in December 2009 which were subject to the UK’s 2014 block opt-out decision. The Framework Decision ceased to apply to the UK from December 2014 as the then Coalition Government took the view that it was “not for Europe to impose minimum standards on our police and criminal justice system”.45
7.2The proposed Directive is intended to bring EU law into line with international standards set out in a 2005 Council of Europe Convention and in the recently updated Recommendations of the Financial Action Task Force (see the Background section below) and to improve cross-border cooperation in the investigation and prosecution of money laundering offences by making it harder for criminals to exploit different national laws.
7.3The proposed Directive is an EU criminal law measure and is subject to the UK’s Title V (justice and home affairs) opt-in, meaning that it will only apply to the UK if the Government decides to opt in.
7.4The Security Minister (Ben Wallace) told us that the Government “strongly supports international cooperation to tackle money laundering” and that the proposed Directive is “broadly in line with existing UK legislation and practice on money laundering”. He identified two areas of concern—a requirement to take account of certain “aggravating circumstances” when determining the sentence to be given for money laundering offences (Article 6 of the proposed Directive) and the definition of corporate liability (Article 7)—and indicated that if the Government were to opt into the proposal, it would either have to negotiate these provisions out or amend domestic law.
7.5We noted that similar provisions on aggravating circumstances and on corporate liability had not prevented the UK from participating in two EU criminal law measures concerning trafficking in human beings and the sexual abuse and exploitation of children.46 We asked the Minister to explain why these provisions were of particular concern in relation to money laundering.
7.6We also noted that the Commission considered the provisions on corporate liability to be “in line with Article 10 of the Warsaw Convention”. As the UK has ratified the Warsaw Convention, we asked the Minister to confirm that UK law complies with Article 10 and to explain whether (and if so, to what extent) Article 7 of the proposed Directive goes further than the Convention.
7.7We decided not to recommend a debate on the Government’s opt-in decision for two reasons. First, given that the previous Coalition Government decided not to rejoin around 20 EU criminal law measures establishing minimum standards in order to “bring powers in those areas back to the UK”, we thought it unlikely that the Government would wish to opt in to this proposed Directive.47 We nevertheless asked the Minister whether the Government remains of the view that it is “not for Europe to impose minimum standards on our police and criminal justice system” or whether different considerations might apply with regard to money laundering. Our second reason for not recommending an opt-in debate was that even if the Government were to decide to opt in to the proposal, the Minister considers that the UK “largely meets the requirements of the Directive” and that its impact on UK law would not be substantial.
7.8In his latest update, the Security Minister (Ben Wallace) tells us that the three month deadline for opting in at the negotiating stage will expire on 3 May 2017. He reiterates the Government’s support for the aims of the proposed Directive and for “a strong and collaborative international response” to money laundering and terrorism financing, but says that “the UK can play such an international role without needing to participate in minimum standards EU legislation of this kind”. He notes that the UK does not have “fully equivalent provisions” on aggravating circumstances in relation to money laundering offences but says that, “after further consideration”, the provisions in Article 7 of the proposed Directive on corporate liability are “in line” with similar provisions contained in the Warsaw Convention with which the UK complies.
7.9The Minister’s response reinforces our view that the Government is unlikely to opt into the proposed Directive. We ask him to inform us promptly of the Government’s opt-in decision and to set out the reasons informing its decision.
7.10On the issue of corporate liability, we ask the Minister whether he is concerned that opting into an EU criminal law measure might put at risk the UK’s continued reliance on civil liability and property recovery proceedings under Part V of the Proceeds of Crime Act 2002 to establish corporate liability based on a lack of proper supervision or control. We note that this was an important factor in the previous Coalition Government’s decision not to opt into the 2014 EU Confiscation Directive as it feared that UK participation in an EU criminal law measure might provide a basis for asserting that more stringent criminal law standards and safeguards (under the European Convention on Human Rights and the EU Charter of Fundamental Rights) should apply to Part V of the 2002 Act.48 We also ask the Minister whether similar concerns arise in connection with the UK’s implementation of equivalent corporate liability provisions in Article 10(2) of the Warsaw Convention.
7.11Given the importance of international cooperation in countering money laundering, we expect the Government will wish to remain closely involved with negotiations to ensure that any new EU criminal law money laundering regime is as closely aligned as possible with international standards. We ask the Minister to provide progress reports at key stages of the negotiation.
7.12The proposed Directive remains under scrutiny. We draw this chapter to the attention of the Home Affairs Committee.
Full details of the documents
Proposal for a Directive on countering money laundering by criminal law: (38422), 15782/16, COM(16) 826.
Background
7.13The changes proposed in the Directive are intended to implement the money laundering provisions of the 2005 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the Financing of Terrorism (“the Warsaw Convention”) and Recommendation 3 of the Financial Action Task Force (FATF), an inter-governmental standard-setting body (on which the UK is represented) which has established a framework of measures to combat money laundering and terrorist financing.
7.14FATF Recommendation 3 (updated in 2016) urges countries to criminalise money laundering in line with international standards established by the United Nations and to apply the crime of money laundering to “all serious offences, with a view to including the widest range of predicate offences”. Money laundering assumes that a prior criminal offence has occurred in order to generate the criminal proceeds which are being laundered—the criminal conduct which has given rise to money laundering is referred to as the predicate offence. An interpretive note provides further guidance on how Recommendation 3 should be applied with a view to ensuring that national implementing laws are as comprehensive in scope as possible.49
7.15The Warsaw Convention is the latest and most comprehensive international treaty on money laundering. It also requires participating countries to criminalise money laundering but goes further than FATF Recommendation 3, for example, by stipulating that a prosecution for money laundering does not have to be brought in the criminal court that has jurisdiction for the predicate offence and by requiring participating countries to ensure that an individual may be prosecuted for a money laundering offence without having been convicted of a predicate offence. The UK is one of 17 EU Member States that have ratified the Convention. The Commission considers that adoption of the proposed Directive would be “an important step towards EU ratification”.
The Minister’s letter of 27 February 2017
7.16The Minister sets out the Government’s position on EU criminal law measures establishing minimum standards on the substantive elements of criminal offences:
“The UK supports the aims of the Directive, and is supportive of other Member States’ efforts to strengthen their anti-money laundering legislation. As we made clear in the Action Plan for anti-money laundering and counter-terrorist finance, which we published in April 2016, we recognise the importance of a strong and collaborative international response to these crimes. However, our view is that the UK can play such an international role without needing to participate in minimum standards EU legislation of this kind.”
7.17Turning to “aggravating circumstances”, he comments:
“The provisions of the Directive in relation to aggravating circumstances have similarities with those in other Directives, but contain specific measures on money laundering. These do not have fully equivalent provisions in the UK, although the Sentencing Council Guidelines in this area cover them to some extent.”
7.18The Minister explains that the Government has re-examined Article 7 of the proposed Directive dealing with corporate liability and adds:
“I can confirm that Article 7(1) is broadly in line with common law rules governing the attribution of corporate criminal liability, if each subparagraph is read disjunctively so that compliance with one is sufficient. Compliance with the supervision liability provision under Article 7(2) is achieved through reliance on corporate civil liability and property recovery proceedings under Part V of the Proceeds of Crime Act 2002. The UK therefore complies with Article 7 without the need for further negotiation or legislation. It is the case that the corporate liability requirements of article 7 are ‘in line’ with similar provision in the Warsaw Convention with which the UK complies.”
Previous Committee Reports
Thirty-first Report HC 71-xxix (2016–17), chapter 14 (8 February 2017).
44 See Framework Decision 2001/500/JHA on money laundering, the identification, tracing, freezing, seizing and confiscation of instrumentalities and the proceeds of crime.
45 See the comments made by the then Home Secretary (Mrs Theresa May) during a debate in the House on 15 July 2013, HC Deb, col. 777.
46 See Directive 2011/36/EU on preventing and combating trafficking in human beings and protecting its victims and Directive 2011/92/EU on combating the sexual abuse and sexual exploitation of children and child pornography.
47 See the contribution of the then Justice Secretary (Chris Grayling) in HC Deb, 15 July 2013, cols. 850–1 .
48 See our Tenth Report HC 342-x (2015–16), chapter 21 (25 November 2015).
49 See the Recommendations of the Financial Action Task Force and accompanying interpretative notes.
10 March 2017