Documents considered by the Committee on 22 November 2017 Contents

185th Anti-Money Laundering Directive

Committee’s assessment

Legally and politically important

Committee’s decision

Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee. the Justice Committee and the Treasury Committee

Document details

Proposal for a Directive amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC

Legal base

Articles 50 and 114 TFEU; ordinary legislative procedure; QMV

Department

Treasury

Document Number

(37927), 10678/16 + ADDs 1–2, COM(16) 450

Summary and Committee’s conclusions

18.1Efforts to tackle money laundering and financing of terrorist organisations are coordinated at EU-level through the Anti-Money Laundering Directive (the AMLD), first adopted in 1991. It was revised for the fourth time in 2015, and the latest version of the Directive has been applied in the UK since June 2017. It requires banks and other businesses handling financial transactions (“obliged entities”) to apply due diligence to their customers, and report suspicious activity to the authorities. It also obliges Member States to maintain central registers of the beneficial ownership of both companies and trusts, although there is no obligation to make the latter accessible to the public.

18.2In July 2016, following the terrorist attacks in Paris and Brussels and in light of the revelations of tax evasion contained in the Panama Papers, the European Commission tabled a proposal for a fifth Anti-Money Laundering Directive.91 The proposal would:

18.3The then-Economic Secretary to the Exchequer (Simon Kirby) submitted an Explanatory Memorandum on the proposal on 5 September 2016.92 He welcomed the new Directive, but expressed the Government’s concern about a lowered registration threshold for beneficial ownership for certain corporate structures, the requirement to make the central register of trusts at least partially accessible to the public for those with a “legitimate interest”, and the obligation for each Member State to establish a central banking registry or retrieval system to allow for quick identification of the owners of a bank or payment account. The previous Committee considered the content of the new Directive in some detail in September 2016.93

18.4Since the Commission tabled its proposal, both the Council94 and the European Parliament95 have adopted a set of amendments to the Directive. While the UK did not support the Council’s negotiating mandate because scrutiny had not been lifted, the Economic Secretary and subsequently his successor (Simon Kirby and Stephen Barclay) informed the Committee by letters dated 3 February96 and 24 July 201797 that the position of the other Member States were largely in line with the UK’s priorities. Noting that a Presidency proposal to make the register of trusts fully accessible to the general public was dropped, he described it as a UK priority to achieve a “proportionate level of access to trust beneficial ownership registers”. He added that the Council had introduced an amendment that would allow banks to apply less strict “due diligence” measures to low-risk domestic “politically exposed persons” (PEPs), such as Members of Parliament.

18.5The Parliament and the Council have been engaged in trilogue negotiations to agree on the final text of the legislation since March 2017, but have not yet reached an agreement. The Parliament’s position diverges significantly from the UK Government’s objectives, as it has been arguing in favour of mandatory public access to the register of trusts, the lower registration threshold for beneficial ownership of companies and new standards on anti-money laundering that third countries would have to adhere to in return for a trade agreement with the EU on financial services. In his July letter, the Minister asked us to clear the proposal from scrutiny to enable him to support the eventual trilogue agreement, should it be “in line with the Government’s” key objectives. In a subsequent letter dated 29 October, the Economic Secretary reiterated that the Parliament and Commission “are continuing to push for a greater degree of public access” to the Register of Trusts.98

18.6A trilogue on 14 November ended without agreement, and negotiations on the Directive are set to continue in the coming months. It is unclear whether the new legislation once agreed will apply in the UK, as the Government has provided no details about the “implementation period” it seeks for the period immediately following the end of the Article 50 negotiations, or the exact scope of the new long-term economic partnership with the EU.99

18.7We thank the Minister for the information he has provided on the state of play in the trilogue negotiations on the fifth Anti-Money Laundering Directive. We note that the views of the European Parliament are still not aligned with those of the Council and the Government, especially in relation to public access to the Register of Trusts.

18.8The Committee welcomes the Council’s proposed amendment with respect to the customer due diligence requirements relating to domestic “politically exposed persons”, as the current Directive has caused unnecessary complications for Members of Parliament (and their relatives) in accessing straightforward banking services.100

18.9We consider that the proposal deserves detailed scrutiny despite the UK’s withdrawal from the EU. Although the Directive’s transposition date is likely to be after Brexit, there is a strong possibility that some or all of the EU acquis may apply in the UK beyond March 2019 during an interim period while a new UK-EU trading relationship is negotiated.101 The EU is also expected to argue for some level of long-term regulatory convergence in return for preferential access to the Single Market under a comprehensive free trade agreement (see paragraphs 18.47 to 18.59 below). The Minister himself has stated that any revision of the UK’s Anti-Money Laundering Regulations post-Brexit will be “subject to international standards and agreements with other countries and the EU”.102

18.10Moreover, when the UK leaves the Single Market (either in March 2019 or at the end of the subsequent “implementation period” sought by the Government), the Directive’s continued operation in the remaining Member States could still have implications for the UK as a “third country”. For example, under the current AMLD, the European Commission would have the power to classify the UK as a “high-risk” country if its domestic standards on tackling money-laundering were to diverge significantly from the EU rules. It is also unclear whether the National Crime Agency, which is responsible for tackling money laundering in the UK, would be able to access information held by the authorities of other EU countries on the same terms as it does now.

18.11If the proposed fifth AMLD is adopted there would be further consequences for the UK as a third country. Notably, the requirement for the registration of the beneficial ownership of a trust is being shifted from the Member State under whose laws it is governed to the Member State where it is administered. This means that even post-Brexit, trusts established in the UK but administered elsewhere in the EU would still have to disclose their beneficial ownership to the authorities of the Member State in question, and potentially have this information made publicly available.

18.12In addition, the European Parliament is now seeking to establish legally-binding requirements for the anti-money laundering standards which the EU’s trade partners must apply in return for a trade agreements on financial services. Securing such a trade agreement is a key objective of the UK Government,103 and the Parliament’s amendments were clearly drafted in the context of Brexit.

18.13Given the above, we ask the Minister to clarify the following:

18.14It is clear that the AMLD, and in particular the amendments currently being negotiated, could have significant implications for the UK. We therefore retain the Directive under scrutiny while the negotiations are on-going, and until we have clarity about the scope of the future UK-EU economic relationship (and in particular whether a transitional arrangement might require the UK to implement EU law for a limited period post-Brexit).

18.15We draw these developments to the attention of the Home Affairs Committee and the Treasury Committee. With respect to the requirements relating to the Register of Trusts, we also consider this Report may be of interest to the Justice Committee.

Full details of the documents

Proposal for a Directive amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC: (37927), 10678/16 + ADDs 1–2, COM(16) 450.

Background

18.16The EU has legislated to combat money laundering since 1991, when it adopted the first Anti-Money Laundering Directive (AMLD).104 The Directive underwent two more iterations, commonly referred to as the second and third AMLDs, in 2001105 and 2005.106

18.17The 1991 legislation initially required Member States to prohibit money laundering—particularly the proceeds of trade in drugs—and to oblige the financial sector to identify their customers, guard against money laundering, and to report any suspicious activities to their competent authorities. Under subsequent amendments, the scope of the Directive was gradually expanded, imposing similar requirements on non-financial businesses, such as accountants and notaries. The legislation was also amended to restrict financing of terrorist organisations. The third AMLD, adopted in 2005, also required institutions covered by the Directive to identify the beneficial owner of legal or corporate entities on whose behalf a transaction is conducted.

The fourth Anti-Money Laundering Directive

18.18In 2013, the European Commission proposed a comprehensive revision of the Directive. As a result, the Parliament and Council adopted the fourth Anti-Money Laundering Directive107 (as well as a Regulation on information accompanying transfers of funds)108 in May 2015.

18.19The fourth AMLD became applicable on 26 June 2017, and reinforced the risk assessment obligation for banks, lawyers, and accountants when handling financial transactions. The Directive also allows the Commission to identify non-EU countries with “strategic deficiencies” in their domestic anti-money laundering regime. Transactions for persons or entities from any such country automatically trigger “enhanced customer due diligence”, which includes more intense monitoring of flows of money.109

18.20The fourth AMLD also increased transparency requirements with respect to beneficial ownership for companies. This information now has to be stored nationally in a central register, which will be available to national authorities, “obliged entities” subject to the requirement to conduct customer due diligence (such as banks), and, at each national Government’s discretion, the general public.

18.21In addition, the Directive requires the trustees of any express trust110 to hold “adequate, accurate and up-to-date information on the beneficial ownership of their trust”,111 and to make this data available to law enforcement and—in the UK—to the Financial Intelligence Unit (FIU) within the National Crime Agency.112 For express trusts with tax consequences, this information must be stored centrally in a register of beneficial ownership. However, the fourth AMLD does not require information on this register to be made public.

18.22The Government supported the latest iteration of the Directive, and voted in favour of its adoption in April 2015.113 The UK in fact introduced a register on the beneficial ownership of companies a year ahead of the deadline required by the Directive, in April 2016. The central register of “People with Significant Control” is publicly accessible through Companies House.114 However, the register containing information on trusts, which was launched by HM Revenue and Customs in June 2017, is not public. Access to its data is restricted to HMRC and law enforcement agencies, including the Financial Intelligence Units of other Member States.115

Proposal for a fifth Anti-Money Laundering Directive

18.23Following the terrorist attacks in Paris and Brussels in November 2015 and March 2016 respectively, and in light of the tax evasion highlighted by the Panama Papers,116 EU Finance Ministers called for amendments to the AMLD with the goal of countering the financing of terrorism and increasing the transparency of financial transactions and corporate entities.117 As a result, the European Commission in July 2016 proposed a number of amendments to the fourth AMLD, as well as some consequential changes to the Company Law Directive.118

18.24This fifth AMLD119 would enhance the accessibility of beneficial ownership registers, clarify the registration requirements for trusts, speed up the interconnection of national beneficial ownership registers, promote automatic exchange of information on beneficial ownership, and strengthen customer due diligence rules for banks and other obliged entities. The previous Committee considered the content of the proposal in some detail in September 2016.120

18.25The then-Economic Secretary to the Exchequer (Simon Kirby) submitted an Explanatory Memorandum on the proposal on 5 September 2016.121 He welcomed the new Directive, but expressed the Government’s concern about three aspects:

18.26In October 2016, the Government also informed the Committee that it had concluded the proposal was a “partial Justice and Home Affairs issue”, and therefore triggered the UK’s opt-out under Protocol 21 to the Treaties despite the fact that the proposed Directive has no legal base in Title V TFEU.126 The following month, it announced that the UK would purport to exercise its opt-in.127 Our predecessors reiterated the Committee’s well-established position that Protocol 21 is not engaged unless a proposal has a Title V legal base.128

18.27In November 2016, the Minister wrote to the Committee about the status of the negotiations within the Council. He told our predecessors that the UK had secured support from other Member States to maintain the 25% shareholding threshold as a criterion for registration of beneficial ownership. However, negotiations on the other key elements of the new Directive—access to the register of beneficial ownership of trusts and the central retrieval system for information on bank accounts—were still on-going.129 Although the Minister did not inform our predecessors of this at the time, initial discussions between the Member States had led the Slovak Presidency to insert a new article into the proposal which would require each national register of beneficial ownership of trusts to be fully accessible to the general public.130

18.28The previous Committee retained the proposal under scrutiny and granted a waiver for the adoption of a general approach at Council, on the condition that the Government’s outstanding concerns were resolved.131 The Slovak Presidency had aimed to agree on a general approach at the ECOFIN Council on 6 December 2016. However, EU Finance Ministers did not reach an agreement on the Council’s negotiating position at that meeting.132

18.29The file was subsequently considered at COREPER on 20 December,133 where a mandate for trilogues was agreed by the Permanent Representatives.134 Crucially, the requirement for mandatory public access to the register of trusts had been removed. Instead, the Council supported the thrust of the original Commission proposal, whereby those with a “legitimate interest” could access the register, but it would be up to each Member State to define the conditions under which a “legitimate interest”135 could be claimed.136

18.30The previous Committee received its last update from the Minister on the proposal in February 2017.137 He welcomed the fact that the Council had dropped mandatory full public access to the register of beneficial ownership of trusts, calling it “an important step forward” which “helped to address a UK negotiating priority”. The Minister also noted that the other Member States had agreed to extend the deadline for implementation of the new register of bank accounts to three years after the Directive is adopted, compared to two years in the original proposal. Finally, he informed the Committee that the Council supported an amendment that would allow banks to apply less strict “due diligence” measures to low-risk domestic “politically exposed persons” (PEPs), such as Members of Parliament.138

18.31Our predecessors considered the Minister’s letter on 22 February, and retained the proposal under scrutiny pending trilogue negotiations between the Council and the European Parliament on the final text of the Directive.139

Developments since February 2017

18.32The European Parliament’s Economic & Monetary Affairs and Civil Liberties Committees (which are jointly responsible for legislation on money laundering) considered the proposed Directive in early 2017. On 28 February, the Committees adopted their negotiating mandate for discussions with the Council by overwhelming majority (with 88 votes in favour, 1 vote against and 4 abstentions).140

18.33The Parliament’s initial position does not appear to align well with the Government’s priorities. MEPs supported the Commission’s proposal to lower the threshold for identifying beneficial ownership of a company from 25 to 10 per cent of shareholding, and called for mandatory public disclosure of information relating to the beneficial ownership of trusts. The Parliament also wants the alignment between the EU’s anti-money laundering rules (including on transparency of beneficial ownership) to be taken into account in any future trade agreement between the EU and a third country that covers financial services.141 Finally, its amendments would extend the scope of the Directive to include estate and letting agents, as well as businesses trading in works of art, as “obliged entities” which must carry out customer due diligence.

18.34Trilogues between the Maltese Presidency and MEPs took place at regular intervals from March to June 2017. On 24 July 2017, the Economic Secretary to the Treasury wrote to the Committee with further information on the state of the negotiations.142 He noted that, despite the efforts of the Maltese Presidency, no agreement had been reached between the Parliament and the Council. Therefore, the discussions would continue under the incoming Estonian Presidency in the second half of 2017.

18.35The major areas of disagreement between the Council and the Parliament are access to the register of trusts, the threshold of “beneficial ownership” of an entity and the supervision of “obliged entities”. The Minister’s letter highlighted that establishing a “proportionate level of access” to the register of trusts remains one of the UK’s priorities for the negotiations, without specifying what that means. It is also unclear if the Parliament’s amendments to minimum AML standards in any country seeking a trade agreement with the EU on financial services would also have to be applied in the UK’s overseas and Crown territories, if the Government were to seek such an agreement post-Brexit. With the partial exception of Gibraltar, EU law does not apply in those territories at present.143

18.36Trilogues are scheduled to continue in December 2017. Given the remaining divergences between the Parliament and the Council, it is likely the Directive will not be adopted until 2018.

Implications of Brexit

18.37The current Economic Secretary and his predecessors did not place the proposal, or the Anti-Money Laundering Directive in general, in the context of the UK’s withdrawal from the EU until prompted to do so by our predecessors in their Report of February 2017.144 They asked the Minister to assess the implications of the extended implementation period for the register of bank accounts in the context of the UK’s withdrawal from the EU, and whether the Government expected UK domestic anti-money laundering legislation to remain similar to the AMLD post-Brexit.

18.38Mr Barclay responded to these questions in his letter of 24 July.145 As regards the creation of the central retrieval system for ownership of bank accounts, the deadline for which is currently expected to fall in 2020 or 2021, the Minister reiterated that the UK will “continue to meet its EU-derived legal obligations” until the date of exit. He added that he “expects” the European Union (Withdrawal) Bill, commonly referred to as the Repeal Bill, to preserve the current Money Laundering Regulations to “provide businesses with as much clarity and certainty as possible”.

18.39After Brexit, however, the legal situation may change. The Minister went on to say:

“Once the UK has ceased to be a member of the EU, the Government will be able to review the Money Laundering Regulations to ensure they are as proportionate and effective as possible, subject to international standards and agreements with other countries and the EU on matters such as trade.”

18.40Mr Barclay also noted that the UK would “continue to lead in the fight against financial crime, money laundering and terrorist financing”, as a founding member of the Financial Action Task Force (FATF) which sets international standards in this area. As the EU’s Anti-Money Laundering Directives are based, in part, on the FATF’s work, the Minister expected that “UK and EU law [will] … retain similarities even after the UK’s departure from the European Union”. The Government’s position paper on cooperation on justice and home affairs matters with the EU post-Brexit does not refer to the AMLD.146

18.41As regards the timetable for formal adoption of the new Directive, the Minister indicated in his July 2017 letter that the incoming Estonian Presidency was hoping to secure an informal agreement with the European Parliament at a final trilogue meeting in mid-July. The Minister noted that, should the final trilogue agreement be “in line with the Government’s” key objectives, he would “like us to be in a position to support its agreement”. He therefore asked the Committee to clear the proposal from scrutiny. In the event, no agreement was reached before the summer recess and trilogues are expected to continue into December.

Our assessment

18.42We thank the Minister for the information he has provided on the state of play in the trilogue negotiations on the fifth Anti-Money Laundering Directive.

18.43The eventual outcome of the trilogues could have significant implications for the UK, especially with respect to disclosure of information on the beneficial ownership of trusts. Within the EU, express trusts are most widely used in the UK and Ireland as common law countries (although similar arrangements also exist in certain other Member States).147 It follows that the proposed new requirements for a central register of beneficial ownership of trusts would have the largest impact here. Given that the European Parliament supports mandatory public access to parts of that register, and the Member States want access for at least those with a “legitimate interest”, the Directive—if transposed in the UK despite Brexit—could drastically alter the amount of information on UK-based trusts which enters the public domain.

18.44The Committee welcomes the Council’s amendment with respect to the customer due diligence requirements relating to domestic “politically exposed persons”, as the current Directive has caused unnecessary complications for Members of Parliament and their relatives in accessing straightforward banking services. We note, however, that after Brexit holders of public office in the UK will be considered “third country” PEPs elsewhere in the EU, and will therefore not benefit from the proposed new exemption if they access financial or related services in one of the remaining Member States.

18.45Despite our withdrawal from the EU, the exact implications of the Directive for the UK is unclear. As we set out in more detail in paragraphs 0.46 to 0.58 below, we do not yet know if a transitional or final economic agreement with the EU post-Brexit could impose legal obligations on the UK with respect to adherence to the Single Market acquis.

The implications of the AMLD post-Brexit

18.46On 29 March, the Government formally triggered the process under Article 50 TEU to withdraw the UK from the EU. Brexit could lead to changes in the UK’s approach to tackling money laundering, as once free from its Treaty obligations the Government could in theory pursue a more tailored approach rather than applying the AMLD.

18.47However, it is clear from the Minister’s letter of 24 July that EU-derived money laundering regulations in force at the date of Brexit are likely to be carried over by Ministers, using their powers under the Repeal Bill. We take note in particular of the Minister’s qualifying statement that any extent of any revision of the Anti-Money Laundering Regulations post-Brexit will be subject to “international standards and agreements with other countries and the EU”.

18.48Two questions therefore arise regarding the implications of Brexit arising from the Anti-Money Laundering Directive:

18.49We note in this respect that, once it leaves the Single Market, the UK will be classified as a “third country” by other EU countries for the purposes of the AMLD—even if it follows the Directive to the letter—unless a legal agreement is concluded to the contrary.

Application of EU law post-Brexit

18.50From a purely domestic perspective, it appears unlikely the fifth AMLD will have to be transposed before the UK’s membership of the EU is scheduled to end in March 2019. Under the terms of the European Union (Withdrawal) Bill148 the fourth AMLD would be “preserved” as it will already have been transposed domestically on “exit day”. The amendments now under consideration would not be preserved, unless the Government had expeditiously enacted the necessary transposition measures ahead of the formal deadline (which is likely to be in 2020).149

18.51However, proposals for EU legislation which are currently being negotiated could still apply in the UK, even if they do not enter into force until after Brexit. Most notably, the Government is now explicitly seeking a “transitional mechanism” in various areas of the Single Market to avoid disruption in March 2019 while a new trade agreement is being negotiated, without providing details of how this might work in practice. Any such “mechanism” may require the UK to continue applying EU law post-Brexit during an interim period until a new free trade agreements enters into force.150 In particular, the Prime Minister has explicitly said that during an “implementation period”, UK-EU “access to one another’s markets should continue on current terms” under the “existing structure of EU rules and regulations”.151

18.52Similarly, we do not know which legal obligations may apply to the UK in relation to future developments in EU law under the new economic relationship. The EU is expected to argue for long-term regulatory convergence as part of any post-Brexit free trade agreement with the UK in return for preferential access to the Single Market.152 Moreover, in relation to anti-money laundering rules specifically, the European Parliament is now expressly seeking amendments to the AMLD that would establish with which standards a non-EU country would have to comply in return for a trade agreement on financial services.

18.53Given the above, we are unable to come to any firm conclusions about the possible application of the fifth AMLD in the UK post-Brexit until, at the very least, the Government clarifies the scope of its proposed transitional mechanism. We may be able to adjust our conclusions on this point as the Article 50 negotiations progress, especially once the parameters of any transitional and final post-Brexit agreement become clearer.

Implications of the AMLD for the UK as a third country

18.54If no transitional mechanism with the EU is agreed by March 2019, the AMLD—along with the rest of the EU acquis—would immediately cease to have effect in the UK, save for whatever parts of it are retained under the European Union (Withdrawal) Bill.

18.55However, the operation of the AMLD in its current form in the remaining Member States will have certain consequences for the UK once it is outside the Single Market:

18.56Under the proposed fifth AMLD, there would be further consequences for the UK as a third country:

18.57Given the state of the negotiations and the availability of both the Council’s and Parliament’s negotiating positions, we have asked the Minister to provide further information of the Government’s assessment of “third country” status under the AMLD (see “Summary and Committee conclusions” above). We note in this respect that it is unavoidable the UK will become a third country vis-à-vis the Single Market, whether in March 2019 or at the end of the “implementation period”. It is therefore important that the Government clarifies urgently what the implications of that are for UK citizens and businesses, with respect to the AMLD and more generally.

Previous Committee Reports

See (37927), 10678/16: Eleventh Report HC 71–ix (2016–17), chapter 6 (14 September 2016); Fifteenth Report HC 71–xiii (2016–17), chapter 4 (26 October 2016); Eighteenth Report HC 71–xvi (2016–17), chapter 8 (16 November 2016); and Thirty-Second Report HC 71–xxx (2016–17), chapter 4 (22 February 2017).


91 See COM(2016) 450 (6 July 2016).

92 Explanatory Memorandum submitted by HM Treasury (5 September 2016).

93 See our Report of 14 September 2016.chapter 6, HC71–xxii.

94 The full text of the negotiating mandate is available in Council document 15605/16. The UK abstained from supporting the text at COREPER, because the conditions for the scrutiny waiver granted by the Committee were not met (see paragraph 0.28).

95 See document A8–0056/2017 (published 9 March 2017).

96 Letter from Simon Kirby to Sir William Cash (3 February 2017).

97 Letter from Stephen Barclay to the Chair of the European Scrutiny Committee (24 July 2017).

98 Letter from Stephen Barclay to the Chair of the European Scrutiny Committee (29 October 2017).

99 In her speech in Florence on 22 September, the Prime Minister said she was seeking an “implementation period” during which “access to one another’s markets should continue on current terms”. Remaining in the Single Market in this way will most likely require the continued application of the EU acquis in the UK for the duration of this period.

100 See HC Deb 20 January 2016, vol 604, col 1519. The amendment proposed by the Council would allow Member States to waive the stricter requirements for “domestic” PEPs altogether.

101 The Government has not yet clearly specified what its detailed proposals for any transitional arrangement are, although the Prime Minister has said that it should preserve current levels of market access between the UK and the EU. However, the other Member States adopted their guidelines on Brexit in April 2017, in which they state: “Any (…) [transitional arrangement] must be clearly defined, limited in time, and subject to effective enforcement mechanisms. Should a time-limited prolongation of Union acquis be considered, this would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply.” That would imply the UK would continue to be bound by the AMLD and its amending Directives.

102 Letter from Stephen Barclay to the Chair of the European Scrutiny Committee (24 July 2017).

103 Chancellor of the Exchequer, Mansion House speech 2017 (20 July 2017).

107 See Directive 2015/489. The Directive was cleared from scrutiny by the previous Committee in its Report of 11 June 2014.

108 See Regulation 2015/847. The Fund Transfer Regulation (FTR) updated the rules regarding information on payers and payees accompanying transfers of funds, in any currency, for the purposes of preventing, detecting and investigating money laundering and terrorist financing, where at least one of the payment service providers involved in the transfer of funds is established in the EU. The FTR was cleared from scrutiny by the previous Committee in its Report of 11 June 2014.

109 The Directive empowers the Commission to identify high-risk third countries by means of a delegated act, which can be vetoed by the Council or the European Parliament. In July 2016, the Commission identified Afghanistan, Bosnia and Herzegovina, Guyana, Iran, Iraq, Laos, North Korea, Syria, Uganda, Vanuatu and Yemen as “high-risk” countries. Since then, the European Parliament has twice vetoed subsequent delegated acts to update the list (in January and May 2017), as MEPs want the Commission to develop its own methodology to classify countries as high-risk and not adhere simply to the list of such countries published by the Financial Action Task Force (FATF).

110 An “express trust” is a trust that was deliberately created by a settlor to expressly transfer property to a trustee for a valid purpose, as opposed to trusts imposed by law (i.e. statutory, resulting or constructive trusts).

111 See article 31 of Directive 2015/849/EU.

115 See for more information section 45 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which entered into force on 26 June 2017.

116 The Panama Papers are a cache of leaked documents relating to over 200,000 offshore entities created or managed by Panamanian law firm Mossack Fonseca.

117 Informal ECOFIN Council, 22 April 2016.

118 Directive 2009/101/EC.

119 See COM(2016) 450 (6 July 2016).

121 Explanatory Memorandum submitted by HM Treasury (5 September 2016).

122 The lower threshold would have applied to “passive non-financial entities”, typically an intermediary entity which does not undertake any economic activity of its own and serves to distance the beneficial owners from the assets.

123 The European Commission argues the registration requirement for the beneficial ownership of trusts should be shifted to the Member State where the trust is administered, because “some Member States do not consider trusts set up under another Member State’s law (common law) to fall within their jurisdiction even if they are administered in their territory because they do not recognise such legal structures. At the same time, common law Member States do not consider trusts set up under their own law to fall within their jurisdiction unless they are administered in their Member State”. See the Commission Impact Assessment, p. 109.

124 The fourth AMLD, in its recital 57, already makes this recommendation. This proposal would turn it into a legal requirement.

125 A retrieval system would be a single IT platform that can access the necessary information from different, existing databases.

126 The Commission proposal cited as its legal bases Article 50 TFEU (freedom of establishment) and Article 114 TFEU (on the internal market). See for information the letter from the Economic Secretary to Sir William Cash (20 October 2016).

128 See our 18th Report of 16 November 2016, chapter 8, HC 71–xvi.

130 See Council documents 13872/16 and 14433/16, new paragraph 5a in article 30.

131 18th Report of 16 November 2016, Chapter 8 , HC71 -xvi.

132 Council of the EU, “Outcome of the Council meeting“ (6 December 2016), p. 15.

133 Summary record of the COREPER meeting on 20 December 2016, p. 6.

134 The full text of the negotiating mandate is available in Council document 15605/16. The UK abstained from supporting the text at COREPER, because the conditions for the scrutiny waiver granted by the Committee were not met (see paragraph 0.28).

135 A similar “legitimate interest” test applies for access to the register on beneficial ownership of companies under Article 30(5)(c) of thefourth AMLD. However, it is not defined in the Directive and, as the UK’s Register of Persons of Significant Control is fully public, there is not currently a domestic definition of this concept.

136 The Austrian Government still strongly supports public access to the register of trusts. When COREPER agreed the Council’s negotiating mandate in December 2016, it entered a statement into the Minutes which expressed concerns that “the current text does not enhance transparency on beneficial ownership necessary to avoid the abuse of trusts for the purpose of money laundering and terrorist financing. There is a clear need to establish mandatory central and public beneficial owner registries for trusts in the Member State by whose laws trusts are governed”.

137 Letter from Simon Kirby to Sir William Cash (3 February 2017).

138 The provisions on due diligence for politically exposed persons (PEPs) in thefourth AMLD (which are meant to apply stricter requirements to business relations with people in high public office considered more likely to be in receipt of laundered money) led to controversy in the UK, because they reportedly led to some Members of Parliament and their families being refused bank accounts. See HC Deb 20 January 2016, vol 604, col 1519. The amendment proposed by the Council would allow Member States to waive the stricter requirements for “domestic” PEPs altogether.

139 See our predecessors’ 32nd Report of 22 February 2017 Chapter 4 HC 71– xxx.

140 See document A8–0056/2017 (published 9 March 2017).

141 Amended article 9 under the European Parliament position.

143 See Article 198 TFEU and Annex II to the Treaties.

144 See our Report of 22 February 2017.

147 However, the Commission says that “it is not practically possible at this time to obtain figures on the number of trusts active in the EU, or the assets held through those entities”. See the Commission Impact Assessment, p. 111.

149 Section 2 of the European Union (Withdrawal) Bill.

150 For example, in relating to the provision of clearing services by central counterparties, the Government has said it wants a “transitional mechanism to minimise disruption and avoid cliff edges”. The only option for a transitional arrangement identified by the European Council is a “time-limited prolongation of Union acquis (…) [which] would require existing Union regulatory, budgetary, supervisory, judiciary and enforcement instruments and structures to apply”.

151 Prime Minister, “A new era of cooperation and partnership between the UK and the EU“ (22 September 2017).

152 The European Council guidelines state that “any free trade agreement [with the UK] (…) must ensure a level playing field, notably in terms of (…) regulatory measures and practices”.

153 Chancellor of the Exchequer, Mansion House speech 2017 (20 July 2017).




28 November 2017