34Cash Control Regulation
|
Committee’s assessment |
Legally and politically important |
|
Cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs and the Treasury Committees |
|
|
Document details |
Proposal for a Regulation of the European Parliament and of the Council on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005 |
|
Legal base |
Articles 33 and 114 TFEU, ordinary legislative procedure, QMV |
|
Department |
HM Revenue and Customs |
|
Document Number |
(38431), 15819/16 + ADDs 1–3, COM(17) 825 |
Summary and Committee’s conclusions
34.1In December 2016, the European Commission proposed a new Regulation on movements of large sums of cash in and out of the EU, as part of wider efforts to tackle money-laundering and the financing of terrorism.446 Notably, it will extend the scope of the existing cash control regime to precious commodities such as gold, as well as prepaid cards. The Regulation, which is expected to apply from 2020, does not apply to intra-EU movements of cash, as they are covered by the free circulation of capital.
34.2The Government told the previous Committee that it was “broadly content” with the draft legislation, although it insisted that several of its provisions engaged the UK’s Justice and Home Affairs (JHA) opt-in, even though the draft Regulation does not cite a JHA legal base.447 In April 2017, the Government purported to opt in to the proposal, although the Committee was not notified of this fact until October and the required Written Ministerial Statement is yet to be laid before Parliament.448
34.3Similarly, the Financial Secretary to the Treasury (Mel Stride) did not inform us until the end of October that the Member States in June 2017 had agreed a mandate for negotiations with the European Parliament on the legislation. At that point, he provided us with an assessment of the Council’s mandate, noting that it did not “depart significantly” from the original Commission proposal.449 A Presidency note circulated in June also notes that our parliamentary scrutiny reservation was expected “to be lifted before the beginning of the negotiations with the European Parliament”, which are likely to begin in December.
34.4With respect to what consequences the new Regulation might have in the context of the UK’s withdrawal from the EU, the previous Financial Secretary (Jane Ellison) stated in April 2017 that “the proposals as drafted do not pose significant additional issues for exiting the EU compared to the status quo” (our emphasis). In October, her successor added furthermore that HM Revenue and Customs was of the view that “UK legislation on cash controls for when the UK leaves the EU should be based on the proposed legislation” rather than the 2005 Regulation, to keep the UK in line with international standards.
34.5We are grateful to the Minister for his detailed assessment of the COREPER mandate adopted in June. The Council position appears to be broadly aligned with the UK’s interests as a Member State. However, although the scrutiny reserve resolution may not formally apply to decisions taken at COREPER, we ordinarily expect Departments to keep us informed of the likely substance of any such decisions before they are taken. In any event, and irrespective of the long period of recess, it should not have taken four months for the Minister to inform us of the outcome of the COREPER meeting.
34.6We are also intrigued by the note in a June Report prepared by the then-Presidency that, in relation to the British and Danish parliamentary scrutiny reservations, “it is understood that these reservations will be lifted before the beginning of the negotiation with the European Parliament”. We emphasise in the strongest possible terms that it is not for the Government to prejudge the outcome of our consideration of proposals under scrutiny.
34.7With respect to the Government’s decision in April to opt in to the purported JHA provisions of the draft Regulation, we support the previous Committee’s conclusions that the opt-in is not engaged without a JHA legal basis. We ask the Minister to explain why the Committee was not notified of the opt-in decision until October. As he is doubtless aware, the Government’s own Code of Practice on Parliamentary scrutiny of JHA opt-in decisions says that the Committee should be informed “as soon as” the Council Presidency has been notified. We also ask him to explain why the Government’s opt-in decision and the reasons for it have not been reported to the House by means of a Written Ministerial Statement.
34.8As regards the implications of the EU’s cash control regime in the context of Brexit, we note that the previous Minister stated that this proposal does not pose significant additional issues (our emphasis). By necessary implication, the Regulation as it stands already poses issues which will need to be addressed. First and foremost, post-Brexit the regime will apply to movements of cash between the UK and the EU (including from Ireland to Northern Ireland), whereas intra-EU movements of cash will continue to be exempt. We would be grateful for further information from the Minister about the volume of travellers or cash likely to be affected, and which other issues it has identified in this respect (for example in relation to the new Regulation’s provisions on mandatory exchange of information between customs authorities on suspected illicit movements of cash). We would also like him to specify what agreement the Government intends to seek to mitigate, so far as possible, the imposition of cash controls at the Irish border.
34.9In addition, as we have noted for other pending legislative proposals likely to become effective after March 2019, we do not know if the Government accepts that the interim arrangement it seeks for the immediate post-Brexit period could require the UK to continue applying EU law for some time after withdrawal (including the new Cash Control Regulation). Moreover, it is unclear what, if any, permanent mechanism the Government envisages to facilitate the physical circulation of cash between the UK and the EU post-Brexit, or whether it is content for the customs controls to be applied on movements of cash between the two sides.
34.10In light of our conclusions, we ask the Minister the following questions to assist us in any future consideration of the proposal for a Regulation:
- The Minister has indicated that there are unspecified “issues” resulting from the existing cash control regime following our withdrawal from the EU. Could he specify what these are, and how the Government proposes to address them as part of the Article 50 process?
- What assessment has the Government made of the consequences of movements of cash between the EU and the UK becoming subject to the Cash Control Regulation at the EU’s external border, in particular at the Irish border? Does it have any indication of the number of travellers or the volume of cash that might be affected?
- Will the UK remain part of the EU’s cash control regime during the Prime Minister’s proposed “implementation period”, meaning that no controls will be conducted on movements of cash between the UK and the EU during that period?
- In the absence of, or subsequent to, any “implementation period”, does the Government propose to negotiate a new agreement with the EU on movements of cash, or is it content for the Regulation to be applied to traffic between the UK and the EU post-Brexit?
34.11We are content to clear the proposal from scrutiny in anticipation of the Minister’s reply, which we wish to receive by 8 December. However, we expect to be kept informed of developments in the trilogue process, especially if there are indications that the final Regulation may depart in substance from the mandate for negotiations agreed at COREPER in June.
34.12We also draw these developments to the attention of the Home Affairs Committee and the Treasury Committee.
Full details of the documents
Proposal for a Regulation of the European Parliament and of the Council on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005: (38431), 15819/16 + ADDs 1–3, COM(16) 825.
Background
The 2005 Cash Control Regulation
34.13The 2005 Cash Control Regulation450 was adopted to complement the provisions of the Anti-Money Laundering Directive,451 by setting out controls applied to natural persons entering or leaving the EU with large amounts of cash. In doing so, the Regulation implemented at EU level international standards on anti-money laundering and terrorism financing, notably a Recommendation of the Financial Action Task Force on Money Laundering (FATF) and controls of cash movements.
34.14Specifically, the 2005 Cash Control Regulation requires all individuals leaving or entering the EU to make a declaration when they are carrying currency or bearer-negotiable instruments (such as travellers’ cheques) worth €10,000 (£8,850)452 or more. The information provided must identify the declarant, as well as the owner of the cash, the amount and nature of the cash, the provenance, and its intended use. Member States can also carry out controls of natural persons, their baggage, and their means of transport, and any undeclared cash can be detained. Information on suspected illegal activity related to movements of cash can be shared with other EU Member States and third countries. Penalties for breaching the Regulation are set by each EU country individually, but must be “effective, proportionate and dissuasive”.
The proposal for a new Cash Control Regulation
34.15In 2015, the Commission published the results of its evaluation of the Regulation.453 It concluded that, while the overall performance of the legislation was good, a “number of areas posed problems and should be strengthened to improve its functioning”. In December 2016, the Commission therefore proposed a replacement Regulation, to bring EU legislation into line with international norms and best practices in the fight against money laundering and the financing of terrorism.454
34.16This new Regulation would also apply to all movements of shipments of cash exceeding €10,000 in and out of the EU. Although the current threshold would be maintained, the proposal would make the following substantive changes compared to the 2015 Regulation:
- extend the scope of the current Regulation by also covering “unaccompanied cash” sent by shipment or freight;
- expand the definition of “cash” to include prepaid cards and highly liquid commodities such as gold and jewels (with further changes to the definition possible via future delegated acts);
- mandate systematic sharing of information between national anti-money laundering authorities on cash movements;
- allow customs authorities, under certain conditions, to temporarily detain cash where they suspect illegal activity, even if the €10,000 threshold is not met; and
- require Member States to inform the Commission of any changes to penalties they impose for breaches of the Cash Control Regulation, without prescribing what form those penalties should take.
34.17The proposal has a dual legal basis, consisting of Article 33 TFEU (customs cooperation) and Article 114 TFEU (internal market). The new Regulation is expected to apply from 2020.
History of scrutiny on the proposal
34.18The then Financial Secretary to the Treasury (Jane Ellison) submitted an Explanatory Memorandum on the proposal in January 2017.455 She and her successor (Mel Stride) have elaborated further on the Government’s position by letters of 10 April,456 26 April457 and 30 October.458
34.19The Ministers have indicated that the Government is “broadly content” with the proposal, and in particular supports measures to allow customs authorities to temporarily detain sub-threshold amounts, as well as the principle of improving the exchange of information on cash movements between Member States. They have also noted the Government would consider the “operational burdens” that could result from expanding the Regulation to cover high-value commodities, prepaid cards, and unaccompanied shipments of cash. In addition, the previous Financial Secretary expressed concerns that allowing the Commission to amend the definition of “cash” under the Regulation via a Delegated Act may not be “proportionate and necessary”.
34.20Both the current and previous Financial Secretaries have also insisted that several elements of the proposal459 engaged the UK’s Justice and Home Affairs (JHA) opt-in, even though the draft Regulation does not cite a JHA legal base in under Part Three, Title V of the Treaty.460 The previous Committee in January and April 2017 reiterated its well-established position that, in the absence of a JHA legal basis, the opt-in was not relevant as the Regulation would apply in its entirety to the UK. In April, the Government purported to opt in to the proposal, although the Committee was not notified of this fact until October and the required Written Ministerial Statement is yet to be laid before Parliament.461 The Financial Secretary has conceded that any legal challenge before the Court of Justice to force the use of a JHA legal base is “unlikely to succeed”.462
34.21With respect to what consequences the new Regulation might have in the context of the UK’s withdrawal from the EU, the previous Committee asked the Minister to set out the “implications of Brexit for the UK’s compliance with Financial Action Task Force recommendations on controls of cash movements”.463 In response, she noted with respect to the consequences of Brexit more generally that:
“While we need to be mindful of developing plans for post-Brexit customs control and border security, we believe that the proposals as drafted do not pose significant additional issues for exiting the EU compared to the status quo. However, there is a risk that the EU may seek to develop a new IT system to support information exchange. HMG will need to be mindful of the potential costs of this new system as plans develop further, particularly in light of plans to leave the EU.”464
34.22In October, the new Financial Secretary (Mel Stride) added furthermore that HM Revenue and Customs had suggested to the Department for Exiting the European Union that “UK legislation on cash controls for when the UK leaves the EU should be based on the proposed legislation” rather than the 2005 Regulation, to keep the UK in line with FATF standards.465
34.23The substance of the new Regulation and the Government’s position are set out in more detail in our predecessors’ Reports of January and April 2017.466 On the latter occasion, the previous Committee retained the proposal under scrutiny while seeking further clarification from the Minister about the Government’s concerns, as well as the outcome of its decision on the JHA opt-in.
Developments since April 2017
34.24The new Financial Secretary (Mel Stride) wrote to us on 30 October 2017, informing us that COREPER had adopted a mandate for negotiations467 with the Parliament on the final text of the Regulation on 28 June.468 We understand from the Minister that the usual practice of adopting such mandates at Council (where the decision by the UK to vote in favour would be subject to the scrutiny reserve resolution) was waived to enable the Maltese Presidency to conclude the Council’s preparatory work on this file before handing over to the Estonian Presidency on 1 July.
34.25The Minister explained that the text agreed by COREPER “does not depart significantly from the original draft Regulation”. The extension of its scope to prepaid cards has been made subject to the adoption of a future Delegated Act, which will be proposed by the Commission only “when a body of evidence and technology is available to justify and enable their control”.469 The Member States also supported the use of the existing Customs Information System470 to underpin the exchange of information collected under the Regulation between customs authorities, rather than empowering the Commission to establish a new IT system for this purpose.
34.26In the European Parliament, the file is being considered jointly by the Economic & Monetary Affairs and Civil Liberties, Justice & Home Affairs Committees. A vote on their negotiating position is expected to take place on 4 December. In anticipation of trilogue negotiations to begin later this year or in early 2018, the Minister asks for the Committee to lift scrutiny on the proposal, on the condition that the final text “meets the objectives of the UK”.
Our assessment
34.27We are grateful to the Minister for his latest, detailed, assessment of the COREPER mandate adopted in June. The Council position appears to be broadly aligned with the UK’s interests as a Member State. However, although the scrutiny reserve resolution may not formally apply to decisions taken at COREPER, we ordinarily expect Departments to keep us informed of the likely substance of any such decisions before they are taken. In any event, and irrespective of the long period of recess, it should not have taken four months for the Minister to inform us of the outcome of the COREPER meeting.
34.28We are also intrigued by the note in the Maltese Presidency’s Report that, in relation to the British and Danish parliamentary scrutiny reservations, “it is understood that these reservations will be lifted before the beginning of the negotiation with the European Parliament”. We emphasise in the strongest possible terms that it is not for the Government to prejudge the outcome of our consideration of proposals under scrutiny.
JHA opt-in
34.29The Minister continues to insist that the proposal somehow triggers the UK’s opt-in Protocol for Justice and Home Affairs, despite the absence of a JHA legal basis in both the Commission proposal and the amended text approved by COREPER. We support the previous Committee’s conclusions that Protocol is not engaged without such a legal basis. In addition, we note that the previous Financial Secretary admitted that, even if the Government had not opted in to the contested provisions, “we would still be bound by those specific provisions in the new Regulation when adopted, unless or until we challenge the legal basis of the measure at the Court of Justice of the European Union”.471
34.30The Government’s purported opt-in decision took place in April, but we were not notified until October, and to date no Written Statement has been laid before Parliament to justify its decision (as is required by Cabinet Office guidance). We expect such a Statement to be made without delay, and ask the Minister to explain the delay in notifying the Committee of the opt-in decision and the Department’s failure to produce a Ministerial Statement.
Implications of Brexit
34.31We note that the previous Minister, in relation to the consequences of Brexit for the cash control regime, argued that the proposal did not pose significant additional issues (our emphasis). By necessary implication, the Regulation as it stands already poses issues which will need to be addressed.
34.32The immediate impact of the UK’s withdrawal from the EU will be that the remaining Member States will have to apply the Cash Control Regulation to movements of cash into the EU from the UK and vice versa, unless an agreement to the contrary is concluded before March 2019. It is immaterial in this respect whether the UK also maintains cash controls at the border (in which case movements of cash to and from the EU might be checked twice), or not. Moreover, HM Revenue and Customs and the National Crime Agency (as the UK’s designated Financial Intelligence Unit) will not benefit from the new provisions on the mandatory exchange of information between EU customs authorities on declarations and disclosures of cash movements.472 We do not know if the Government has identified any additional issues arising from Brexit.
34.33To complicate our scrutiny work further, at this stage it is unclear if the UK will be considered a non-EU country for the purposes of the Regulation by March 2019. The Prime Minister has called for an “implementation period” of up to two years following our formal withdrawal, during which the UK would operate under the framework of “existing structure of EU rules and regulations”. The exact implications of this proposal, and the EU’s position on it, have not been spelled out by the Government. In particular, we do not know if it accepts that such an interim arrangement would be likely require the UK to continue applying EU law for its duration. We note in this respect that the new Cash Control Regulation is likely to apply from 2020, in the middle of the “implementation period”.
34.34It is also unclear what, if any, mechanism the Government envisages to facilitate the physical circulation of cash between the UK and the EU after the end of any transitional period, or whether it is content for the customs controls to be applied on such movements of cash between the two sides.
34.35Given the above, we have put several questions to the Minister to assist us in any future consideration of the proposal for a Regulation (see paragraph 0.10 above). We may revert to this subject in light of the reply received.
Previous Committee Reports
Twenty eighth Report HC 71—xxvi (2016–17), chapter 4 (25 January 2017) and Thirty Ninth Report HC 71–xxxvi (2016–17), chapter 1 (19 April 2017).
446 The details of the proposal are set out in paragraphs 34.15 to 34.17 below.
447 Letter of 10/26 April.
448 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/655951/Opt-in_data-Oct_2017.pdf. Cabinet Office guidance on parliamentary scrutiny requires the Government, where it decides to opt in, to inform the Committees that it has done so as soon as the Presidency has been notified (our emphasis). The Government must also report opt-in decisions and the reasons why they believe their decisions to be in the national interest to both Houses of Parliament as a Written or Oral Ministerial Statement (WMS/OMS) with a Ministerial letter sent during recess.
449 See paragraphs 34.15 to 34.17 below for more information.
450 Regulation 1889/2005 on controls of cash entering or leaving the Community.
451 Directive 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. A proposed amendment to this Directive remains under scrutiny (see our report of 22 November 2017).
452 €1 = £0.91973 or £1 = €1.08728 as at 1 September 2017.
453 http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52016SC0470&qid=1510148462140&from=EN, annex 2, p. 65.
454 Commission proposal COM(2016) 825.
455 Explanatory Memorandum submitted by HM Treasury (16 January 2017).
458 Letter from Mel Stride to Sir William Cash (30 October 2017).
459 Specifically, article 6 on registering the details of movements of cash below the €10,000 threshold; article 8 on transmission of declared movements of cash to Financial Intelligence Units; and article 9 on exchange of information between Member States’ customs authorities.
460 Letter of 10/26 April.
461 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/655951/Opt-in_data_-_Oct_2017.pdf. Cabinet Office guidance on parliamentary scrutiny requires the Government, where it decides to opt in, to inform the Committees that it has done so as soon as the Presidency has been notified (our emphasis). The Government must also report opt-in decisions and the reasons why they believe their decisions to be in the national interest to both Houses of Parliament as a Written or Oral Ministerial Statement (WMS/OMS) with a Ministerial letter sent during recess.
462 October letter.
463 January Report.
464 Letter of 10 April 2017.
465 October letter.
466 See the previous Committee’s Report of 25 January 2017.
469 The Minister also notes that proposals by some Member States to a) implement a mandatory declaration system for cash sent by freight or post and b) to extend the Regulation’s purpose to cover anti-money laundering were not taken forward.
470 See Council Regulation (EC) No 515/97 on mutual assistance on customs and agricultural matters.
471 Letter of 10 April 2017.
472 Under the 2005 Cash Control Regulation, exchange of information is encouraged but not mandatory.
1 December 2017