Legally and politically important
Not cleared from scrutiny; further information requested; drawn to the attention of the Home Affairs Committee and the Justice Committee
Proposal for a Directive laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences and repealing Council Decision 2000/642/JHA
Article 87(2) TFEU, ordinary legislative procedure, QMV
(39666), 8411/18 + ADDs 1–2, COM(18) 213
6.1Criminal activity frequently has a cross-border dimension, making it difficult to gather the evidence needed to advance a criminal investigation or prosecution. The proceeds of a crime committed in one Member State may be concealed in another or funds held in a foreign bank account used to finance acts of terrorism elsewhere in the EU. A report published in 2017 by Europol, the EU’s law enforcement agency, called for “reflection on how to adapt policies which are meant to be supervised only at national level, while the underlying business is already transnational and globalised in its own nature”.
6.2The Commission considers that existing mechanisms for accessing and exchanging financial information within the EU are too slow, given the pace at which funds can be moved across borders:
“In some Member States, it can take weeks or months to receive the necessary information. Currently, the authorities responsible for the prevention, detection, investigation or prosecution of criminal offences often do not have direct access to this information. This lack of access to financial information during criminal investigations may jeopardise their ability to investigate serious crimes, disrupt criminal activities, foil terrorist plots, or detect and freeze the proceeds of crime. It is imperative that law enforcement authorities have access to the most crucial pieces of financial information as quickly as possible to complete their investigations and crack down on the financing of terrorism and serious crime.”
6.4The proposed Directive is subject to EU data protection rules and includes additional safeguards:
6.5The Commission envisages that the proposed Directive would have to be implemented in domestic law at the same time as the provisions of the recently agreed Fifth Anti-Money Laundering Directive which requires Member States to establish central bank registries or electronic data retrieval systems so that account holders can be readily identified. This is likely to be in early 2020, before the end of the post-exit transition/implementation period envisaged in the draft EU/UK Withdrawal Agreement during which the UK will continue to apply EU laws.
6.6As the proposed Directive is a criminal law measure, it is subject to the UK’s Title V (justice and home affairs) opt-in and will only apply to the UK if the Government decides to opt in.
6.7The Minister for Security and Economic Crime (Mr Ben Wallace) expresses the Government’s strong support for international cooperation to tackle serious crime and considers that action at EU level is appropriate as financial crime and money laundering often has a cross-border dimension. Whilst the proposed Directive is “broadly in line with existing UK legislation and practice on the sharing of financial information”, his of 12 June identifies two concerns.
6.8First, national Financial Intelligence Units (FIUs) would be required to provide financial information and analysis in response to a “duly justified request” made by Europol. Whilst the UK’s FIU is able to provide this information, the Minister questions whether it should be under an obligation to do so. He highlights a potential conflict with Recommendation 29 of the Financial Action Task Force and with Article 32(4) of the EU’s Fourth Anti-Money Laundering Directive which provide that FIUs should have autonomy in deciding whether to share information.
6.9Second, the Minister explains that the three-day time limit for providing financial information or analysis requested by a FIU in another Member State is “shorter than existing standards for such exchanges”. He questions whether a request from a FIU in another EU Member State should be handled with greater urgency than a request from a FIU in a non-EU country.
6.10The Minister is unable to confirm when the three-month deadline for opting into the proposed Directive will expire but sets out the factors which will inform the Government’s opt-in decision:
6.11The Minister does not anticipate that there would be significant costs or other financial implications for the UK if the Government were to decide to participate in the proposed Directive.
6.12We would welcome further information on the practical implications of the Government’s opt-in decision. We ask the Minister:
6.13Under Article 122(1)(a) of the draft EU/UK Withdrawal Agreement, the proposed Directive will only apply if it is “binding upon and in the UK” by exit day. We ask the Minister:
6.14The Minister indicates that the proposed Directive will repeal, but not replace, the 2000 Council Decision even though both measures concern the exchange of information between Member States’ Financial Intelligence Units. We ask him to explain why he considers the proposed Directive to be a simple repeal (rather than repeal and replace) measure and how this would affect the application of Article 122(5) of the draft EU/UK Withdrawal Agreement. Under this Article, an EU measure adopted after exit but during the transition/implementation period which “amends, builds upon or replaces” an existing measure in which the UK participates would still apply to the UK (if the Government opts in).
6.15The proposed Directive does not include provisions on third (non-EU) country access to financial and bank account information held within the EU. We ask the Minister to explain the basis on which the UK’s Financial Intelligence Unit would be able to exchange financial information with its counterparts in the EU post-exit (and post-transition).
6.16In its , the Government says it will seek a new internal security treaty with the EU to “sustain cooperation on the basis of existing EU measures” and “provide the legal basis for ongoing cooperation”. We infer from this wider context that a decision to opt into the proposed Directive would signal an intention to maintain and develop close cooperation with the EU in tackling cross-border financial crime and ask the Minister whether he envisages that the proposed Directive would be amongst the measures to be included in a new internal security treaty with the EU.
6.17Pending further information, the proposed Directive remains under scrutiny. We ask the Minister to confirm the three-month deadline for opting into the proposal and to explain how the concerns identified in his Explanatory Memorandum on the autonomy of Financial Intelligence Units and the time limits for exchanging information are addressed in negotiations. We draw this chapter to the attention of the Home Affairs Committee and the Justice Committee.
Proposal for a Directive laying down rules facilitating the use of financial and other information for the prevention, detection, investigation or prosecution of certain criminal offences and repealing Council Decision 2000/642/JHA: (39666), + ADDs 1–2, COM(18) 213.
6.18Existing EU anti-money laundering legislation seeks to prevent money laundering and terrorist financing by requiring banks and other businesses handling financial transactions to apply due diligence to their customers and report suspicious activity to the authorities. Its primary purpose is to prevent illicit flows of money which may damage the stability and integrity of the financial sector and undermine the EU’s internal market. The EU’s Fourth Anti-Money Laundering Directive requires each Member State to establish a Financial Intelligence Unit responsible for receiving and analysing information on suspicious financial transactions which may be linked to money laundering or terrorist financing. The UK’s Financial Intelligence Unit forms part of the National Crime Agency. In December 2017, the Council and European Parliament agreed substantial changes to the EU’s anti-money laundering rules. They include a requirement for each Member State to:
6.19The changes do not give similar direct access to law enforcement authorities responsible for investigating and prosecuting other types of serious crime, nor do they regulate the exchange of financial information and analysis between these authorities and Financial Intelligence Units except in cases concerning money laundering or terrorist financing. The Commission believes that this creates a risk of “significant delays which may prejudice criminal investigations” and hinder effective cross-border cooperation. Often, law enforcement authorities have to issue a “blanket request” for information to all financial institutions within their jurisdiction in order to identify where a criminal suspect holds an account.
6.20Under the EU’s Fifth Anti-Money Laundering Directive (5AMLD), Member States will have until 10 January 2020 to set up their own central registries of bank or payment accounts. The Commission envisages that the proposed Directive giving designated law enforcement authorities direct access to these registries and strengthening cooperation between these authorities and Financial Intelligence Units will take effect at the same time.
6.21The UK is expected to leave the EU on 29 March 2019. EU and UK negotiators have agreed that there should be a transition/implementation period after the UK has left the EU to prevent an abrupt departure. Under the draft Withdrawal Agreement which sets out the terms of the UK’s exit from the EU, EU laws will continue to apply to the UK as if it were a Member State until the transition/implementation period ends on 31 December 2020. The Minister confirms that the UK will therefore be required to implement the Fifth Anti-Money Laundering Directive. Should the Government decide to opt into the proposed Directive on law enforcement access to financial information, it seems likely that it will also have to be implemented to the same timescale.
6.22The proposed Directive does not seek to regulate the transfer of financial data to third (non-EU) countries. However, a recital to the proposal makes clear that any transfers must comply with the requirements set out in the EU’s Law Enforcement Data Protection Directive or General Data Protection Regulation. In most cases, this is likely to require a Commission “adequacy decision” or a legally binding instrument containing “appropriate safeguards” for the protection of personal data.
None on this document.
48 See Europol’s , From Suspicion to Action: Converting financial intelligence into greater operational impact.
49 See the European Commission’s , Frequently Asked Questions: Security Union—Denying terrorists the means to act.
50 Whilst it would be for each Member State to designate the relevant national law enforcement authorities, they must include the National Europol Unit.
51 See Annex 1 to on the EU Agency for Law Enforcement Cooperation (Europol).
52 Recommendations made by the (FATF) establish international standards for combating money laundering and terrorist financing. Recommendation 29 concerns Financial Intelligence Units (FIUs) whose role is to gather information and provide analysis on suspicious financial transactions. issued by the FATF states that FIUs should be “operationally independent and autonomous”.
53 Article 32(4) of the provides that it is for each FIU to decide whether to carry out an analysis or disseminate information.
54 The three-month period starts to run from the date on which the last language version of the proposal is published.
55 concerning arrangements for cooperation between financial intelligence units of the Member States in respect of exchanging information. The UK re-joined this Decision and 34 other EU measures in December 2014, after deciding to opt out en masse of EU police and criminal justice measures adopted under the pre-Lisbon Treaty arrangements.
56 Under Article 4a of Protocol 21 to the EU Treaties, the Council may decide that the UK can no longer participate in an existing EU measure if the UK’s non-participation in an amending measure would make it inoperable for other Member States. An amending measure includes a measure which repeals and replaces an earlier EU measure.
57 Recital (27) of the proposed Directive makes clear that the transfer of financial data outside the EU must comply with EU data protection rules on the transfer of personal data to third countries.
58 The EU’s Fourth and Fifth Anti-Money Laundering Directives cite an internal market (Article 114 TFEU) legal base.
59 See on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.
60 See the . For further information, see our Twelfth Report HC 301–xii (2017–19), (31 January 2018) on the Fifth Anti-Money Laundering Directive.
61 See p.2 of the Commission’s explanatory memorandum accompanying the proposed Directive.
62 See .
63 See Article 122 of the .
64 See recital (27) of the proposed Directive.
Published: 3 July 2018