Money laundering and the financing of terrorism - European Union Committee Contents


The international strategy

15.  Money laundering and the financing of terrorism more often than not take place in an international context. The EU Council of Ministers accepts that "measures adopted solely at national or even Community level, without taking account of international coordination and cooperation, would have very limited effects".[12] Over the last twenty years the emphasis has therefore been on the development of a common international strategy. Box 2 summarises its major features.

International strategy

16.  In the 1980s money laundering was used by criminals largely for laundering the proceeds of drug trafficking. The first important international responses were the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, adopted on 19 December 1988 in Vienna (the Vienna Convention) and, more generally in relation to all criminal activities, the Council of Europe Convention on laundering, tracing, seizure and confiscation of proceeds of crime, opened for signature on 8 November 1990. A still more important development took place in 1989 when the G7 States[13] decided to set up a Financial Action Task Force—the FATF—to combat the growing threat of money laundering.

The Financial Action Task Force (FATF)

17.  Most international bodies in which a number of States participate have a formal structure and constitution contained in a treaty, convention or other agreement. The FATF is not one of them.[14] It can be seen as a partnership between governments, accountable to the Ministers of its member Governments, who give it its mandate. The current mandate lasts from 2004 to 2012, but was revised in April 2008.

18.  When the FATF was set up the European Commission and a number of other states[15] were invited to join the Task Force in order to enlarge its expertise and to reflect the views of other countries particularly concerned by or having experience in the fight against money laundering. The membership has since further widened, and there are now 34 members.[16] The organisation is based in Paris. It has a rotating Presidency, which the United Kingdom last held in 2007-08.


19.  The FATF is widely recognised as the international standard setting body in the field of anti-money laundering (AML). It is best known for its Forty Recommendations. These were originally drawn up in 1990 as an initiative to combat the misuse of financial systems by persons laundering drug money. They recommend to countries how their legal systems and financial institutions could best operate to combat money laundering, what institutional measures they should take, and the international cooperation they should undertake. The Recommendations were revised for the first time in 1996, and again in 2003, to reflect evolving money laundering typologies. Together they constitute a comprehensive regime which has been endorsed and adopted by more than 180 countries, and in addition by a number of international bodies including the United Nations, the International Monetary Fund (IMF) and the World Bank; they are the international anti-money laundering standard. We publish a summary of them in Appendix 4.[17]

20.  Setting standards would be of little use if there was no mechanism for seeing whether they were adhered to. The FATF assesses formal compliance with those standards, and their effective implementation, through a process of mutual evaluation. This involves for each country an assessment by experts from other countries of whether they are fully compliant with each recommendation, or if not, where they fall short.[18] A report is presented to the FATF plenary session, and two years later the country must report what it has done to remedy those areas where the report found weaknesses. To date there have been two rounds of evaluations, and a third is in progress. The United Kingdom's third evaluation took place in June 2006. The report, presented in June 2007, found the United Kingdom to be fully compliant with 19 of the 40 recommendations, and largely or partially compliant with all but 3 of the others. The Treasury describe this as the highest number of such ratings achieved at the time.[19]


21.  Prior to the 9/11 terrorist attacks relatively little attention was paid by the international community to the financing of terrorism. A UN Convention on the topic had been concluded in 1999,[20] but by September 2001 it had been ratified by only four States (including the United Kingdom), and had not entered into force. However in October 2001 the issue of countering the financing of terrorism (CFT) was specifically added to the FATF mandate, and the FATF formulated eight Special Recommendations on the subject (and added a ninth in 2004).

FATF Special Recommendations on Terrorist Financing


22.  The extension of the influence of the FATF, with a membership of 32 States and two international bodies, to the great majority of the world's nations, including all the developed economies, is achieved by a system of FATF-style Regional Bodies (FSRBs) which take forward the global anti-money laundering message and mutual evaluation beyond the FATF membership.[21] Fifteen Member States of the EU—the pre-2004 members—are members of the FATF, but the remainder are members of MONEYVAL, a body set up by the Council of Europe in September 1997 to conduct self and mutual assessments of the anti-money laundering measures in place in those Council of Europe countries which are not members of the FATF.[22]

23.  In 2005 the FATF offered the status of Associate Member of the FATF to FSRBs which met particular criteria. In 2006 MONEYVAL became an Associate Member in the first set of FSRB accessions to Associate Member status. Associate Membership allows more active participation in the work of FATF and input into FATF policy making.

24.  While the separation of EU Member State participation between the FATF and MONEYVAL is not ideal, we are satisfied that it has not given rise to major problems in practice to date. One reason for this is the close working relationship which has been developed between the two bodies. As Sir James Sassoon, who was President of the FATF during the United Kingdom Presidency from July 2007 to June 2008, noted, "there is a high degree of mutual respect and co-operation; they are working to absolutely the same standards in terms of their evaluations …" (Q 411) Furthermore, the European Commission facilitates, through the Committee for the Prevention of Money Laundering and Terrorist Financing, discussion among all 27 Member States in advance of each FATF plenary meeting. (Q 273)


25.  As we have said, the FATF has no formal constitution, and Professor Peter Alldridge, Head of the School of Law at Queen Mary, University of London, suggested to us that it needed one. The FATF had operated on an ad hoc and temporary basis for the last twenty years; if it was to be a standing body it should, in his view, be properly constituted and established by an international convention. (Q 326) But Sir James Sassoon told us that the organisation as described by Professor Alldridge did not bear much resemblance to anything that he recognised. When he first came to the FATF it struck him as "a rather extraordinary entity in its way", but he thought its interesting constitutional set-up had served it reasonably well over the last 20 years. (QQ 391, 395)

26.  We agree that the constitutional set-up of the FATF is unusual—extraordinary is perhaps not too strong a word—but we feel it is none the worse for that. In particular, we believe that the fact that it is not set up by a convention between the States is greatly to its advantage. Such conventions take a long time to be agreed and even longer to ratify, as is clear from some of those we consider below. They create a rigid structure so that amendment of the mandate of the FATF, or enlargement of its membership, might have been impossible without an amending protocol.

27.  Professor Alldridge told us that the decision-making and policy-making structures of the FATF were "insufficiently transparent to warrant their own uncritical acceptance". (p 150, QQ 326-327) We agree with him that these are processes which, in any powerful legislative body, would be transparent; but the FATF, though undoubtedly powerful, is not a legislative body. Its recommendations and assessments are addressed to governments. If and when they affect natural and legal persons, as they undoubtedly do, that is because those governments have implemented them in their domestic laws. That is the stage at which openness and transparency are required.

28.  In any event, Sir James Sassoon thought that the work of the FATF was sufficiently transparent. On the particular issue of the criteria for membership, which Professor Aldridge thought were unclear (Q 326), Sir James's view was that they were laid out with great clarity,[23] though he conceded that since membership, like everything else, had to be dealt with on a consensus basis, an outsider might justifiably question what the future membership approach of the FATF might be. (QQ 392-393) Satisfying the criteria for membership is only a preliminary step towards becoming a member.


29.  Sir James Sassoon gave us a description of the FATF meeting at ministerial level in Washington DC in the spring of 2008 under the United Kingdom Presidency, which was attended not only by ministers from the States which are members of the FATF but also by the regional FSRBs and some 20 other organisations including the IMF, the World Bank, the relevant agency of the United Nations and other groupings of international regulators. His conclusion was that "in terms of the accountability, there is a high degree of it". (Q 391) Ian Pearson MP, the Economic Secretary to the Treasury, took the same view: "All FATF decisions are taken in plenary which is chaired by the president or in working groups which are chaired by members of country delegations". (Q 476) James Robertson, the head of the Financial Crime Team at HM Treasury, told us that one of the objectives of the United Kingdom Presidency was more ministerial oversight for the FATF. (Q 108) In our view the FATF is adequately accountable to the governments of the States which are members.

30.  Whether the FATF is adequately accountable to the parliaments of those States is another matter. Mr Pearson pointed out that "FATF is accountable to ministers and therefore indirectly accountable to Parliament"(Q 476). We believe direct accountability to parliaments would be preferable. The FATF and its policies played a central part in our inquiry, and we invited Rick McDonell, the Executive Secretary, to give us oral evidence. While he sent us useful written evidence (p 243), he was unable to obtain permission to give us oral evidence. Mr Pearson explained that the role of the secretariat was to serve the president and the plenary. He did not think it would be right for the secretariat to give opinions on policy matters on behalf of the FATF. He told us that, for the same reasons, the secretariat had also declined to give evidence to a US Congressional inquiry.

31.  We appreciate that the policy of the FATF is a matter for the ministers of the constituent States, but we regret that a senior official from its secretariat was not permitted to give us oral evidence on the organisation and current activities of the FATF. Issues such as the harmonisation of counter-measures and the involvement of FATF in measures on Somali piracy were not ones on which Sir James Sassoon could comment, and we would have benefited from evidence on these and other matters from the Executive Secretary. MONEYVAL provided us with full written evidence and its Executive Secretary, John Ringguth, was able to supplement it with very useful oral evidence. We much regret that Mr McDonell was not allowed to do likewise.

32.  Since the Government accept that they are accountable to Parliament for United Kingdom membership of the FATF, they should find a more systematic way to report to Parliament on FATF developments. Written statements after each plenary session would be a start.

Cooperation at EU level

33.  The first Community measure, the 1991 money laundering Directive,[24] was adopted at a time when drug trafficking offences were at the base of most money laundering. However the Directive acknowledges in its recitals that "any measures adopted by the Community in this field should be consistent with other action undertaken in other international fora; in this respect any Community action should take particular account of the recommendations adopted by the financial action task force on money laundering, set up in July 1989 by the Paris summit of the seven most developed countries". Thus from the outset the Community's involvement has been based on cooperation with the FATF and other international bodies.

34.  The Community adopted a second money laundering Directive in 2001 making major amendments to the first Directive.[25] Both Directives were repealed and replaced in 2005 by the third money laundering Directive, which is the EU measure currently in force. The third Directive, unlike the first two, specifically deals with terrorist financing. It was adopted on 26 October 2005 under the United Kingdom Presidency. Article 45(1) required Member States to transpose it into their national laws by 15 December 2007. The United Kingdom did so by the Money Laundering Regulations 2007, which came into force on that day.[26] However some Member States have been slow to do so. In October 2008 the Commission referred Belgium, Ireland, Spain and Sweden to the European Court of Justice for their failure to do so, and in December 2008 it referred France and Poland. But, as the Commission points out, the remedial procedures have long lead times and lack teeth; pecuniary sanctions can be imposed only on a second reference to the Court for failure to comply with the first decision.[27] (p 130)

35.  While the money laundering Directive has as its focus the implementation in Community law of the preventative aspects of the FATF's 40 Recommendations, other legislative initiatives have been required to give effect to certain of the Special Recommendations on the financing of terrorism.[28] Philippe Pellé from the Internal Market Directorate General of the Commission (DG MARKT) explained that the EU had encountered "tremendous difficulties" within the FATF as to the manner in which transposition of two of the Special Recommendations had taken place in order to ensure appropriate sensitivity to the economic integration process of the EU, but we were pleased to learn that these problems had been satisfactorily resolved. (Q 276)

36.  There are other relevant EU measures. On 16 October 2001 the Member States signed a Protocol to the Convention on Mutual Assistance in Criminal Matters which they had concluded the previous year. The Protocol deals with such matters as requests for information on the identity of holders of bank accounts, requests for details of those accounts and of banking transactions, and requests for the monitoring of banking transactions. Banking secrecy is not a ground for refusing the request, and nor is the fact that it relates to a fiscal offence. The Protocol is therefore central to EU action on money laundering. It entered into force for some Member States on 5 October 2005. The United Kingdom deposited its instrument of ratification on 15 March 2006, and the Protocol entered into force for the United Kingdom on 13 June 2006. But nearly eight years after its signature it is not yet in force for five member States,[29] so that there is still no full cross-border cooperation even on obtaining details of bank accounts. This is a situation which Professor Gilles de Kerchove, the EU Counter-terrorism Coordinator described as "shocking". (Q 268) We think this is not too strong a word.

37.  The Crown Prosecution Service (CPS) indicated that these innovative forms of mutual legal assistance relating to banking evidence are currently applicable to 25 Member States, and that this will be extended to Bulgaria, Romania and certain EFTA countries later this year. However, it also noted that "anecdotal information … suggests that cooperation in customer information and account monitoring remains relatively rare to date as between the UK and other EU Member States". (p 77) Jeremy Rawlins, the head of the Proceeds of Crime Delivery Unit of the CPS, elaborated on the reasons for this. One important factor mentioned was the lack of timeliness with which cooperation of this kind could be secured. (Q 165) The Government should satisfy themselves that the United Kingdom is in a position to provide these forms of cooperation in a timely and effective manner, and should press other Member States to do likewise.


38.  The EU and the United States concluded an Agreement on mutual legal assistance on 25 June 2003.[30] This Agreement, like the others to which we refer, contains important provisions on access to bank account information and banking data. However, at the request of the United States the EU-US Agreement requires that all Member States need to exchange "written instruments" with the United States in order to acknowledge the way in which the provisions of the Agreement are to be implemented at the bilateral level (Article 3). The negotiation of 27 such bilateral instruments is plainly a time-consuming process, but some States have approached the matter with an astonishing lack of urgency.

39.  The EU Counter-terrorism Coordinator told us that negotiations for the EU-US Agreement were launched "the day after 9/11", and he was highly critical of the delay in bringing it into force. (Q 268) The United Kingdom and United States signed the necessary bilateral instrument on 16 December 2004, but it remains unratified. The Home Office have told us that the United Kingdom bilateral instrument will be ratified "shortly"; all the necessary legislation needed to be updated before that could be done, but that was completed in August 2008.[31] Greece is the last Member State to have concluded a bilateral agreement, on 24 June 2009. On completion of all outstanding national constitutional procedures a Council Decision will be required to authorise the entry into force of the EU-US Agreement. The Council Secretariat have informed us that this is planned for early 2010.

40.  It is deplorable that negotiations for an agreement on mutual legal assistance, begun nearly eight years ago and concluded over six years ago, should still not have resulted in an agreement which is in force between the EU and the United States. We hope the Government will press ahead urgently with the ratification of the United Kingdom's bilateral agreement, and encourage other Member States to do likewise.

The Council of Europe

41.  The Council of Europe has for many years afforded a high priority to seeking to facilitate criminal justice cooperation among its members, which include all 27 Member States of the EU. There are two Council of Europe measures in this area which are of particular relevance to our inquiry. The first (in order of time) is the Second Additional Protocol to the 1959 European Convention on Mutual Legal Assistance in Criminal Matters. The Protocol was signed on behalf of the United Kingdom when it was opened for signature on 8 November 2001, but the United Kingdom has yet to ratify it; it is in force for some States, but not for the United Kingdom. This failure, as Lorna Harris told us, "will exclude possibilities for cooperation with Council of Europe Member States, and is a further barrier to effective and broad ranging cooperation." (p 267)

42.  Stephen Webb from the Home Office said that he expected the United Kingdom to ratify the Protocol "by the autumn." He added: "We are very far from being unique; only 18 of the 47 countries have actually ratified and so France, Germany, the Netherlands and Ireland, for example, are in the same position as we are."(Q 102) It does not seem to us that a failure by other important countries to ratify the Protocol is any justification for a failure by this country to do so. The Government must hasten the procedure for United Kingdom ratification of the Second Additional Protocol to the 1959 Mutual Legal Assistance Convention.


43.  The second Council of Europe measure is the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism—the Warsaw Convention. It is the first comprehensive international treaty covering both the prevention and control of money laundering and the financing of terrorism. It addresses the fact that quick access to financial information, or information on assets held by criminal organisations, including terrorist groups, is the key to successful anti-money laundering systems. The Convention incorporates cooperation principles on bank account information and access to banking data.

44.  The Warsaw Convention was opened for signature on 16 May 2005—over four years ago. The Government say that "The United Kingdom generally supports and welcomes the Convention."[32] One may therefore justifiably ask why the United Kingdom has yet to sign it, let alone ratify it. Lorna Harris, who between 2003 and 2005 chaired, on behalf of the United Kingdom, the working group which led to the finalisation of the Convention, points out that the Convention extends to Council of Europe States some provisions which would otherwise be available only to EU Member States. She believes that the failure by the United Kingdom to sign or ratify the Convention is a major disincentive to effective international cooperation in the area. We share this view.

45.  Stephen Webb told us that the Government expected to sign the Convention "very soon" and to ratify it "within about 18 months". (Q 99)[33] He told us that there had been "quite a knotty policy issue" over Article 47, which allows the postponement of transactions at the request of a foreign financial intelligence unit. We are familiar with this question from the scrutiny by our Sub-Committee on Law and Institutions of the proposal for a Council Decision concerning the signing of the Convention on behalf of the European Community. We share the Government's doubts about Community competence in this matter.[34]

46.  In the case of mixed agreements, to which both the Community and the Member States as such are party, there are advantages in coordinated signature and ratification. But since this problem related only to Community competence, and hence to signature of the Convention on behalf of the Community, it did not prevent the United Kingdom signing the Convention before the Community, as some other Member States did. In any event the problem has now been resolved, and the Convention was signed by the Community on 2 April 2009.

47.  We doubt whether there was ever any good reason for the delay in signature of the Warsaw Convention by the United Kingdom; certainly there is now no reason for any further delay. Still less do we see why a further 18 months should be needed before ratification.

48.  The failure to sign and ratify the Warsaw Convention sends out a negative message about current United Kingdom commitment to the prevention and control of money laundering and the financing of terrorism. If the United Kingdom is to preserve, let alone enhance, its reputation in this sphere, Ministers must demonstrate the priority they attach to this by setting a clear timetable for signature and ratification.

United Nations Cooperation

49.  The United Nations Convention against Transnational Organized Crime, adopted by General Assembly Resolution 55/25 of 15 November 2000, is the main international instrument in the fight against transnational organised crime. It was opened for signature in Palermo on 12 December 2000 and entered into force on 29 September 2003. It has now been ratified by the great majority of UN Members, and requires them to criminalise the laundering of the proceeds of crime, to institute measures to counteract money laundering, and to adopt measures for the confiscation of the proceeds of crime. The International Convention for the Suppression of the Financing of Terrorism was also negotiated under UN auspices.

50.  The UN also is responsible for what is perhaps the most effective means of freezing the assets of terrorists. Resolution 1267 (1999) set up a Sanctions Committee of the Security Council to freeze funds owned by or used for the benefit of the Taliban, and the EU Council adopted a common position on the implementation of such sanctions.[35] Security Council Resolution 1333 (2000) strengthened the sanctions of the earlier Resolution, providing that States are to freeze funds and other financial assets of Usama bin Laden and individuals and entities associated with him as designated by the Sanctions Committee, including those of Al-Qaida. The Security Council instructed the Sanctions Committee to maintain a list of the individuals and entities designated as associated with Usama bin Laden, including Al-Qaida.[36] The EU Council adopted a Regulation to implement decisions of the Sanctions Committee.[37]


51.  The listing of a person or body by the Sanctions Committee is done at the request of a UN Member State which has evidence that the person or body is associated with Usama bin Laden, Al-Qaida or the Taliban. At that stage the only remedy of that person or body is to submit a petition for de-listing. The question whether this procedure is consistent with human rights was considered by the European Court of Justice in the case of Kadi.[38] The Court set aside the judgments of the Court of First Instance and decided that it had jurisdiction to review Community measures giving effect to resolutions of the Security Council. It ruled that the Regulation imposing sanctions on Kadi and the Al Barakaat International Foundation[39] infringed their fundamental rights under Community law. It did so primarily on the basis that in order to observe the rights of the defence, in particular the right to be heard and the right to judicial review, the grounds on which the decision to freeze funds and other economic resources had been taken had to be communicated to the individual or entity concerned. Thereafter this information was supplied to Kadi and to the Al Barakaat Foundation and they were given an opportunity to comment, which they both did. The Commission, after considering their comments, concluded that the freezing action was justified, and both were relisted.[40] Since that time the Commission has come forward with a proposal for a revised procedure to deal with this and other enhancements to the process.[41]

52.  In evidence to us it was stressed that the United Kingdom had supported and helped to achieve due process improvements to the UN sanctions regime in the Security Council. Resolution 1822, adopted in June 2008, provides that the cases of all individuals and entities on the UN list should be reviewed by June 2010, and narrative summaries of the reasons for listing provided to the persons named. This was characterised by both the Treasury and the FCO as "an important step forward".[42] Whilst these improvements are welcome, the process in New York remains problematic. As Lord Justice Wilson was to note in the Court of Appeal in October 2008: "The [Sanctions] Committee's procedures for determining a request that a person be de-listed are almost as opaque; and, notwithstanding the Council's recent attempts, by resolutions No 1730 (2006) and, since the hearing before us, No 1822 (2008), to improve such procedures … there is no evidence which establishes that, at UN level, the listed person's fundamental rights to fair consideration of his request for de-listing are observed."[43]

53.  The Community position post-Kadi is an improvement. We believe however that more needs to be done at the UN, and that Resolution 1822 does not go far enough. There is no suggestion that a person on the UN list, once provided with the reasons for his being on that list, will find it any easier to get fair consideration of a request for de-listing, nor that a person will be provided with such reasons before being placed on a UN list.

54.  We believe these cases demonstrate the need for human rights enhancements at UN Security Council level when the Sanctions Committee is considering whether to impose sanctions on persons or bodies or is responding to requests for de-listing. The Government should press for United Nations practice to evolve in a manner consistent with the jurisprudence of the European Court of Justice.

Financial Intelligence Units and FIU.NET

55.  Recommendation 26 of the FATF Forty Recommendations reads: "Countries should establish a FIU [Financial Intelligence Unit] that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of STR [Suspicious Transaction Reports] and other information regarding potential money laundering or terrorist financing." In the United Kingdom the designated FIU is the Serious Organised Crime Agency (SOCA). Their figures show that SOCA is cooperating proactively, and making spontaneous disclosures to other FIUs.[44]

56.  International cooperation between FIUs is plainly of crucial importance. The Egmont Group is the coordinating body for the international group of FIUs, formed in 1995 to promote and enhance international cooperation in AML and more recently in CFT. The FIUs of nine new States joined the Group at the Plenary Session in Doha in May 2009, bringing the total to 116. All EU FIUs are members of the Egmont Group, though not all use the Egmont Secure Web for the encrypted exchange of information over the internet. In 2000 a Council Decision was adopted to enhance further the cooperation between the FIUs of Member States (the FIU Decision).[45] In 2006 the Commission set up the EU FIU Platform, an informal body to discuss the implementation aspects of the Third Directive of direct relevance to FIUs.

57.  FIUs across the world are structured and formatted in different ways. David Thomas, the Director of UKFIU at SOCA, explained that FIUs are "split between what is described as administrative, which may be based within a central bank, for example, or within law enforcement, or within a prosecutor's office, a judicial FIU, or be a hybrid of all of those things. Within the EU it is reasonably well split between administrative and law enforcement based. I think there are 11 administrative, 11 law enforcement, one judicial and two hybrids". (Q 195)

58.  On 21 December 2007 the Commission produced a report[46] on the working of the FIU Decision which concluded that, although Member States largely complied with the legal requirements of the Decision, there was scope for operational improvement. A particular criticism was of the implementation of Article 4(2) of the Decision, where the Commission said that "many administrative FIUs cannot exchange police information or can provide such information only after a long delay. Some law enforcement FIUs might not be able to provide certain crucial information from their databases to administrative entities. Many difficulties arise because there is no common understanding of what information is accessible to FIUs and what 'relevant information' is to be exchanged. This lack of clarity can lead to miscommunication and misunderstandings."

59.  Mr Thomas thought that the system for obtaining information was effective for the UK, inasmuch as information which could not be obtained by one means could be obtained by another. In his view the FIU Decision did not need changing: "For the UK it works, as much as it can". (QQ 194-196) Our impression is that, even if the system works operationally for the United Kingdom, the same cannot be said of all other Member States. We agree with the Commission that it is essential to strengthen operational cooperation among EU FIUs, and to eliminate the problems which administrative FIUs have with the exchange of information. We urge the Government to work towards this end.


60.  Jakub Boratynski from DG JLS told us that the Commission anticipates recasting the FIU Decision only "in the longer term". (Q 297) At present it is working on "a two-pronged approach which foresees firstly in the short term operational guidelines which would aim at a better and more coherent implementation of the existing Council Decision". One way of doing this, suggested by the Commission in its report, was through "a well-defined FIU.NET project providing for operationally efficient cooperation".

61.  The existing FIU.NET is a system for the automated transmission of financial intelligence information between FIUs. It was born from an initiative of the Dutch Ministry of Justice in 1998, and after the adoption of the FIU Decision in 2000 a network was built connecting the FIUs of France, Italy, Luxembourg, the Netherlands and the United Kingdom. It became operational in 2002.[47] The Commission has provided financial assistance, and it is anticipated that the FIUs of 22 Member States will be connected to FIU.NET by the end of 2009. (Q 301) But the Counter-terrorism Coordinator has explained the problems with getting all the Member States connected; Estonia has from the start shown no interest, and Latvia and Lithuania have had to be disconnected "due to financial reasons".[48]

62.  The question remains whether, even if and when all 27 FIUs are connected to it, FIU.NET will achieve the Commission's ambition of "providing for operationally efficient cooperation". The United Kingdom supports it, and is on its bureau, but David Thomas described it as "still a rudimentary tool … It does not meet the UK's requirements. It is not sufficiently sophisticated to match the operations and intelligence operations that we run." But, he added, "we are committed to making it work." (Q 201)

63.  The Commission told us that there was an expectation that the practical possibilities for operational co-operation in FIUs would be extended and that FIU.NET would become "more attractive as a platform of choice for FIUs exchanging information." The Commission was granting new funding, and was expecting to focus increasingly on co-operation between FIU.NET and third countries. This was related to the goal of ensuring compatibility with the international Egmont Secure Web system. "For us it is obviously a priority project." (Q 301)

64.  We agree that FIU.NET should be a priority project, but we are far from convinced that this is yet the case. First, since all Member States are bound by the FIU Decision to have FIUs exchanging information in a secure manner, all should participate in FIU.NET.

65.  Secondly, if the United Kingdom is indeed "committed to making it work", the Government must take active steps to give it the necessary "sophistication".

66.  And lastly, if FIU.NET is to continue to be financed from the EU budget, the Commission needs to manage it more proactively and to ensure that it provides value for money to the Member States which participate in it.

12   Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (the third money laundering Directive), OJ L309 of 25 November 2005, recital 5. Back

13   Canada, France, Germany, Italy, Japan, United Kingdom and United States. Back

14   We consider in paragraphs 25 et seq whether a more formal structure would be desirable. Back

15   Australia, Austria, Belgium, Luxembourg, the Netherlands, Spain, Sweden and Switzerland. Back

16   The 34 members of the FATF are: Argentina; Australia; Austria; Belgium; Brazil; Canada; China; Denmark; the European Commission; Finland; France; Germany; Greece; the Gulf Co-operation Council; Hong Kong; Iceland; Ireland; Italy; Japan; Luxembourg; Mexico; the Kingdom of the Netherlands; New Zealand; Norway; Portugal; Russia; Singapore; South Africa; Spain; Sweden; Switzerland; Turkey; the United Kingdom; and the United States. Back

17   This summary is based on one kindly sent to us by the British Bankers' Association. Back

18   The ratings are Compliant, Largely compliant, Partially compliant, and Non-compliant. Back

19   Note by HM Treasury on Financial Restrictions Amendments to the Counter-Terrorism Bill, 6 November 2008. Back

20   International Convention for the Suppression of the Financing of Terrorism, opened for signature on 10 January 2000. Back

21   The full list of FSRBs is: Asia/Pacific Group on Money Laundering (APG), the Caribbean Financial Action Task Force (CFATF), the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), the Eurasian Group on Money Laundering (EAG), the Grupo de Acción Financiera de Sudamérica (GAFISUD), the Intergovernmental Task Force against Money Laundering in Africa (GIABA), the Middle Eastern and North African FATF (MENAFATF) and the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL). Back

22   Russia is a member of both the FATF and MONEYVAL. Two FATF States are also nominated by the FATF President to be full members of MONEYVAL for 2 year periods without being evaluated by MONEYVAL (currently France and the Netherlands). Back

23 Back

24   Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering, OJ L166 of 28 June 1991.  Back

25   Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001 amending Council Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering, OJ L344 of 28 December 2001. Back

26   SI 2007 No 2157. Back

27   In the case of Sweden, the Commission first wrote to the Government about its failure to implement the Directive on 28 January 2008, delivered a reasoned opinion under Article 226 of the EC Treaty on 6 June 2008, and instituted proceedings before the Court on 9 December 2008 (Case C-546/08). On 11 June 2009, i.e. 18 months after Sweden should have transposed the Directive, the Court ruled that its failure to do so put it in breach of its obligations under Article 45(1) of the Directive; but the only available sanction was to order Sweden to pay the costs. Back

28   Examples are Regulation (EC) 1889/2005 of 26 October 2005 on controls of cash entering or leaving the Community (OJ L 309 of 25 November 2005) which implements FATF Special Recommendation IX; Regulation (EC) 1781/2006 of 15 November 2006 on information on the payer accompanying transfers of funds (OJ L 345 of 8 December 2006) which addresses the substance of Special Recommendation VII on wire transfers; and Directive 2007/64/EC of 13 November 2007 on payment services in the internal market (OJ L 319 of 5 December 2007) which covers the requirements of Special Recommendation VI on alternative remittance systems. Back

29   Estonia, Greece, Italy, Ireland and Luxembourg. For further details on ratifications and entry into force see Supplementary memorandum (6) by the Home Office, p 191 . Back

30   OJ L181 of 19 July 2003, p 34. Sub-Committee E (Law and Institutions) of this Committee conducted a full inquiry into this agreement at the time of its negotiation and conclusion: EU/US Agreements on Extradition and Mutual Legal Assistance, 38th Report, Session 2002-03, HL Paper 153,  Back

31   Supplementary memorandum (6) by the Home Office, May 2009, p 193. Back

32   Explanatory Memorandum of 17 December 2008 on the proposal for a Council Decision concerning the signing of the Convention on behalf of the European Community, signed by Alan Campbell MP, Parliamentary Under-Secretary of State at the Home office. Back

33   i.e. 18 months from 11 March 2009, the date on which he gave evidence to us. A further three months would then elapse before entry into force: Article 49(4). Back

34   For correspondence on this issue between the Chairman of the Select Committee and Home Office ministers, see The Commons European Scrutiny Committee reported on this in their 5th Report of Session 2008-09, Paper HC 19-iv, page 93. Back

35   Common Position 1999/727/CFSP of 15 November 1999 concerning restrictive measures against the Taliban (OJ L294 of 16 November 1999). Back

36   A variety of spellings of these names are common. The ones we adopt-Al-Qaida, Taliban, Usama bin Laden-are those used by the UN Sanctions Committee, and hence in EC legislation relating to those sanctions and in United Kingdom statutory instruments implementing those sanctions. Back

37   Council Regulation (EC) No 467/2001 of 6 March 2001 prohibiting the export of certain goods and services to Afghanistan, strengthening the flight ban and extending the freeze of funds and other financial resources in respect of the Taliban of Afghanistan, and repealing Regulation No 337/2000 (OJ L 67 of 9 March 2001). This Regulation was subsequently repealed and replaced: see paragraph 51, footnote. Back

38   Joined Cases C-402/05 P and C-415/05 P, Yassin Abdullah Kadi and Al Barakaat International Foundation v Council and Commission, 3 September 2008. This judgment was followed by the Court of First Instance in Omar Mohammed Othman v Council and Commission, Case T-318/01, 11 June 2009. Omar Mohammed Othman is also known as Abu Qatada. Back

39   Council Regulation (EC) No 881/2002 of 27 May 2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaeda network and the Taliban, and repealing Council Regulation (EC) No 467/2001 (OJ L139 of 29 May 2002). Back

40   Commission Regulation (EC) No 1190/2008 of 28 November 2008 (OJ L322 of 2 December 2008). Back

41   Proposal for a Council Regulation amending Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban of 23 April 2009, COM (2009)187 final, document 9042/09. The proposal would allow the Commission to decide immediately on provisional measures, but to reach a final decision only after communicating to the persons involved the grounds on which the decision was reached, and giving those persons an opportunity to comment. Back

42   Memorandum by HM Treasury, Annex A, p 44. FCO Explanatory memorandum submitted on 3 June 2009 on the Proposal for a Council Regulation amending Regulation (EC) No 881/2002 imposing certain specific restrictive measures directed against certain persons and entities associated with Usama bin Laden, the Al-Qaida network and the Taliban of 23 April 2009 (document 9042/09), paragraph 18. Back

43   Per Lord Justice Wilson in G v HM Treasury [2008] EWCA 1187, para 152. Leave to appeal to the House of Lords was given on 3 March 2009. Back

44   The Suspicious Activity Reports Regime Annual Report for 2008. Back

45   Council Decision 2000/642/JHA of 17 October 2000 concerning arrangements for cooperation between financial intelligence units of the Member States in respect of exchanging information (OJ L271 of 24 October 2000). Back

46   Document 5153/08, COM(2007)827 final. Back

47   Fuller information on the background, structure and plans of FIU.NET can be found in their Memorandum at p 254. Back

48   Implementation report of the revised Strategy on Terrorist Financing, Document 8864/09, 21 April 2009. Back

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