Anti-Money Laundering

Combating money laundering by criminal law

SUMMARY OF:

Directive (EU) 2018/1673 on combating money laundering by criminal law

It defines criminal offences and sanctions in the area of money laundering with a view to:
facilitating police and judicial cooperation between EU countries; and
avoiding that criminals take advantage of more lenient legal systems.
It aims to criminalise money laundering when it is committed intentionally and with the knowledge that the property* came from criminal activity.
It also allows EU countries to criminalise money laundering where the offender suspected or ought to have known that the property came from criminal activity.

Criminal offences

The following conduct, if it is committed intentionally, is a criminal offence:

transferring or converting property (assets of any kind), knowing that it is the product of criminal activity, to hide or disguise its illicit origin or to assist anybody involved to evade the legal consequences of their actions;
hiding or disguising the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that it came from criminal activity;
acquiring, possessing or using property knowing, at the time it is received, that it had come from criminal activity;
aiding and abetting, inciting and attempting these offences.

Criminal activity (or ‘predicate offence’)

For the purposes of this directive, the following conduct is considered to be a criminal activity, i.e. relevant for the crime of money laundering:

any kind of criminal involvement in the commissioning of any offence punishable, in accordance with national law, by deprivation of liberty or a detention order for a maximum of more than 1 year or for a minimum of more than 6 months; and
in so far as not already covered by the category above, offences within a list of 22 designated categories of crime, including all the offences defined in EU legislation designated by this directive.

Additional factors

The offences extend to property derived from conduct in another EU country or a non-EU country, where it would constitute a criminal activity if it had occurred domestically. EU countries must ensure that persons who committed, or were involved in, this criminal activity are subject to punishment. Additional factors include:

criminal liability extends also to those who launder the proceeds of their own crimes (‘self-laundering’);
a previous or simultaneous conviction for the criminal activity from which the property came is not a prerequisite for a conviction for money laundering;
it is possible to convict without needing to establish all the facts about the criminal activity, including the perpetrator’s identity.

Aggravating circumstances which make offences more serious

These include instances where:

the offence was committed within the framework of a criminal organisation according to Framework Decision 2008/841/JHA; or
the offender committed the offence when carrying out their professional activities within the meaning of Article 2 of Directive (EU) 2015/849 (‘obliged entities’).
EU countries may also choose to allow the following circumstances to be regarded as aggravating circumstances:

where the laundered property is of high value; or
where the laundered property derives from racketeering, terrorism, human trafficking, narcotics trafficking and corruption.

Penalties and sanctions

Punishment must be effective, proportionate and dissuasive. EU countries should impose a maximum term of imprisonment of at least 4 years and, where necessary, apply additional sanctions or measures, including measures holding legal entities liable, such as:

exclusion from entitlement to public benefits or aid;
exclusion from access to public funding, including tendering, grants and concessions;
disqualification from carrying out commercial activities;
judicial supervision;
judicial winding-up orders;
closing establishments used for committing the offence;
freezing or confiscating the property concerned.

Package of legislation

The directive is part of a package of legislation which includes Regulation (EU) 2018/1672 on controls on cash entering or leaving the EU, and complements and reinforces the application of Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

Investigation tools and cooperation

EU countries must ensure that effective investigative tools, such as those used in combating organised crime or other serious crimes are available to those responsible for investigating or prosecuting the offences. The directive also removes obstacles to judicial and police cooperation between EU countries by clarifying which country has jurisdiction, and how countries cooperate, as well as how to involve Eurojust.

BACKGROUND

It has applied since 2 December 2018 and it has to become law in the EU countries by 3 December 2020.

The directive is also associated with legislation on:

the fight against fraud;
combating terrorism;
prevention of the use of the financial system for the purposes of money laundering or terrorist financing;
protection against counterfeiting;
freezing and confiscating the proceeds of crime.

Property: assets of any kind, whether physical or virtual, movable or immovable, tangible or intangible, and legal documents in any form, including electronic or digital, which are evidence of ownership or interest in such assets.

DOCUMENTS

Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law (OJ L 284, 12.11.2018, pp. 22-30)

Regulation (EU) 2018/1727 of the European Parliament and of the Council of 14 November 2018 on the European Union Agency for Criminal Justice Cooperation (Eurojust), and replacing and repealing Council Decision 2002/187/JHA (OJ L 295, 21.11.2018, pp. 138-183)

Regulation (EU) 2018/1672 of the European Parliament and of the Council of 23 October 2018 on controls on cash entering or leaving the Union and repealing Regulation (EC) No 1889/2005 (OJ L 284, 12.11.2018, pp. 6-21)

Directive (EU) 2017/1371 of the European Parliament and of the Council of 5 July 2017 on the fight against fraud to the Union’s financial interests by means of criminal law (OJ L 198, 28.7.2017, pp. 29-41)

Directive (EU) 2017/541 of the European Parliament and of the Council of 15 March 2017 on combating terrorism and replacing Council Framework Decision 2002/475/JHA and amending Council Decision 2005/671/JHA (OJ L 88, 31.3.2017, pp. 6-21)

Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (OJ L 141, 5.6.2015, pp. 73-117)

Successive amendments to Directive (EU) 2015/849 have been incorporated into the original text. This consolidated version is of documentary value only.

Directive 2014/62/EU of the European Parliament and of the Council of 15 May 2014 on the protection of the euro and other currencies against counterfeiting by criminal law, and replacing Council Framework Decision 2000/383/JHA (OJ L 151, 21.5.2014, pp. 1-8)

Directive 2014/42/EU of the European Parliament and of the Council of 3 April 2014 on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union (OJ L 127, 29.4.2014, pp. 39-50)

Council Framework Decision 2008/841/JHA of 24 October 2008 on the fight against organised crime (OJ L 300, 11.11.2008, pp. 42-45)

Preventing abuse of the financial system for money laundering and terrorism purposes

Directive (EU) 2015/849 — prevention of the use of the financial system for the purposes of money laundering or terrorist financing

Directive (EU) 2015/849 (4th Anti-Money Laundering Directive, 4AMLD) aims to combat money laundering* and the financing of terrorism* by preventing the financial market from being misused for these purposes.

It seeks to extend and replaces the previous Directive (EC) 2005/60 (3rd Anti-Money Laundering Directive, 3AMLD) that entered into force in 2007.
Its purpose is to remove any ambiguities in the previous directive and associated legislation, and to improve the consistency of anti-money laundering (AML) and counter-terrorist financing (CTF) rules across all EU countries. The 4AMLD also takes into account recommendations of the Financial Action Task Force (FATF) from 2012.

KEY POINTS

The directive applies to:

credit institutions;
financial institutions; and
designated non-financial businesses and professions, such as
auditors
external accountants
tax advisors
notaries and lawyers, in certain circumstances
estate agents
traders in goods (e.g. precious metals and stones, when payments of €10,000 or more are made in cash) and
providers of gambling services.

The directive:

reinforces rules regarding the identification of customers — especially beneficial owners* of companies and legal arrangements (trusts);
requires information on beneficial ownership for companies to be held in each EU country in a central register, such as commercial registers, companies registers or a public register;
improves awareness of and responsiveness to any money-laundering/terrorist financing (ML/TF) weakness: in addition to the national risk assessments to be carried out by EU countries, the European Commission also conducts assessments of the ML and TF risks affecting the internal market and related to cross-border activities (the first report was released on 26 June 2017);
brings about a coordinated European policy to deal with non-EU countries which have inefficient AML/CFT regimes to protect the EU financial system. The first EU list of ‘high-risk third countries’ was adopted by a delegated act by the Commission in July 2016 and the list has since been amended several times;
strengthens and improves cooperation between Financial Intelligence Units (FIUs), which are among the key actors in the fight against money laundering and terrorist financing. Systematic exchange of information between FIUs should take place through advanced technical infrastructures using FIU.NET, a decentralised computer network using a sophisticated matching technology.

Those subject to the directive must:

report suspicions of money laundering or terrorist financing to the public authorities, usually the financial intelligence unit;
take supporting measures, such as ensuring the proper training of personnel and establishing appropriate internal preventive policies and procedures;
take additional safeguards such as enhanced customer due diligence for situations of higher risk, such as trading with banks situated outside the EU and, in particular, when dealing with natural or legal entities established in non-EU countries identified by the Commission as high-risk non-EU countries.

Amendment to Directive (EU) 2015/849

After a series of terrorist attacks in Europe in 2016, Directive (EU) 2018/843 (5th Anti-Money Laundering Directive, 5AMLD) amending Directive (EU) 2015/849 was adopted in 2018. The amending directive has to become law in the EU countries by 10 January 2020. The new directive tightens the EU’s rules on preventing money laundering and terrorist financing in a number of ways including:

extending the scope of the directive to cover:
as well as auditors, external accountants and tax advisors, any other person who offers tax consultancy services
estate agents when acting as intermediaries in the letting of immovable property for which the monthly rent exceeds €10,000
art dealers where the value of a transaction is €10,000 or more;
access to information on beneficial ownership thus improving transparency in the ownership of companies and trusts;
prohibiting banks from keeping anonymous safe-deposit boxes (in addition to anonymous accounts and passbooks that were already covered by Directive (EU) 2015/849);
addressing risks linked to prepaid cards and virtual currencies by
lowering the identification threshold for prepaid cardholders from the current €250 to €150 and
enabling national FIUs to obtain information allowing them to trace the identity of the owner of the virtual currency;
strengthened cooperation between FIUs allowing them to share more information.

Supplement to Directive (EU) 2015/848

Commission Delegated Regulation (EU) 2019/758 lays down a set of additional measures, including minimum action, that credit and financial institutions must take to effectively handle the money laundering and terrorist financing risk where a non-EU country’s law does not permit the implementation of group-wide policies and procedures at the level of branches or majority-owned subsidiaries that are part of the group and established in the non-EU country.

Directive (EU) 2015/849 has applied since 25 June 2015 and was originally supposed to become law in the EU countries by 26 June 2017. This deadline was, however, further extended by, several amendments, in particular Directive (EU) 2018/843, which had to be fully incorporated into EU countries’ national law by 10 January 2020.

BACKGROUND

The directive is part of a package of EU legislative measures aimed at preventing money laundering and terrorist financing that includes Regulation (EU) 2015/847 on the traceability of money transfers. It is also part of a broader EU strategy to tackle financial crime that also includes the work of:

an Expert Group on Money Laundering and Terrorist Financing that meets regularly to exchange views and assist the Commission to prepare legislation or define policy;
a Committee on the Prevention of Money Laundering and Terrorist Financing that may provide opinions on implementing measures proposed by the Commission;
the network of Financial Intelligence Units;
the Joint Committee of European Supervisory Authorities.
For more information, see:

Anti-money laundering and counter-terrorist financing (European Commission)
Fight against the financing of terrorism (European Commission)
Anti-Money Laundering and Countering the Financing of Terrorism (European Banking Authority).

KEY TERMS

Money laundering: the conversion of the proceeds of crime into apparently clean funds, usually via the financial system, for example by disguising the sources of the money, changing its form or moving the funds to a place where they are less likely to attract attention.
Terrorist financing: the supply or collection of funds intended to be used to carry out terrorist offences.
Beneficial owner: the person who ultimately owns or controls a company.

DOCUMENTS

Successive amendments to Directive (EU) 2015/849 have been incorporated in the original text. This consolidated version is of documentary value only.

Report from the Commission to the European Parliament and the Council on the assessment of the risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities (COM(2019) 370 final, 24.7.2019)

Report from the Commission to the European Parliament and the Council assessing the framework for cooperation between Financial Intelligence Units (COM(2019) 371 final, 24.7.2019)

Commission Delegated Regulation (EU) 2019/758 of 31 January 2019 supplementing Directive (EU) 2015/849 of the European Parliament and of the Council with regard to regulatory technical standards for the minimum action and the type of additional measures credit and financial institutions must take to mitigate money laundering and terrorist financing risk in certain third countries (OJ L 125, 14.5.2019, pp. 4-10)

Commission Delegated Regulation (EU) 2016/1675 of 14 July 2016 supplementing Directive (EU) 2015/849 of the European Parliament and of the Council by identifying high-risk third countries with strategic deficiencies (OJ L 254, 20.9.2016, pp. 1-4)

Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006 (OJ L 141, 5.6.2015, pp. 1-18)

Screening framework for foreign direct investments

Regulation (EU) 2019/452 establishing a framework for the screening of foreign direct investments into the EU

It provides an EU framework for the screening of direct investments from non-EU countries on grounds of security or public order. It establishes:

a possibility for EU countries to have transparent, predictable and non-discriminatory mechanisms for examining, on grounds of security or public order, foreign direct investment (FDI)*;
cooperation procedures between EU countries and the European Commission on FDI likely to affect security or public order;
the possibility for the Commission to issue opinions on these investments.

KEY POINTS

The legislation does not harmonise national screening* systems. Nothing prevents an EU country from deciding whether or not to have a national screening mechanism, or whether or not to screen a particular FDI.

EU countries:

may maintain, amend or adopt FDI screening mechanisms*;
if they decide to have FDI screening mechanisms, EU countries have to
ensure that these mechanisms are transparent, do not discriminate between non-EU countries, protect confidential and commercially-sensitive information and operate within deadlines
allow foreign investors and companies to appeal against screening decisions
have measures necessary to identify and prevent circumvention of the screening mechanisms and screening decisions
notify the Commission of their existing screening mechanisms by 10 May 2019 and of new ones within 30 days of their entry into force;
submit annually to the Commission by 31 March details of the FDI on their territory during the previous calendar year;
in the same way as the Commission, appoint contact points to implement the legislation.

In their assessment of FDI on grounds of security or public order, EU countries and the Commission may consider the potential effect of FDI on:

critical physical or virtual infrastructure, ranging from energy, transport and defence to electoral, financial and other infrastructure;
critical technologies and dual-use items, such as artificial intelligence, robotics, energy storage and biotechnologies;
critical supplies such as energy or raw materials, and food security;
access to sensitive information, including personal data;
freedom and pluralism of the media; and
whether the foreign investor:
is directly or indirectly controlled by a non-EU government, including state bodies or armed forces
has already been involved in activities affecting EU country’s security or public order
poses a serious risk of being involved in illegal or criminal activities.

When an EU country screens FDI, the cooperation mechanism provides that:

the EU country conducting the screening must notify the Commission and other EU countries as soon as possible;
other EU countries may submit comments if they consider that the FDI is likely to affect their security or public order;
the Commission may issue an opinion if it considers that the FDI is likely to affect security or public order in more than one EU country;
the Commission informs other EU countries that comments were submitted or an opinion was issued.
If an FDI is not screened by its host EU country, another EU country may submit comments if it considers that the FDI could have an impact on its own security or public order. The Commission may issue an opinion if it considers that more than one EU country could be affected.

The Commission may issue an opinion to an EU country where the FDI is planned or in place, if it considers that projects and programmes of EU interest could be affected on grounds of security or public order. The current list, which the Commission can amend by a delegated act, identifies the following projects or programmes of EU interest:

European GNSS programme (Galileo and EGNOS);
Copernicus;
Horizon 2020;
Trans-European Networks for Transport (TEN-T);
Trans-European Networks for Energy (TEN-E);
Trans-European Networks for Telecommunications;
European Defence Industrial Development Programme;
Permanent structured cooperation (PESCO).

EU countries must provide the following details without undue delay when they notify screening of FDI, or receive an information request from the Commission or another EU country:

ownership structure of the foreign investor;
approximate value of the FDI;
products, services and business operations of the foreign investor and of the target undertaking;
EU countries in which the recipient company does business;
source of the investment funding;
date when FDI is planned or has been completed.

The Commission:

keeps an up-to-date list of national screening mechanisms;
may access advice from an expert group specialising in FDI screening;
provides an annual report to the European Parliament and EU governments;
reports to the European Parliament and the Council its overall evaluation of the legislation’s effectiveness by 12 October 2023 and every 5 years thereafter;
has the power to adopt delegated acts.

It applies from 11 October 2020.

BACKGROUND

Following the COVID-19 outbreak and introducing measures to cope with the impact of the crisis, the European Commission adopted:

Guidance to EU countries concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets
Guidance to EU countries on making the exportation of certain products subject to the production of an export authorisation
For more information, see:

Investment (European Commission).

KEY TERMS

Foreign direct investment: investment by a foreign investor in an EU-based operation which could lead to lasting and direct links, including management participation or even control of the company.
Screening: a procedure to assess, investigate, authorise, condition, prohibit or unwind FDI.
Screening mechanisms: laws and regulations setting out the terms and conditions under which screening takes place.

DOCUMENTS

Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I, 21.3.2019, pp. 1-14)

Communication from the Commission Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation) (OJ C 99I , 26.3.2020, pp. 1-5)

Communication from the Commission Guidance note to Member States related to Commission Implementing Regulation (EU) 2020/402 making the exportation of certain products subject to the production of an export authorisation, as last amended by Commission Implementing Regulation (EU) 2020/426 (OJ C 91I , 20.3.2020, pp. 10-15)