1. What are money laundering and terrorist financing?
1.1 What is money laundering?
Money laundering is the conversion of the proceeds of criminal activity into apparently clean funds, usually via the financial system. This is done 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.
“Criminal activity” includes fraud, corruption, drug dealing and other serious crimes.
1.2 What is terrorist financing?
Terrorist financing is the provision or collection of funds, by any means, directly or indirectly, with the intention or in the knowledge that they would be used in order to carry out terrorist offences.
2. What is the EU already doing to fight money-laundering and terrorist financing?
2.1 What is the current legal framework and to whom it applies?
The current EU legislation, the so-called Third Anti-Money Laundering Directive (hereinafter, the 3rd AMLD), has been in force since 2005. It provides a European framework built around the international Financial Action Task Force (FATF) standards (see IP/04/832).
The Directive applies to banks and the whole of the financial sector as well as to lawyers, notaries, accountants, real estate agents, casinos and company service providers. Its scope also encompasses all dealers in goods (such as dealers in precious metals and stones) , when payments are made in cash in excess of €15 000.
Those subject to the Directive need to:
- identify and verify the identity of their customers and of the beneficial owners of their customers (for example, by ascertaining the identity of the natural person who ultimately owns or controls a company), and to monitor the transactions of and the business relationship with the customers;
- report suspicions of money laundering or terrorist financing to the public authorities – usually, the financial intelligence unit; and
- take supporting measures, such as ensuring the proper training of personnel and the establishment of appropriate internal preventive policies and procedures.
The Directive introduces additional requirements and safeguards (such as the requirement to conduct enhanced customer due diligence) for situations of higher risk (e.g. trading with correspondent banks situated outside the EU). Since the existing Directive is based on the international standards, it will need to be reviewed in order to reflect the new FATF standards issued in February 2012. (see question 3.3.).
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