Money laundering directives and corruption in the European Union.
Money laundering is a major concern for all countries and governments, but recently became a priority for European Union to stop this phenomenon. In the last 20 year European Union adopted three different money laundering directives. The First Money Laundering Directive was adopted in 1991 and focused on combating the laundering of drug proceeds though the financial sector. The Second Money Laundering Directive was adopted in 2001 and amended the First Money Laundering Directive by introducing changes in two main areas: suspicious transaction reporting was mandatory from drug trafficking to all serious offences and to extend the scope of the Directive to all non financial activities and professsionals, such as lawyers, notaries, accountants, estate agents, etc.
The Third Money Laundering Directive was published in the Official Journal of the European Union on the 25 November 2005. Member states had until 15 of December 2007 to implement the Directive. This directive provides a common basis for implementing the Financial Action Task Force(FATF) recomandation. The FATF is an international organization that sets standards in the fight against money-laundering and terrorist financing. The EU translates these standards into EC law through, for example, Money Laundering Directives, which provide a common legal basis for the implementation of the FATF's Recommendations on Money Laundering.
2. Money Laundering Directive
The Third Directive of Money Laundering was adopted 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. According to this Directive, money laundering and terrorist financing are frequently carried out in an international context. Measures adopted solely at national or even Community level, without taking account of international coordination and cooperation, would have very limited effects. The measures adopted by the Community in this field should therefore be consistent with other action undertaken in other international fora. The Community action should continue to take particular account of the Recommendations of the Financial Action Task Force (hereinafter referred to as the FATF), which constitutes the fore most international body active in the fight against money laundering and terrorist financing. Since the FATF Recommendations were substantially revised and expanded in 2003, this Directive should be in line with that new international standard.
Massive flows of dirty money can damage the stability and reputation of the financial sector and threaten the single market, and terrorism shakes the very foundations of our society. In addition to the criminal law approach, a preventive effort via the financial system can produce results. (1)
The Directive applies not just to the financial sector but to lawyers and accountants, casinos, estate agents, trust and company service providers and high value dealers; all persons subject to the Directive will have to be supervised for AML purposes by a competent authority.
In view of the different situations in the various Member States, Member States may decide to adopt stricter provisions, in order to properly address the risk involved with large cash payments.
The use of large cash payments has repeatedly proven to be very vulnerable to money laundering and terrorist financing. Therefore, in those Member States that allow cash payments above the established threshold, all natural or legal persons trading in goods by way of business should be covered by this Directive when accepting such cash payments. Dealers in high-value goods, such as precious stones or metals, or works of art, and auctioneers are in any event covered by this Directive to the extent that payments to them are made in cash in an amount of EUR 15 000 or more.
To ensure effective monitoring of compliance with this Directive by that potentially wide group of institutions and persons, Member States may focus their monitoring activities in particular on those natural and legal persons trading in goods that are exposed to a relatively high risk of money laundering or terrorist financing, in accordance with the principle of riskbased supervision. (2)
Money laundering and terrorist financing are international problems and the effort to combat them should be global. Where Community credit and financial institutions have branches and subsidiaries located in third countries where the legislation in this area is deficient, they should, in order to avoid the application of very different standards within an institution or group of institutions, apply the Community standard or notify the competent authorities of the home Member State if this application is impossible.
It should be recognised that the risk of money laundering and terrorist financing is not the same in every case. In line with a risk-based approach, the principle should be introduced into Community legislation that simplified customer due diligence is allowed in appropriate cases.
3. Money Laundering Regulation in Romania
The Third EU Directive was fully implemented into Romanian law by the Law no. 656/2002 on preventing and sanctioning money laundering and instituting measures for preventing and fighting against financing the acts of terrorism effective from December 2002, as amended by Law no. 230/2005 and subsequently amended by the Governmental Emergency Ordinance no. 135/2005, Law no. 36/2006 and Governmental Emergency Ordinance no. 53/2008 (hereinafter "the Law").
Governmental Decision no. 594/2008 regarding the approval of the Regulation for application of the provisions of Law no. 656/2002 (hereinafter "the Regulation"). The Law and (the Regulation) apply to:
--Credit institutions and branches of foreign credit institutions in Romania;
--Financial institutions and branches of foreign financial institutions in Romania;
--Managers of private pension funds and foreign private pension funds, and marketing agents authorized in the private pension systems;
--Auditors and natural and legal persons providing fiscal or accounting consultancy;
--Public notaries, lawyers and legal counsel:
--Persons with prerogatives in the privatization process;
--Real estate agents:
--Associations and foundations;
--Other natural or legal persons trading in goods and/or services, to the extent that the payments are done in cash (RON or foreign currency) where the minimum amount of RON is equivalent to 15.000 euros, whether or not the transaction is executed in a single operation or in several operations which appear to be linked.
4. Money Laundering and Corruption
It is a link between money laundering, fraud and corruption. The importance of combating money laundering, corruption and terrorist financing should lead Member States to lay down effective, proportionate and dissuasive penalties in national law for failure to respect the national provisions adopted pursuant to Money Laundering Directive.
Provision should be made for penalties in respect of natural and legal persons. Since legal persons are often involved in complex money laundering or terrorist financing operations, sanctions should also be adjusted in line with the activity carried on by legal persons. (3)
According to the Third Money Laundering Directive, money laundering and corruption are related to the conversion or transfer of property, knowing that such property is derived from criminal activity or from an act of participation in such activity, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such activity to evade the legal consequences of his action.
Also, corruption and money laundering could be related to the acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from criminal activity or from an act of participation in such activity.
Money laundering shall be regarded as such even where the activities which generated the property to be laundered were carried out in the territory of another Member State or in that of a third country.
Member States may decide that legal and natural persons who engage in a financial activity on an occasional or very limited basis and where there is little risk of money laundering or terrorist financing occurring do not fall within the scope of Money Laundering Directive.
Implementing the Money Laundering Directives represent a step in controlling corruption and financial crime in all EU countries. Most of the corrupted people are using cash transactions and money laundering legislation will reduce the number of such transactions in the near future.
Money Laundering Directives represent an important step to fight against corruption and crimes. According the these directives, member states shall require the institutions and persons covered by these Directives to keep the following documents and information for use in any investigation into, or analysis of, possible money laundering or terrorist financing by the Financial Intelligence Unite(FIU) or by other competent authorities in accordance with national law.
The EU member states implemented the Money Laundering Directives in national legislation in order to stop the money laundering and corruption process. There is a public concern that organised crime, money laundering and corruption have a negative impact over people and global economy.
This research was supported by the project Post-Doctoral Studies in Economics: Training Program for Elite Researchers--SPODE, contract no. POSDRU/89/1.5/S/61755, funded by the European Social Fund through Human Resources Development Operational Program 2007-2013.
(1.) Directive2005/60/EC of the European Parliament, Official Journal of the European Union, L 309, 15.
(2.) Directive2005/60/EC of the European Parliament, Official Journal of the European Union, L 309, 16.
(3.) Directive2005/60/EC of the European Parliament, Official Journal of the European Union, L 309, 19.
Spiru Haret University, Bucharest
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|Publication:||Contemporary Readings in Law and Social Justice|
|Date:||Jul 1, 2012|
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