¹ See Gilmore, WC, Dirty money: the evolution of international measures to counter money laundering and the financing of terrorism (3rd edn, Council of Europe Publishing, 2004) 89–90.Google Scholar

² Council Directive of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering, OJ L166, 28 06 1991, p 77.Google Scholar

³ For a detailed analysis of the Directive see Mitsilegas, V, Money laundering counter-measures in the European Union. A new paradigm of security governance versus fundamental legal principles (Kluwer Law International, The Hague/London/New York, 2003).Google Scholar The third strand of the FATF strategy is to strengthen international cooperation. Here separate action under the Third Pillar has been of significance. Of special relevance in this context are Arts 1–4 of the October 2001 Protocol to the Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union, OJ C 326, 21 11 2001, 1.Google Scholar For the relevant explanatory report see, OJC 257, 24 10 2002, 1.Google Scholar

⁴ Art 1 third indent and Art 2 respectively.

⁵ Arts 4–8 of the Directive. The mandatory reporting duty went one step ahead of the FATF Recommendations at the time, which called for financial institutions to be permitted or required to report suspicions; however, the 1996 revised FATF Recommendations followed the EC model. See Mitsilegas, (n 3) 73.

⁶ Art 14.

⁷ See the Commission's two Reports to the Council and the European Parliament on the implementation of the Directive. First Report, COM (95) 54 final, Brussels 3 03 1995Google Scholar; and Second Report, COM (98) 401 final, Brussels, 21 07 1998.Google Scholar

⁸ The third pillar of the EU Treaty, covering action in Justice and Home Affairs, was introduced by the Treaty of Maastricht (for an overview see Mitsilegas, V, Monar, J, and Rees, W, The European Union and Internal Security (Palgrave, Basingstoke/New York, 2003)). It must be noted that the 1991 Directive pre-dated the Maastricht Treaty and was adopted under the—first pillar—EC Treaty. On the constitutional implications of this choice at EU level see part IV below.CrossRefGoogle Scholar

⁹ OJ L333, 9 12 1998, p 1.Google Scholar

¹⁰ Joint Actions were included as a form of Union action in the third pillar in the Maastricht Treaty. This form of action is not repeated in the Treaty of Amsterdam, which introduced Framework Decisions as a clear form of binding third pillar legislation. For the legal issues arising from this succession in legislative form, in particular in the context of the 1998 Joint Action on organized crime, see Mitsilegas, V, ‘Defining organised crime in the European Union: the limits of European criminal law in an area of freedom, security and justice’ (2001) 26 European Law Review, 565, 579.Google Scholar

¹¹ Framework Decision of 26 June 2001 on money laundering, the identification, tracing, freezing, seizing and confiscation of instrumentalities and proceeds of crime, OJ L182, 5 07 2001, 1.Google Scholar

¹² Art 1(a) and (b) respectively. Serious crime is defined as an offence punishable by deprivation of liberty or a detention order for a maximum of more than one year. For States having a minimum threshold for offences in their legal system, serious crime as a predicate of money laundering covers offences punishable by deprivation of liberty or a detention order for a minimum of more than six months. In 2005 a new Council of Europe Convention on money laundering and the financing of terrorism was concluded. See, Council of Europe Treaty Series, No 198. The Convention and the Council played a full part in the negotiations. Art 52(4) saves relevant Community and EU rules among the Member States.

¹³ Art 2. The penalty is deprivation of liberty for a maximum of not less than four years.

¹⁴ See Report from the Commission based on Art 6 of the Council Framework Decision of 26 June 2001 on money laundering, the identification, tracing, freezing, seizing and confiscation of instrumentalities and the proceeds of crime, COM(2004) 230 final, Brussels, 5 04 2004.Google Scholar For an update see the second Report of the Commission on the subject, COM(2006) 72 final, Brussels 21 02 2006.Google Scholar

¹⁵ For an analysis of these models with national examples of such units see Mitsilegas, V, ‘New forms of transnational policing: the emergence of financial intelligence units in the European Union and the challenges for human rights–Part I’ (1999) 3 (2) Journal of Money Laundering Control 147–60.CrossRefGoogle Scholar See also Thony, JF, ‘Processing financial information in money laundering matters: the financial intelligence units’ (1996) 3 European Journal of Crime, Criminal Law and Criminal Justice, 257–82.Google Scholar

¹⁶ OJ L271, 24 10 2000, 4.Google Scholar

¹⁷ According to this definition, a financial intelligence unit (FIU) is ‘a central, national unit which, in order to combat money laundering, is responsible for receiving (and to the extent permitted, requesting), analysing and disseminating to the competent authorities, disclosures of financial information which concern suspected proceeds of crime or are required by national legislation or regulation’. See Article 2 of the 2000 Decision. On the Egmont Group, see Gilmore (n 1) 79–88 and Mitsilegas (n 15) 155–6. Its definition has since been extended to embrace the financing of terrorism.

¹⁸ Art 3. On the Decision, see Mitsilegas (n 3) 176–9.

¹⁹ On the 1996 revisions, see Gilmore (n 1) 100–2.

²⁰ COM(1999) 352 final, Brussels 14 07 1999.Google Scholar

²¹ p 3.

²² For a detailed overview of these issues, the negotiations and the final outcome see Mitsilegas (n 3) 86–102.

²³ Directive 2001/97/EC of the European Parliament and of the Council of 4 Dec 2001 amending Council Directive 911/308/EEC on prevention of the use of the financial system for the purpose of money laundering, OJ L344, 28 12 2004, 76.Google Scholar

²⁴ See in particular Recitals 1, 7 (referring specifically to the 1996 revised FATF Recommendations), 8 and 14.

²⁵ This includes drag trafficking, organized crime, fraud and corruption—with the exception of corruption, these offences are defined by reference to UN or EU instruments. Serious crime also includes ‘an offence which may generate substantial proceeds and which is punishable by a severe sentence of imprisonment in accordance with the penal law of the Member State’. But this definition should be aligned with the one in the 1998 Joint Action (presumably this now means the 2001 Framework Decision)—Art 1(E).

²⁶ Revised Art 3.

²⁷ New Art 2a.

²⁸ See Art 2a(5).

²⁹ Revised Art 6(3) and new Art 8(2). For a detailed analysis of the position of lawyers under the Directive see Mitsilegas (n 3) 96–102 and 146–51.

³⁰ Art 6(3) exempts lawyers, auditors and tax advisors ‘with regard to information they receive from or obtain on one of their clients, in the course of ascertaining the legal position for their client or performing their task of defending or representing their client in, or concerning, judicial proceedings, including advice on instituting or avoiding proceedings, whether such information is received or obtained before, during or after such proceedings’.

³¹ Cour d'Arbitrage, Arret No 126/2005 of 13 July 2005. See also OJ C243, 1 10 2005, 10.Google Scholar

³² ibid.

³³ Art 3(1) of the 2001 Directive.

³⁴ COM(2004) 448 final, 30 06 2004.Google Scholar

³⁵ ibid 3.

³⁶ For a detailed analysis see Gilmore (n 1) 105–11.

³⁷ These include the 1999 UN Convention for the Suppression of the Financing of Terrorism and Security Council Resolution 1373 (2001), both calling for the criminalization of terrorist finance.

³⁸ For a detailed analysis see Gilmore (n 1) 120–9. See also Gilmore, , ‘International Financial Counterterrorism Initiatives’ in Fijnaut, C, Woaters, J, and Naert, F (eds), Legal Instruments in the Fight Against International Terrorism (Brill, Leiden, 2004) 189.Google Scholar On the nature and scope of the October 2004 initiative on cross-border cash movements see, Financial Action Task Force: Annual Report 2004–2005 (FATF, 2005) 8.Google Scholar

³⁹ Directive 2005/60/EC of the European Parliament and of the Council of 26 Oct 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, OJ L309, 25 11 2005, p 15.Google Scholar

⁴⁰ Recital 1.

⁴¹ RecitalS.

⁴² Recital 9.

⁴³ On the significance of the use of this terminology, see part IV below.

⁴⁴ Art 3(5)(f). It is interesting to note that the general reference to ‘corruption’ in the previous indent remains unchanged from the 2nd Directive.

⁴⁵ Art 1(4). Terrorist financing is defined as ‘the provision or collection of funds, by any means, directly or indirectly, with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out any of the offences within the meaning of Arts 1 to 4 of Council Framework Decision 2002/475/JHA of 13 June 2002 on combating terrorism’. The difference with the UN Convention lies in the mens rea element, where the word ing is slightly different (Art 2(1) refers to ‘unlawfully and wilfully’ collecting), as well as in what constitutes terrorism.

⁴⁶ Recital 32 in the Preamble implicitly recognises the potential impact on national systems by stating that ‘although the Directive cannot interfere with Member States' judicial procedures, this is a crucial issue for the effectiveness of the anti-money laundering and anti-terrorist financing system’.

⁴⁷ Arts 6–19 of the Directive.

⁴⁸ See, Gilmore (n 1) 138–9. Similar banking practices had existed in a number of new Member States but had been largely addressed prior to the formulation of the third Directive.

⁴⁹ Arts 11–12.

⁵⁰ Art 13.

⁵¹ Arts 8(2), 11(2) and 13(1).

⁵² This approach is also reflected in the chapter on performance by third parties (Arts 14–19). Art 14 allows Member States to permit institutions and persons covered by the Directive to rely on third parties to meet the requirements of customer due diligence under certain conditions.

⁵³ Art 21. According to para 3, Member States must ensure that FTUs have access, directly or indirectly, on a timely basis, to the financial, administrative and law enforcement information that they require to properly fulfil their tasks.

⁵⁴ Art 22.

⁵⁵ Art 23(1).

⁵⁶ Art 23(2). On similar terms, lawyers may be exempted in some occasions from reporting when unable to comply with customer due diligence requirements—Art 9(5).

⁵⁷ COM(2004) 448 final, 6.

⁵⁸ On this point, see the correspondence between the House of Lords European Union Committee and the UK Treasury during the scrutiny of the Directive. In particular letter from Lord Grenfell of 8 Dec 2004 to Stephen Timms and his response of 21 Mar 2005.

⁵⁹ See Art 28(3)–(5).

⁶⁰ Art 28(7).

⁶¹ See Arts 29 and 40(4).

⁶² On Comitology in general, see House of Lords European Union Committee, Reforming Comitology, 31^st report, session 2002–2003.Google Scholar See also Bergström, CF, Comitology. Delegation of Powers in the European Union and the Committee System (OUP, Oxford, 2005).CrossRefGoogle Scholar

^62a A first example of ‘comitology’ implementation has been the Commission Directive 2006/70/EC of 1 August 2006 regarding the definition of ‘politically exposed persons’ and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis, OJ L214, 4 08 2006, p 29.Google Scholar

⁶³ Art 40(1)(a).

⁶⁴ Art 45(1).

⁶⁵ See, eg, Gilmore, (n 1) 123–9.

⁶⁶ It is worded as follows: ‘Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries should ensure that they cannot be misused: (i) by terrorist organisations posing as legitimate entities; (ii) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset freezing measures; and (iii) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.’ The associated Interpretative Note as well as the ‘International Best Practices’ paper of 11 Oct 2002 can be consulted at <www.fatf-gafi.org>.

⁶⁷ See Communication from the Commission to the Council and the European Parliament on the Prevention of and the Fight against Terrorist Financing, COM(2004) 700 final, Brussels, 20 10 2004, para 5.2.Google Scholar

⁶⁸ Commission Communication to the Council, the European Parliament and the European Economic and Social Committee: The Prevention of and Fight against Terrorist Financing through enhanced national level coordination and greater transparency of the non-profit sector, COM(2005) 620 final, Brussels, 29 11 2005.Google Scholar

⁶⁹ Press Release, 2696^th Council Meeting, Justice and Home Affairs, Brussels, 1–2 11 2005, 14390/05 (Presse 2960), 25–6.Google Scholar

⁷⁰ OJL309, 21 11 2005, 9.Google Scholar

⁷¹ Recommendation 23.

⁷² Recommendation 22.

⁷³ Recommendation 19(a).

⁷⁴ Financial Action Task Force: Annual Report, 2004–2005, FATF, 2005, 8.Google Scholar

⁷⁵ Art 3(2).

⁷⁶ Art 5(2).

⁷⁷ Art 2(2).

⁷⁸ Art 4.

⁷⁹ Art 6.

⁸⁰ Art 7.

⁸¹ Art 9.

⁸² COM(2005) 343 final, Brussels, 26 07 2005.Google Scholar

⁸³ Press Release, 2698^th Council Meeting, Economic and Financial Affairs, Brussels, 6 12 2005, 14763/05 (Presse 311), 15.Google Scholar

⁸⁴ Gilmore (n 1) 124–5.

⁸⁵ For the major differences between the two see, Financial Action Task Force: Annual Report 2004–2005, 8.Google Scholar

⁸⁶ Art 2.

⁸⁷ See COM(2005) 343 final, Brussels, 26 07 2005, 8 clarifying that this measure will extend to the European Economic Area. See also Art 18 concerning agreements with territories and countries outside the Community.Google Scholar

⁸⁸ ibid 4.

⁸⁹ The draft Regulation raises important issues related inter alia to the imposition of criminal sanctions for non-compliance (issues of first pillar competence may also arise in this context), and data protection. See also the concerns raised recently by the House of Lords EU Committee— letter by Lord Grenfell to Ivan, Lewis MP, Economic Secretary to the Treasury, 23 03 2006.Google Scholar

⁹⁰ See, eg, para 3 of the preamble.

⁹¹ Art 20.

⁹² Preamble, para 22.

⁹³ COM(2005) 603 final, Brussels, 1 12 2005, 7.Google Scholar

⁹⁴ Interpretative Note to Special Recommendation VI: Alternative Remittance, para 1. Text available at <www.fatf-gafi.org>.

⁹⁵ Gilmore (n 1) 37–8.

⁹⁶ Arts 21 and 22.

⁹⁷ COM(2005) 603 final, Brussels, 1 12 2005, p 7.Google Scholar

⁹⁸ On this debate see inter alia Wasmeier, M and Thwaites, N, ‘The “battle” of the pillars: does the European Community have the power to approximate national criminal laws?’ [2004] European Law Review 29, 613–35Google Scholar; Delmas-Marty, M, ‘The European Union and Penal Law’ (1998) 4 (1) European Law Journal 87–115CrossRefGoogle Scholar; Anderson, M et al. , Policing the European Union (Clarendon Press, Oxford, 1995) ch 6Google Scholar; and, around the time of the adoption of the 1991 Directive, Sevenster, H, ‘Criminal Law and EC Law’ (1992) 31 Common Market Law Review 29, 29–70.Google Scholar

⁹⁹ Arts 57(2) and 100(A), now Arts 47(2) and 95 respectively. For an analysis of negotiations and outcome, see Mitsilegas (n 3) 56–63.

¹⁰⁰ Mitsilegas (n 3) 65.

¹⁰¹ Commission v Council, Case C-176/03, 13 09 2005.Google Scholar

¹⁰² For an analySis, See Mitislegas, V, ‘Constitutional Principles of the European Community and European Criminal Law’ (2007) European Journal of Law Reform, forthcoming.Google Scholar

¹⁰³ Communication on the implications of the Court's judgment of 13 Sept 2005, COM(2005) 583 final, Brussels 24.11 2005.Google Scholar

¹⁰⁴ See the Conclusions of the Justice and Home Affairs Council of 21 Feb 2006, doc 6077/06 (Presse 38), 10.

¹⁰⁵ It is interesting that the Commission does not suggest recasting of the Directive in the light of the third pillar Decision on FIUs.

¹⁰⁶ Special Recommendation IX of 22 Oct 2004. See also recital 4 of the Regulation.

¹⁰⁷ The original proposal was of a Regulation ‘on the prevention of money laundering by means of customs co-operation’, COM(2002) 328 final, Brussels 25 07 2002.Google Scholar As regards the content, provisions that might be considered to be related to national criminal justice systems, such as those of detention of cash, have been watered down and specific compliance conditions were left to national legislation. Provisions calling for proceedings to be initiated in cases of suspected nondeclaration or misdeclaration of cash have been deleted. For an analysis of such changes and the impact on the legal basis, see letter by Dawn Primarolo, a Treasury Minister, to Lord Grenfell, Chairman of the House of Lords EU Committee (1 02 2005).Google Scholar

¹⁰⁸ It should also be noted that the Regulation covers in addition controls of cash leaving the Community.

¹⁰⁹ Recital 2.

¹¹⁰ Case C-376/98, Germany v Parliament and Council [2000] ECR 1–8419, paras 83, 84 and 95Google Scholar, and Case C-491/01, British American Tobacco (Investments) and Imperial Tobacco 2002 ECR 1–11453, para 60. For a recent comprehensive analysis see the Opinion of AG Leger in the ‘PNR’ case—Cases C-317/04, European Parliament v Council, and C-318/04, Parliament v Commission, paras 140–50.Google Scholar

¹¹¹ On the inadequacy of an incidental objective to form an adequate legal basis in the PNR context, see Opinion of AG Leger, para 147.

¹¹² Although this objective is not clearly visible in the Preamble of the Regulation, it is clearly stated that the FATF Special Recommendations—developed with the aim of combating terrorist finance—must be taken into account (recital 4). Moreover, the adoption of the measure has been flagged up by Member States as a priority in the various counter-terrorism action plans adopted after Madrid and was adopted as a matter of urgency. The UK Government had to override the national parliamentary scrutiny reserve by the House of Lords EU Committee and justified its decision on urgency grounds. See letter of Primarolo (n 108).

¹¹³ See also the analysis of the Court of First Instance in Case T-315/01, Kadi v Council and Commission, para 115.

¹¹⁴ Art 2 TEU. The AFSJ objective also appears in the first pillar, but specifically in the context of the measures in Title IV which involve action on immigration, asylum and border controls.