TY - JOUR
AU1 - Borlini,, Leonardo
AB - Abstract Money laundering is essential for the very existence and proliferation of criminal organizations. It also allows the corrupt and tax evaders to enjoy the profits of their crime. The recent terrorist attacks in Paris and Brussels demonstrate that terrorism continues to inflict pain and suffering all over the world and Europe is certainly not immune to the same; further, the international community needs to address this phenomenon with adequate strategies, including tackling terrorist financing. Such crimes pose extremely complex challenges to regulation. This article examines the recent evolution of the EU anti-money laundering and counter-terrorist financing legislative framework, focusing especially on the relationships between the main international initiatives in the field (in particular the FATF Standards) and the newest EU legislation. It suggests that the international norms have had a decisive influence on the latest development of legislation at the EU level and within its Member States. It further argues that it is mainly the preventive component of such legislation that will be strengthened by the EU instruments adopted in mid 2015. However, it concludes that the adoption of global standards has posed significant challenges to the EU legislative framework. The arguments are developed in three parts. The first part outlines the main international initiatives in the field. It illustrates that the current international legislative framework has a multidisciplinary approach which also modelled the EU legislation. The second part deals with the repressive component of such an approach and assesses the limits of the EU criminal approach against laundering and terrorist financing crimes. Finally, the last part examines the preventive component, it focuses on the recent EU legislation and addresses the challenges posed to the EU legislative framework when accommodating global standards, especially with regard to possible tensions with fundamental freedoms and human rights. I. Introduction Growing transnational crime poses increasing challenges to criminal justice as effectively depicted by the stark contrast between the assertions of two eminent British jurists. In 1891, Lord Halsbury LC declared: ‘All crime is local. The jurisdiction over crime belongs to the country where the crime is committed.’1 Exactly a century later, Lord Griffiths observed: ‘unfortunately in this century crime has ceased to be largely local in origin and effect. Crime is now established on an international scale’.2 In response, members of the international community have shown a growing agreement on the need to intensify cross border cooperation and this has led to a reinforcement and expansion of mechanisms of inter-state cooperation.3 This definitely holds true for the evolving treatment of money laundering and terrorist financing leading to a cluster of international instruments against the same in the last 25 years. Money laundering is the necessary means through which criminal organizations live and proliferate. It also allows the corrupt and tax evaders to enjoy the profit of their crime. Money laundering is, obviously socially harmful as it coexists with crime, the latter being its raison d’être:4 the expression ‘money laundering’ usually refers to a process, often highly complex, which aims at obscuring the illicit nature, origin, existence, ownership, location, or application of proceeds of crime for the purpose of avoiding legal enforcement.5 The recent terrorist attacks launched in Paris and Brussels tragically evidenced that terrorism continues to inflict pain and suffering all over the world and Europe is not immune; further, the international community needs to address such phenomenon with adequate strategies, including tackling terrorist financing.6 All terrorists, groups, cells, individuals, or mere supporters, always need financial means to support their activities and to transform plots into terrorist acts. All criminals do not resort to elaborate schemes in order to create the perception of legitimacy of the source and ownership of wealth and property. Nor will all terrorists avail of complex financial techniques to create and manage the financial means for their activities.7 Here ‘the judgment of those involved as to the effectiveness of the local criminal justice system and the associated level of risk of detection and prosecution will enter into consideration’.8 Substantial variation exists, amongst countries, sectors of criminality, or typologies of terrorist activities, regarding the scope, complexity, and sophistication of money laundering and terrorist financing schemes which are adopted, but a number of factors have contributed to the internationalization of the two crimes9 and the adoption of a comprehensive range of preventive measures.10 The relationship between globalization and the said crimes is in fact widely acknowledged: ‘exponential growth in the number of international money transactions coupled with similar improvements in the electronic execution of transactions opened up new horizons for legitimate businessmen as well as money launderers’.11 Developing a sophisticated treasury type activity from simple trade finance was a significant step for criminal organizations and full-scale international money laundering an easy step thereafter. Deregulation and progressive internationalization of financial markets, coupled with the fragmentation of public controls offer launderers and terrorists unprecedented opportunities. Innovations, which benefit legal transfers also open doors for illegal ones. Today, a click can transfer money around the world in a second.12 Instruments (such as bearer shares, over-the-counter derivatives outside the control of national banks, international mortgages, and bank-to-bank loans) which benefit legal transactions also facilitate illegal manoeuvres. Legislative differences among States enables criminals to take advantage of the resulting asymmetries. Launderers tend to exploit loopholes existing in any given jurisdiction.13 Thus, the effectiveness of anti-money laundering and counter-terrorist regulation in one country directly depends on the action of other countries. This explains why international coordination and targeted international instruments are key and why in most cases, domestic initiatives alone are toothless.14 Removing the financial incentive to committing crime and reducing the financial ability to perpetrate crimes, by tracing, freezing, and confiscating the proceeds of such crime, plays a major role in crime prevention.15 Anti-money laundering regulation has, hence, become a cornerstone of a broader agenda to fight organized crime and other crimes including corruption,16 by depriving criminals of ill-gotten gains and by prosecuting those who assist in laundering the same. After the 9/11 attacks, the principle of international initiatives against criminal finance, ‘follow the money’, assumed a new dimension, detecting not only financial flows which derive from criminal activities, but also lawful ones likely to be employed for financing terrorist activities. Countering the financing of terrorism is considered a viable counter-terrorism policy as financing is required for any and every terrorist activity. With the adoption of the International Convention for the Suppression of the Financing of Terrorism in 1999,17 terrorist financing was subsumed under money laundering for the purposes of regulation. Terrorist financing involves the solicitation, collection, or provision of funds with the intention of supporting terrorist acts or organizations. However, the phenomenology of money laundering and terrorist financing is often different. Whereas criminalization of the former is mainly explained by its connection to predicate crimes (the main effect of fighting money laundering is that the law enforcement agencies have a second chance to catch criminals and deprive them of the profits of their crime), for the classic terrorist ideology is more important: acts of terrorism are normally not performed with the purpose of earning money or benefiting from the proceeds of crime. Furthermore, when terrorism is financed with clean money, for example abusing donations and foreign aid, ‘this involves a process completely different from money laundering: ‘money dirtying’ which is the reverse of money laundering’.18 Terrorism financing requires the transfer of either legal or illegal funds for illegal purposes.19 The primary goal of individuals or entities involved in the financing of terrorism is not necessarily to conceal the source of the money, but to conceal both the funding and the funded activity. Why then were terrorist financing countermeasures subsumed under anti-money laundering law? As Vervaele observes, the grouping between anti-money laundering and counter-financing of terrorism countermeasures is essentially due to the perceived convenience of shaping a common apparatus to prevent and control the two crimes: both have a transverse nature and the strategy to contrast them has common elements and complex relationships to criminal law, criminal procedure, administrative law, financial and international public law. In both cases, the actor makes an illegitimate use of the financial sector.20 In addition, money laundering can enhance terrorist activities if the proceeds of crime are used to finance it. Here laundering serves two goals: concealing both the illegal origin and the illegal destination of the funds.21 Surveys carried out by leading organizations—such as the International Monetary Fund, the World Bank and the Financial Action Task Force (FATF)22—show that the techniques used to launder money and finance terrorist activities are often very similar.23 Despite their differences both terrorist(s) and organized criminal groups need financial support for their activities and to strengthen their power.24 A common anti-money laundering and counter-terrorist financing (AML/CFT) framework is thus expected to address both crimes by preventing, detecting, and punishing illegal funds entering the financial system and the funding of terrorist individuals, organizations, and/or activities. Thus, anti-money laundering and counter-financing of terrorism strategies converge: they aim at attacking the criminal or terrorist organization through its financial activities, and use the financial trail to identify the various components of the criminal or terrorist network. This implies putting in place mechanisms for reading all financial transactions and detecting suspicious financial transfers.25 The EU and its Member States have actively participated in the development of international and regional AML/CFT measures from their inception. These include many United Nations and Council of Europe conventions on the criminalization of money laundering and the United Nations Convention on the Suppression of the Financing of Terrorism.26 The EU and some Member States have also participated in the FATF taking an active role in the development of the FATF Standards. Such international standards have influenced the development of the EU response to money laundering and terrorist financing.27 In 1991 the first EC anti-money laundering Directive was adopted;28 since then, EU money laundering and, later, terrorist financing countermeasures have evolved parallel to international developments. This article analyses the recent evolution of the EU AML/CFT framework, by focusing particularly on the relationship between the main international AML/CFT instruments and the fourth AML/CFT Directive adopted in 201529 and the accompanying legislation.30 It first explores the evolution of the main international instruments in the field, underscoring the dynamic and circular relationship between soft and hard law. Secondly, it illustrates the relation between the adoption of the new EU AML/CFT legislation with such instruments from two different, but complementary, angles: (i) noting that the current international AML/CFT framework has a multidisciplinary approach, it focuses on its repressive component and assesses the limits of the EU criminal approach against money laundering and terrorist financing; (ii) examining the recent EU preventive legislation and addressing the main challenges posed to the EU legislative framework when attempting to accommodate global standards especially regarding tensions with fundamental freedoms and human rights. II. International AML/CFT Norms A. The three main phases of AML/CFT law The criminalization of laundering became widely accepted within the international community at the end of the 1980s.31 It was later termed ‘the white collar crime of the 1990s’ by the UN Office for Drug Control and Crime Prevention (UNODC).32 Since then, money laundering countermeasures have been afforded a central position in both national and international programmes. With the upsurge of terrorist financing, the normative activity at the international level has risen further.33 Anti-money laundering law has three main phases: incipient stage in the 1970s where the emphasis was mainly domestic, regulatory, and preventive in nature, stipulating the banks’ duties to keep records and report transactions that could assist law enforcement agencies in carrying out their function. Second stage, started in the late 1980s, produced criminalization and internationalization. The anti-money laundering regulation entered a third phase of supra-nationalization with the establishment of the FAFT in 1989, whose purpose was to develop and coordinate at an international level the efforts to counter money laundering by identifying the trail of money flow in order to seize and confiscate ill-gotten gains. This ad hoc informal inter-governmental body later became the institutional centre of a global supra-national legal regime. Following 9/11, a new phase emerged when the FAFT’s mandate was extended to include terrorist financing and, since 2012, the proliferation of weapons of mass destruction. Through the domestic implementation of the international instruments, the offences of money laundering and terrorist financing and the procedures for the identification, tracing, seizure, and confiscation of the proceeds of crime have become standard criminal justice tools at the national level. Also, international cooperation in these areas has been facilitated by an ever more intricate and extensive network of agreements and arrangements. Finally, in so mirroring one of the main prescriptions of the economics of anti-money laundering regulation,34 a wide array of preventive measures imposing clear obligations on the private sector has become a common trait of the AML/CFT legislations around the globe, including those of the EU and its Member States. Given the centrality of such international instruments for the evolution for the AML/CFT law in the EU as well they deserve closer attention. B. International responses to money laundering: The UN 1988 Drugs Convention Globally, the need to integrate a strategy targeting the proceeds of profit-generating criminal offences into efforts to combat the same crimes has been brought about primarily by the adoption of ‘a combination of global ‘hard law’ treaty instruments of ever greater scope, negotiated under the auspices of the United Nations, and ‘soft law’ standards elaborated within the confines of the FATF’.35 Regarding ‘hard law’, it was in 1988 with the adoption of the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances36 that a comprehensive policy targeting the financial dimension of the illicit drugs trade became a pillar of a UN treaty. In the framework of such a Convention, the substantive treatment of money laundering, confiscation, and provisions on mutual legal assistance in investigations, prosecutions, and judicial proceedings relating to laundering crimes are pivotal to the realization of the goal of combating the illegal drugs trade.37 The Convention imposes a strict obligation on each participating country to criminalize a fairly comprehensive list of activities concerning drug trafficking, including the financing of trafficking operations.38 As noted by Gilmore ‘(t)he latter was believed to be a particularly important component of the effort to reach those involved at the highest levels of the drugs trade’.39 Regarding criminalization of laundering conduct, Artile 3(1)(b) requires that drug-related money laundering be established as a criminal offence.40 Thus, for the purposes of the Convention, criminalization of money laundering is linked to the definition of the specific activities encompassed by the notion of illicit traffic in drugs as defined by Article 3(1) of the Convention (which are the only predicate crimes indicated in the text). The approach adopted in the 1988 Convention to drug-related money laundering is of key importance for the future of international cooperation. By requiring its criminalization and treating it as a serious offence in Article 3(1), the drafters have sought to guarantee that cooperation in respect of mutual legal assistance in investigations, prosecutions, and judicial proceedings, confiscation, and extradition will be forthcoming. For instance, it substantially reduces the potential for dual criminality problems to arise in this context.41 A second major feature of the Convention relates to the subject of confiscation of proceeds derived from, and the instrumentalities of, drug trafficking. This is treated in detail in Article 5 of the 1988 Convention, which addresses both the measures to be taken at the national level and the necessary mechanisms for international cooperation in this key area.42 With a view to ensuring that bank secrecy does not unnecessarily hinder the search for and the eventual confiscation of the assets derived from this form of criminal activity, Article 5(3) requires that each State Party empower its courts or other relevant authorities to order that bank, financial, or commercial records be made available. Most importantly it is specifically provided that: ‘A Party shall not decline to act under the provisions of this paragraph on the ground of bank secrecy.’43 While there is no doubt that the bank secrecy provision in Article 5(3) is of considerable significance to the effectiveness of confiscation, it has been widely noted that it does not go far enough. It appears that the removal of such secrecy is only of illusory advantage where additional layers of protection, such as anonymous trusts and shell companies, are available.44 In this context particular concern has been expressed about the range of services provided in some offshore financial centres.45 Among the most significant precedents established by the 1988 UN Convention in the fields of money laundering is Article 7 dealing with the provision of mutual legal assistance in investigations, prosecutions, and judicial proceedings relating to money laundering and other serious convention offences.46 By embracing in such detail the notion of mutual legal assistance, the 1988 UN Convention ‘made a major contribution towards increasing its availability in areas of the world, and within legal traditions, where it was, at the time, underdeveloped or unknown’. Furthermore, ‘it provided a critical level of support for those charged with prosecuting money laundering offences containing a substantial international dimension’.47 C. Subsequent UN conventions The 1988 UN Convention has had significant influence on other major initiatives, for example in drafting the influential 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds of Crime48 the negotiators used the 1988 UN Convention’s text as a primary point of reference.49 Twelve years later the authors of the United Nations Convention against Transnational Organized Crime50 built on the 1988 Convention’s precedent in regard to money laundering and added some novelties. The UNCTOC fully embraced the strategy of seeking to undermine and disrupt organized crime groups by focusing on their finances.51 The most interesting novelty in this area was the decision to include detailed measures to prevent money laundering, something that was unknown to the 1988 Convention. However, the generic and open-textured nature of the formulation eventually adopted has attracted some adverse comments in that the resulting obligations on State Parties are vague and open to varying interpretations.52 The approach adopted is well illustrated by Article 7(1)(a): 1. Each State Party: (a) Shall institute a comprehensive domestic regulatory and supervisory regime for banks and non-bank financial institutions and, where appropriate, other bodies particularly susceptible to money-laundering, within its competence, in order to deter and detect all forms of money-laundering, which regime shall emphasise requirements for customer identification, record-keeping and the reporting of suspicious transactions. Article 6 deals with the issue of the criminalization of money laundering. As with other elements of criminal justice and international cooperation, the influence of the 1988 Drugs Convention and the 1990 Council of Europe Convention is manifest in the definition of the laundering of the proceeds of crime in paragraph 1.53 Yet, paragraph 2 has the effect of expanding the obligation to criminalize this form of conduct well beyond the area of drug trafficking to also cover as predicate offences participation in an organized criminal group, corruption, obstruction of justice as well as other serious offences as defined by Article 2 of the same Convention. Article 6 furnishes an explicit treatment to extraterritorial predicate offences54 and the criminalization of ‘self’ or ‘own funds’ laundering.55 Another element of the 2000 Convention that deserves attention is related to corporate liability, a matter afforded some prominence by the FATF in its anti-money laundering programme since 199056 but left untreated in 1988 by the UN. Article 10 recognizes the diversity of approaches which exist in this area within differing legal traditions. It does so by acknowledging that while liability of legal persons for participation in relevant offences (including laundering crimes) must be provided for in national legal systems, such liability ‘may be criminal, civil or administrative’.57 However, ‘the decision not to require common recourse to the concept of corporate criminal liability does have implications for the provision of international cooperation’.58 This is especially so in cases where the State requesting assistance has given effect to criminal liability and the requested jurisdiction has used a civil or administrative option.59 On the heels of the UNCTOC, the desire for a global and comprehensive international legal instrument to combat corruption in both the public and private sector led in 2003 to the development of the United Nations Convention against Corruption.60 Entered into force on 14 December 2005 and ratified as of 1 December 2015 by 178 State Parties, this contains a full range of provisions designed to strengthen domestic criminal justice systems and to promote international cooperation. Some, such as Article 23 on laundering of proceeds of crime, draw heavily on the 1988 Convention and UNCTOC although it extends the list of relevant predicate crimes. Others, such as Article 24 on the concealment or retention of tainted property, have a more innovative standing.61 One of the main elements that differentiates the UNCAC from earlier multilateral treaties is the extent to which it includes preventive measures. Article 14 on measures to prevent money laundering owes much to Article 7 of the UNTOC, although the two are not identical.62 The negotiators of the 2003 Convention were in a position to consider carefully both the October 2001 Special Recommendations of the FATF on the financing of terrorism and the amendments to the 40 FATF Recommendations which were finalized in June 2003. The latter had an obvious impact on the formulation of certain provisions of Chapter V of the UNCAC on Asset Recovery. This is the case, for example, of Article 52 on the prevention and detection of transfers of proceeds of crime—a provision with no counterpart in the UNCTOC.63 Back to the evolution of the global instruments, it should be recalled that in 1999 the United Nations adopted the International Convention for the Suppression of the Financing of Terrorism. Given the lengthy engagement of the United Nations with terrorist-related issues and the variety of relevant multilateral instruments which had been concluded under its auspices, it may seem curious that the issue of terrorist financing had been largely ignored. However, the final text of the Convention was adopted in December 1999 and opened for signature the following month. Its principal focus was on activities which possess a transnational dimension. The same has been widely ratified. The 1999 Convention requires States to treat the financing of terrorism, its acts and associations created for that purpose as a criminal offence, independently of its legal or illegal source.64 One of the keys to success was agreement on the key issue of the definition of terrorism65 for the purposes of the Convention.66 In this regard the text of Article 2(1) is of particular importance. Pursuant to this Article, the obligation for participating States to criminalize the provision or collection of funds is activated in two major ways.67 The obligation is first engaged by reference to acts specifically prohibited in one of the pre-existing counter-terrorism treaties of global reach. These are listed in the Annex to the 1999 Convention and range from the unlawful seizure of aircrafts to terrorist bombing. Secondly, and more originally, the prohibition is triggered by reference to what is, in effect, ‘a free-standing mini-definition of terrorism’.68 Contained in Article 2(1)(b), this is broad in scope.69 The prohibition contained in Article 2 extends to attempts to commit such offences as well as to their organization. Importantly, however, ‘for an act to constitute an offence set forth in paragraph 1, it shall not be necessary that the funds were actually used to carry out an offence referred to in paragraph 1, sub-paragraphs (a) or (b)’.70 Several other provisions seek to ensure that adequate powers exist in national legal systems to address the issue of the funding of international terrorism. Of particular significance for the present analysis is the requirement, contained in Article 8, to take appropriate measures for the tracing, freezing, and confiscation ‘of any funds used or allocated for the purpose of committing the offences set forth in article 2 as well as the proceeds derived from such offences’ and a range of provisions designed to facilitate international cooperation in the investigation and prosecution of relevant offences. Remarkably, domestic measures of prevention and associated international cooperation are also set out in some detail: particularly, the 1999 Convention, just like the FATF Recommendations, oblige Member States to apply the same measures used for money laundering, including all preventive administrative obligations, to terrorist financing.71 As widely known, after 9/11, the United Nations went beyond their conventional approach to terrorism and adopted Security Council resolutions that add complexity to the legal framework.72 The Security Council thus became the focal point of discussions and the forum for the adoption of measures against terrorism. Significantly, in subsequent resolutions it emphasized terrorist financing, obliging States to implement specific measures in identifying and freezing terrorist-related funds.73 These novel measures underscored the inadequacy of domestic and international financial systems in dealing with terrorist funds, although the problem was not unknown. Furthermore, they exposed a lack of coordination between States themselves and between States, intergovernmental organizations, and private financial institutions. With Resolution 1373/2001 the Security Council decided that all States should prevent and suppress the financing of terrorism, as well as criminalize the wilful provision or collection of funds for such acts. The funds, financial assets and economic resources of those who commit or attempt to commit terrorist acts or participate in or facilitate the commission of terrorist acts and of persons and entities acting on behalf of terrorists should also be frozen without delay. The Council also decided that States should prohibit their nationals or persons or entities in their territories from making funds, financial assets, economic resources, financial, or other related services available to persons who commit or attempt to commit, facilitate, or participate in the commission of terrorist acts.74 In short, the obligations of the 1999 Convention were substantially reproduced in Resolution 1373 of 2001 so that the United Nations Member States were expected to comply with the obligations of the Convention, without taking into account whether they had ratified it or not.75 Significantly, in a later resolution, the Security Council ‘strongly’ urged ‘all Member States to implement the comprehensive, international standards embodied in the’ FATF Recommendations to tackle laundering crimes and terrorist financing, an exhortation it repeated using an identical wording, ten years later, in December 2015.76 D. The strong approach of the global ‘soft’ responses The FATF Recommendations, first issued in February 1990, then revised in 1996, 2003, and, lastly, in 201277 represent the universal standards shaping AML/CFT legislation around the globe, including the EU. The Recommendations take the form of a non-binding instrument.78 However, as FATF has come to serve as the international standard-setter in the AML/CFT field, its non-binding Recommendations have taken on a nearly binding character due to the conditions surrounding membership in FATF and the sanctions mechanism that accompanies the Recommendations.79 Moreover, the reproductions in a wide variety of international ‘hard’ instruments of several of their provisions as well as the reference to them made by the aforementioned United Nations Security Council Resolutions have in turn contributed to increase the importance of such non-binding standards.80 Hence, in the AML/CFT field, there is a deep and dynamic interaction between soft and hard law, both depending on and strengthening the other in a recurring relation. As to their contents, the FATF Recommendations consist of 40 consolidated recommendations that contain different provisions, including measures of substantive criminal and procedural criminal law; preventive administrative and financial measures to be imposed on financial institutions and other businesses and professions; measures to ensure transparency on the ownership of legal persons and arrangements; the establishment of competent authorities with appropriate functions, powers, and mechanism for cooperation; and arrangements to cooperate with other countries.81 Overall, the Recommendations have four main prongs: (1) criminalization of money laundering and terrorist financing; (2) strengthening the methods for tracing, freezing, and confiscating the proceeds of illegal activities; (3) implementing regulatory tools and imposing administrative obligations to prevent the use of the financial system for the purpose of money laundering, terrorist financing, and the proliferation of weapons of mass destruction; and (4) improving international cooperation measures in the criminal field. They thus promote two main tracks: criminalization of money laundering and terrorist financing and measures designed to prevent proceeds of crime from entering into the legitimate financial system, both ultimately necessary.82 Such model has been absorbed by AML/CFT legislation of most countries as well as the EU. In this respect, Mitsilegas and Gilmore pointedly assert that: ‘(s)o far, the symbiotic relationship between the development of money laundering countermeasures in international fora and the evolution of such measures in the EC/EU has been amply demonstrated’.83 However, the accommodation of the criminal and preventive components of such standards within the EU has followed two different patterns, which must be addressed separately. III. Accommodating international standards on criminal measures within the EU A. Criminalization of money laundering and terrorist financing within the EU Combining the approaches of the United Nations, the Council of Europe, and the FATF, the EU instruments followed the two-pronged model of prevention and criminalization. Hence, the EU was the first regional polity to adopt a near comprehensive AML/CFT framework. Yet, despite the increasingly assertive presence of the Union in the field, criminal law is still perceived to be par excellence within the province of national sovereignty so that the ‘criminal component’ of the AML/CFT framework had to go through a complex and demanding dialectal interaction between the EC/EU and its Member States and the accommodation of the same within the Union was not as straightforward as with prevention, where the international and EC/EU normative instruments always evolved in parallel. At present the EU has no binding act or policy, with a harmonized criminal definition of the offence and the related sanctions, to address the repressive side of money laundering and terrorist financing. The limits of EC competences to define criminal offences and impose criminal sanctions have been evident since the negotiation of the first AML Directive.84 However, as ‘foundational money laundering legislation without some sort of sanction for money laundering per se is hard to conceive’,85 the Commission and Member States reached a compromise whereby money laundering was not criminalized by the Directive but only ‘prohibited’. Although the EC law did not impose an obligation on Member States to act in the criminal law field, in reality it left them with little choice: a Declaration affirming the criminalization of money laundering was attached to the 1991 Directive and ML was soon de facto criminalized in all Member States.86 The same ‘prohibition’ formula was maintained in the second EC AML Directive adopted in 2001,87 extended to TF in the 2005 third EC AML/CFT Directive and also adopted by the EU Directive in mid 2015. Through such instruments, ‘minimum’ definitions of money laundering and terrorist financing were introduced within the EC/EU. At a systemic level, such definitions are consistent with those of other relevant instruments adopted in the field of criminal law, like the EU Directive on the freezing and confiscation of instrumentalities and proceeds of crime in the European Union adopted in 2014.88 However, the lack of a EU harmonized criminal definition of money laundering can lead to discrepancies in the implementation of AML rules among Member States. While a common understanding of the crime within the EU would enhance the effectiveness of the EU AML/CFT regime, the existing differences about which predicate offences can lead to money laundering and on the possible criminalization of self-laundering in the Member States’ criminal legislations hinder effective police cooperation and cross-border investigations.89 Challenges posed by the absence of a harmonized approach in the criminalization of money laundering within the EU are dealt with in the following two sub-sections, where the evolution of Union definitions of money laundering and terrorist financing is addressed in depth. B. The definition of money laundering and terrorist financing under the EC/EU instruments Like the 1988 Vienna Convention, the first AML Directive adopted a de minimis standard in prohibiting only the laundering of proceeds of drug trafficking but allowed the EC Member States the discretion to include proceeds from any other criminal activity. The resulting lack of harmonization in the criminalization of money laundering in the Member States could pose significant challenges to the implementation of non-criminal AML measures and hinder international cooperation mechanisms because of the lack of dual criminality. A first extension of the scope of money laundering offences stemmed from the 1998 Joint Action,90 which explicitly referred to Article 6 of the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The latter expanded the relevant predicate offences by explicitly referring to ‘any criminal offence as a result of which proceeds were generated that may become the subject of an offence’.91 Due to doubts concerning the binding feature of the Joint Actions, the main provisions of the same were repealed three years later by the Framework Decision of 26 June 2001 on money laundering, identification, tracing, freezing, seizing, and confiscation of instrumentalities and proceeds of crime.92 The latter aimed at obliging Member States not to make reservations to the 1990 Strasbourg Convention as to the confiscation of serious crime (with an exception regarding tax offences) and criminalization of the laundering of proceeds of ‘serious crime’. Money laundering was, therefore, defined by referring to offences punishable by deprivation of liberty or a detention order for a maximum of more than one year or for those States which have a minimum threshold for offences in their legal system, offences punishable by deprivation of liberty or a detention order for a minimum of more than six months. No significant changes were brought into the EU definition of ‘serious crimes’ by the Council Framework Decision 2005/212/JHA of 24 February 2005 on Confiscation of crime-related proceeds, instrumentalities, and property,93 which repeals Article 1(b) of the 1998 Joint Action. Once again, the list of relevant offences resulting from such provisions is open: the requirement of a minimum threshold of sanction does not guarantee the harmonization of definitions of predicate offences as the gravity of the sanction depends on each Member State’s criminal system and policies. Nevertheless, it is true that for most Member States (at least the ‘old’ 15) the minimum threshold requirement was likely to end up by roughly covering the same offences. Like the previous directives, the fourth AML/CFT Directive states only that money laundering is ‘prohibited’ and contains a rather inclusive definition of the conduct for laundering crimes.94 In underlining the relevance of transnational laundering schemes, Article 1(3) of the same instrument imposes on Member States that money laundering ‘shall be regarded as such also when the predicate crime occurs in the territory of another country, being it a EU Member State or a third country’.95 The definition of the predicate offences is aligned with the definition of ‘serious crime’ of the aforementioned 2014 EU Directive. Therefore, like its predecessor, the new Directive defines as a predicate offence ‘any kind of criminal involvement in the commission of serious crime’.96 The latter covers at least: drug trafficking (the only crime mentioned in the 1991 Directive), organized crime as defined in the 1998 Joint Action, fraud as defined in the EU Fraud Convention,97 corruption and offences, including tax crimes related to both direct and indirect taxes, that may generate substantial proceeds and are punishable by deprivation of liberty or a detention order of the same minimum thresholds indicated by the 2001 Framework Decision and the following instruments. Whereas the inventory of predicate offences has been progressively extended and, since the adoption of the third AML/CFT Directive, includes the collection of assets and money for the purpose of the financing of terrorism, its precise content is vague and can be determined only through the single Member States’ transposition of the Directive. The notion and morphology of corruption offences, for example, vary considerably with national jurisdictions.98 Similarly, the notion of organized crime is difficult to delimit. This holds true despite the explicit reference to the 1998 Joint Action, which actually provides a catch-all definition.99 Also the minimum threshold requirement is a signal of the margin of manoeuvre that Member States still maintain. Finally, the novel explicit inclusion of tax crimes as predicate offences is problematic. On the one hand, this is a welcome provision as, although tax crimes have long been predicate offences in some Member States, this has not been the case in other EU jurisdictions and, thus, their systemic inclusion in the 2015 Directive may help deter tax evasion by making it more difficult for tax criminals to use the proceeds of their crimes. But the inclusion of tax crimes in the list of the predicate offences refers to lower limits of criminal sanctions which can ultimately be determined only by single Member States. In other words, the fourth AML/CFT Directive leaves Member States free to determine which offences constitute tax crimes that are predicate offences of ML. Divergent definitions of tax crimes across Member States make the cooperation between the same more problematic as regards both the fight against tax fraud and tax evasion and the money laundering of the proceeds of these tax crimes.100 By contrast, the definition of ‘terrorist financing’ is less problematic: against the backdrop of a detailed description of the ‘financing’ conduct, the reference made by Article 1(5) of the fourth AML/CFT Directive to the offences of terrorism as defined by the Council Framework Decision 2002/475/JHA allows the crime at issue to be delimited with sufficient precision.101 The resulting definition, formulated only with reference to another act of the Union, is similar, but not identical, to that of the UN 1999 Convention.102 To conclude our analysis of the ‘EU definition’ of money laundering and terrorist financing, some final considerations on their practical implications are required. As observed, the main problems arise with money laundering. The definition of the actus reus rests on two main elements: the description of the material laundering conduct and the association of money laundering to a wide notion of predicate offences. As to the first element, all the examined instruments consistently show an accurate and similar wording, with little room for significant interpretative doubts. By contrast, the second element can produce diverging effects on the overall effectiveness of AML/CFT regime. The progressive extension of the category of predicate offences over the last two decades is (also) something positive for the preventive component of the AML/CFT strategy. It facilitates the reporting of suspicious operations from the wide array of obliged subjects. But challenges to the principle of legal certainty are posed by the open definition of predicate crimes, which leaves Member States with margins of discretion over the extent to which the proceeds from certain criminal activities are relevant in determining the precise scope of the laundering offence.103 In the end, such issues can only be solved by the single Member States when transposing the Directive. Although this is quite natural in the context of the dialectical relations between the EU and Member States in criminal-law related areas and discrepancies remain among the different jurisdictions, the coordination of AML/CFT national supervisors and law enforcement agencies is more problematic.104 The lack of harmonization and the discretion left to the national legislators pose challenges to the effectiveness of prevention, criminalization, and international cooperation: as stressed by EUROPOL, the differences in Member States’ definitions of money laundering mainly with reference to the scope of this crime have led to difficulties for judicial and police cooperation and cross-border investigations. In particular, different views on what crimes can lead to money laundering make it difficult for those in charge of preventing financial transactions related to money laundering and those that prosecute cross-border money laundering to identify if it really took place.105 Furthermore, turning to transnational laundering operations that also involve third countries, as mutual legal assistance with several States is based upon extensive dual criminality requirements, it is natural to assert that only a high convergence regarding the legal definition of predicate crimes would probably satisfy such requirements.106 C. Money laundering as a ‘Eurocrime’? With the entry into force of the Lisbon Treaty in 2009, ML belongs to the so called ‘Euro-crimes’ with a specific criminal law basis in Article 83(1) TFEU.107 Article 83(1) TFEU features such crimes as ‘particularly serious’ and ‘having a cross-border dimension resulting from the nature or impact of such offences or from a special need to combat them on a common basis’.108 With reference to such legal basis, the EU can adopt directives providing for minimum rules regarding the definition of criminal offences, that is, rules on which kind of behaviour constitutes a criminal act and which type and level of sanctions are applicable for such acts. Yet, this legal basis was not used when newer and stronger rules to contrast money laundering and terrorist financing were adopted in May 2015. Instead, Article 114 TFEU, the internal market legal basis was used. As with the three Directives adopted in the pre-Lisbon era, the rationale for doing so was to introduce ‘compensatory’ measures to the establishment of the internal market and to remove barriers that also provided increased possibilities for money laundering and financial crimes. Hence, the AML/CFT Directives were introduced to protect the financial system and other vulnerable activities and professions from being misused for laundering and terrorist financing purposes.109 AML criminal legislation based on Article 83(1) TFEU might only follow to complement the current legislative framework.110 As noted above, the EU already has a secondary legislation setting out the constituent elements and minimum penalties for laundering crimes111 as well as for other crimes included in Articl 83(1). This raises a general question about the genuine rationale behind the Union intervention in such different areas as those potentially endangered by the offences cited in Art. 83(1)112 and the more specific question about the added value of a possible ‘criminal’ AML Directive based on Article 83(1) to the current AML/CFT legislation. Regarding the first question, it is contended that, odious though several of the ‘euro-crimes’ may be, it is hard to maintain that they have prominent and transnational dimensions that distinguish them from other crimes. Money laundering and corruption, for example, do not necessarily need to be transnational. Also the seriousness of the offence is too vague a criterion to differentiate those crimes from others.113 Instead, with Article 83(1) TFEU, the Union is moving toward new forms of ‘Euro-crimes’ centred on a malleable notion of organized crime. The common and distinguishing features of such crimes are their contemporary nature114 and the fact that their perpetration requires a common enterprise and prior infrastructure. This is plainly the case of the laundering crimes, which need to resort to some sort of infrastructure/intermediary, such as particular businesses or misuse of the financial system in general. Thus, the EU has begun to focus on a very peculiar kind of criminality, ‘which could be serious, potentially transnational and which usually required the use of infrastructure and collective action’, of which money laundering is a just paradigmatic case. The harmonization here seeks ‘to create those definitions which act as a starting point for Member States to take criminal offences further’.115 Regarding the second question, an EU Directive based on Article 83(1) harmonizing the criminal definition of money laundering at the EU level (through a more precise definition of the relevant predicate crimes) would lead to a common understanding of which acts constitute it. In turn, this would ease judicial and police cooperation, cross-border investigations, cooperation between the Financial Intelligence Units (FIUs)—the public reporting institutions in charge of analysing and investigating any suspicious transactions report filed by the obliged entities—of the different Member States and, also, remove substantial obstacles for the private subjects obliged to put the preventive AML/CFT measures in place.116 Despite the ‘prohibition formula’ of the third and fourth AML/CFT Directives, in fact, national criminal systems still present divergences. This is why, in its 2010 Action Plan implementing the Stockholm Programme,117 the Commission announced a legislative proposal updating the 2001 Framework Decision on money laundering and confiscation of proceeds of crime. In 2012 the Commission issued a roadmap for a proposal of the Directive based on Article 83(1) of TFEU, aimed at harmonizing the criminal offence of money laundering in the EU and replacing the 2001 Framework Decision.118 The intended harmonization directive would have complemented efforts at the EU level to prevent laundering crimes as addressed by the third AML/CFT directive. Different views on which predicate offences can lead to money laundering and on the possible criminalization of self-laundering by Member States have so far impeded a common understanding of the crime at the EU level from emerging and AML criminal legislation from being adopted:119 after the Commission published the roadmap for the proposal of the harmonization directive, DG Market consulted the Committee on the Prevention of Money Laundering and Terrorist Financing and presented a Report on the Application of the Third Anti-Money Laundering Directive.120 In contrast to the opinion expressed by several EU bodies, including EUROPOL, Member States refused to support the necessity of a harmonized approach to the criminalization of money laundering at the EU level.121 A final note: the introduction of minimum rules regarding the definition of the criminal offence of money laundering and the approximation of sanctions could also have been achieved by using the express ‘functional criminalization’ EU competence based on Article 83(2) TFEU.122 Under such provision, the Union has the power to adopt legislation defining criminal offences and imposing criminal sanctions when such measures are essential to ensure the effective implementation of a Union policy in an area which has been subject to harmonization measures. Still, as observed earlier, the fourth AML/CFT directive is based solely on Article 114 TFEU.123 The ‘choice of the Union legislator to disregard the express criminal law legal basis of Article 83(2) TFEU’ seems ‘at odds with a number of other EU criminal law measures with a financial law dimension post-Lisbon’,124 one remarkable example of which is post-Lisbon secondary law on market abuse, where two parallel instruments—one on administrative and one on criminal law—were adopted.125 D. Forward-looking remarks Formally the 2015 AML/CFT framework did not constitute criminal law competence stricto sensu ‘but rather found its expression in the notion of administrative penalties’.126 Still such a framework has effects upon both administrative and criminal national rules and procedures and presupposes the involvement of both criminal and administrative law enforcement mechanisms. As a result, it does not leave the national criminal justice system altogether unaltered and complements national criminal law. Although the EU has not yet adopted a directive based on Article 83, its AML/CFT legislation has undeniably contributed to an increase of criminalization of money laundering and terrorist financing within the Member States and the extension of the pertinent category of predicate offences. As Lacey notes, however, criminalization is inherently a concept difficult to define, with a first necessary distinction between formal criminalization (legislation, treaties, statutes—‘law in the books’) and substantive criminalization (actual application of the law).127 Although undoubtedly the increase in formal criminalization of money laundering and terrorist financing in EU Member States has created the potential for an increase in substantive criminalization, an actual increase in the punishment levels will depend on domestic criminal practices. In this regard, the EU law instruments that have the specific goal of enhancing the possibility of punishment by strengthening the mutual assistance among Member States in criminal matters can reduce the unpredictability of outcomes due to the divergence of national criminal justice systems. Needless to say, the terrorist attacks carried out on European soil over the last two years culminating in the recent attack in Brussels on 23 March 2016, provided new impetus for the adoption of legislation based on Article 83 TFEU. After the Paris attacks of November 2015, the EU institutions and national governments decided to take further actions. Thus, in December 2015, the Commission tabled a proposal for a Directive on combating terrorism which comprehensively criminalizes the acts of financing terrorist attacks and their preparation as well as—this being the major novelty—the financing of activities such as recruitment, training, and the funding of travel abroad for terrorism purposes.128 In a similar vein, the same Institution has looked at how to improve the current AML/CFT legislation and speeded up initiatives for this purpose. As a result, in February 2016, it issued a complex Action Plan to strengthen the fight against terrorist financing. Among the different actions planned for the second half of 2016, the Commission plans to table a proposal for new EU legislation based on Article 83(1) to harmonize the criminal sanctions for money laundering. This on the assumptions—already illustrated in the present paper—that: (i) terrorists often resort to criminal proceeds to fund their activities and use laundering schemes to convert, conceal, or acquire such proceeds of criminal activities; (ii) although all Member States have criminalized money laundering, there are differences between Member States as to the definition of the crime and the sanctions applied; and (iii) these differences create obstacles in cross-border judicial and police cooperation to tackle money laundering and have a direct relevance in action against terrorist financing.129 Further, the Commission plans to undertake the necessary steps to ensure mutual recognition by EU Member States to the freezing and confiscation of asset. IV. Accommodating International Standards within the EU: Prevention A. The reform of the EU AML/CFT framework Along with the criminalization of obscuring and reintegrating ill-gotten gains and the redevelopment of forfeiture rules, the main thrust for the development of the AML/CFT paradigm has been in regulatory and supervisory provisions: accordingly, the second major component of the international AML/CFT framework includes administrative and financial provisions designed to prevent the proceeds of crime from entering the legitimate financial system. The reform of the EU AML/CFT preventive legislation is the result of quite a long journey starting with the revision of Directive 2005/60. The adoption of the fourth AML/CFT Directive has been ‘planned, delayed, planned and delayed yet again’.130 This shows ‘the sensitiveness of the matter and the high (political) interests surrounding the adoption of this instrument’.131 It is of note that the reform of the EU AML/CFT preventive framework has likely not come to an end yet. At the time of writing, the European Commission has, indeed, already issued its final proposal for a directive amending directive 2015/489 with a view to setting out a series of measures to better counter the financing of terrorism and to ensure increased transparency of financial transactions and of corporate entities under the preventive AML/CFT legal framework in place in the Union.132 Regarding the normative rationale of such reforms, both the new instruments adopted in May 2015—the fourth AML/CFT Directive and Regulation 2015/847 on the information accompanying transfers of fund—have Article 114 TFEU on approximation within the internal market as their sole legal basis.133 With this as a starting point, the assumption must be that the main objective and content of the new AML/CFT legislation, almost 25 years after the adoption of the first AML Directive (which was introduced as a compensatory measure for the free movement rules within the internal market) still focuses on improving the conditions for the establishment and function of the internal market. Both instruments strengthen the existing EU Legal instruments on money laundering and terrorist financing.134 In particular, as a complement to the criminal law approach, the fourth AML/CFT Directive aims to increase the effectiveness of the EU AML/CFT framework by strengthening the role of the private sector and the risk-based approach. It also contains innovative provisions to ensure more transparency on the ownership of legal persons and arrangements and to improve the coordination among the national FIUs (see further below). These changes have the objective of updating the EU rules to accommodate the newest FATF recommendations with their increased focus on the effectiveness of regimes to counter money laundering and terrorist financing, as well as addressing the shortcomings connected with the third AML/CFT Directive identified by the European Commission.135 The Preamble of the fourth AML/CFT Directive accordingly emphasizes the international character of the prevously mentioned crimes and AML/CFT countermeasures: Money laundering and terrorist financing are frequently carried out in an international context. Measures adopted solely at national or even at Union level, without taking into account international coordination and cooperation, would have very limited effect. The measures adopted by the Union in that field should therefore be compatible with, and at least as stringent as, other actions undertaken in international fora. Union action should continue to take particular account of the FATF Recommendations and instruments of other international bodies active in the fight against money laundering and terrorist financing.136 The following analysis aims at assessing the main elements of the current EU AML/CFT preventative framework. The result includes not only an overview of the current regulatory framework, but also highlights certain specifics such as the involvement of private actors and related problems from a fundamental freedoms and rights perspective. B. Enlarging the scope of the directive Since the adoption of the First AML Directive in 1991, the scope ratione materiae of the EU AML legislation has been steadily increasing.137 Although more limited than the second and third AML Directives, the fourth AML/CFT Directive does provide for yet further expansion. The scope of the EU AML/CFT framework is extended both ratione materiae and ratione personae. Ratione materiae, the scope of the fourth AML/CFT Directive is extended by reducing the cash payment threshold from €15,000 to €10,000.138 This goes beyond the FATF Recommendations whereby the threshold for cash payments is set at €15,000.139 Although the Directive has the merit to recognize the danger of cash transactions, a better option would have been to focus on the whole payment system and, at least, include all the bearer bonds. In addition, following the approach of the newest FATF Recommendations issued in 2012,140 the emphasis is placed on tax crimes—related to both direct and indirect taxation141—which are now expressly included as predicate offences. The express inclusion of tax crimes is expected to contribute to toughening the stance against financial crimes adopted by the EU.142 However, although tax crimes are formally designated as predicate offences in an EU Directive for the first time, this does not, strictly speaking, extend the scope of the EU AML regime: tax crimes were in fact already included under the previous Directive insofar as they constituted serious crimes punishable by deprivation of liberty or a detention order for a maximum of more than one year. This explicit reference thus seems to have a strong symbolic connotation, revealing a new political impetus in the fight against tax fraud and tax evasion by the EU institutions.143 Yet, the explicit inclusion of tax crimes raises concerns ‘particularly since no harmonization of the definitions of tax crimes has taken place at the EU level’ and ‘(a)s a result, different tax offences may be designed at the national level, potentially affecting the implementation of other rules of the fourth AML directive’.144 The scope ratione personae of an AML/CFT legislation is generally determined both by subjects designated to contrast money laundering and terrorist financing and by those taking part in it. As regards the people being targeted by the preventive obligations—departing from and going beyond the FATF standards—the fourth AML/CFT Directive broadens the category of politically exposed persons by adopting additional provisions on politically exposed persons at the domestic level and those working for international organizations (including the EU),145 who were excluded by the previous Directive. The definition of politically exposed persons stems from a specific directive, Directive 2006/70/EC, whereby they are defined as ‘natural persons who are or have been entrusted with prominent public functions’.146 The family members of these people—spouses, partners, and others—are also considered politically exposed persons. Their close associates are similarly to be included if they share the beneficial ownership of legal entities or have any kind of close business relationships. Moreover, when politically exposed persons are no longer granted prominent public functions, they should still be considered as such one year after the termination of their functions. Also, the scope of the obliged entities (ie entities subject to the AML/CFT obligations such as those concerning customer identification and due diligence and reporting of suspicious transactions) is extended. Interestingly, the list of obliged entities has grown with each new directive. While Directive 91/308/EEC included only bankers and financial institutions, the second AML directive added legal professionals,147 casinos, remittance offices, and insurance companies. The third AML/CFT directive widened the scope even more, including for the first time, trusts and company service providers. In order to also target online gambling, the fourth AML/CFT directive includes professionals from the gambling sector (‘the providers of gambling services’) and not only casinos.148 It remains only to remark that in acknowledging that terrorist groups are able to transfer money into the Union’s financial system or within virtual currency networks by concealing transfers or by benefiting from a certain degree of anonymity on those platforms, the Commission has lately proposed to extend the scope of Directive 2015/849 so as to include virtual currency exchange platforms and custodian wallet providers.149 C. The public–private partnership and the risk-based approach Like the FATF Standards, the fourth AML/CFT Directive is in line with the main prescriptions stemming from the economic analysis of AML/CFT regulation. First, the prevention of laundering and terrorist financing crimes is based on the direct and dynamic involvement of the private sector. The EU legislation, therefore, attempts to elicit high levels of outcome from a system of public–private cooperation imposing on a wide array of private actors penetrating obligations concerning customer identification, customer due diligence, record keeping, and reporting of suspicious transactions. The enforcement (supervision and sanctioning) of these obligations is left to public regulatory/supervisory bodies. Such delegation ‘has opened up for changed roles for private actors in the public sector’150 and with respect to the prevention of money laundering and terrorist financing has diluted the boundaries between the public and private sector, the latter acting as a forom of ‘private policeman’ of its customers.151 Secondly, the fourth AML/CFT Directives emulates the prevailing modern thinking in financial services regulation that advocates the setting out of flexible requirements and facilitates a risk-based application of such requirements in practice. Accordingly, regulation should be proportionate and flexible in a way that minimizes the burden on market participants and facilitates delivery of regulatory actions. Since the entry into force of the third AML/CFT Directive, the so-called risk-based approach has been at the very heart of the EU’s AML/CFT mechanism.152 This approach relies on the general assumption that the components (although not necessarily all of them) of the AML/CFT system—especially, regulation, compliance, and control—should be designed taking into account the risks they are intended to face and mitigate. The regulatory framework in a risk-based environment is, hence, based on a high-level legislation which sets out the main objectives to be pursued through the application of specific rules of conduct that ‘in particular cases are not always found in the law; in fact, those rules need in many instances to be determined by the obliged parties themselves in light of the concrete circumstances and inherent risks’.153 Within the EU, the risk-based approach is perceived to be more efficient than the former rules-based approach and its adoption can be seen as an effort to move from mechanical compliance to a system where the quality of compliance is enhanced.154 It has the advantage of allowing obliged entities a relatively simple and cheap ordinary procedure for retail banking and cases without specific risk factors in general. However, as soon as risk indicators become apparent, the obliged entities are expected to react with a finely calibrated concept of asking intelligent questions, building a body of information on the client, matching information on his/her regular activities with transactions. They are to ask questions about the source of the wealth, the possible destination, the economic reason for the transaction, and, if it does not appear to make sense, additional explanation, up to the point where the professional financier is satisfied or where clarification leaves him uncertain or even suspicious of his client’s activities. In case uncertainty remains or suspicion is raised, the obliged institutions have to report to the FIUs. Overall, the risk-based approach makes the regulation more flexible, but it also intensifies the responsibilities of financial intermediaries and other designated private subjects. Under such an approach, the legislation delegates to these subjects both the design and the implementation of a model of AML/CFT controls, which will be monitored and assessed by the public supervisors. Therefore, regulators suggest criteria to screen financial intermediaries’ and other obliged subjects’ clients and even remodel the internal structure of financial intermediaries to control laundering and terrorist financing risks (even at the level of a group) while reshaping public sector rules (eg establishing networking between the FIUs).155 In this respect, the new EU provisions provide for a more targeted risk-based approach using evidenced-based risk assessments to be conducted by the Commission and Member States156 as well as guidance by the European supervisory authorities.157 An additional feature is stricter rules on customer due diligence which, as with the third AML/CFT Directive, require that banks and other obliged subjects have in place adequate controls and procedures so that they know the customers with whom they are dealing, understand the nature of their business relationship, and conduct ongoing monitoring of the same including transactions undertaken throughout the course of that relationship.158 Since the entry into force of Directive 2005/60, the same subjects have therefore been in charge of monitoring transactions and assessing the risk level of each transaction. To this end, they are granted a wide margin of discretion. Further, they are required to always do their best to identify the beneficial owner of the fund, the latter being defined as the ‘natural person(s) who ultimately owns or controls the customer and/or … on whose behalf a transaction or activity is conducted’.159 It is noteworthy that the expression ‘on behalf of’ is to be interpreted to encompass all kinds of links binding the client to the beneficial owner. As contended by Met-Domestici, such an extensive definition ‘is meant to help in the detection of more suspicious transactions’.160 However, the task of identifying the beneficial owner may prove to be extremely time-consuming and, on occasion, next to impossible: professionals need to search for the identity of beneficial owners hiding behind multi-layer corporate structures. Also, some of the relevant corporate structures are often registered abroad and sometimes even in ‘off-shore’ jurisdictions. To align the Union framework with FATF-related developments, customer due diligence rules have been clarified and the obliged entities are required to take enhanced measures where the risk are greater (ie in cases of cross-border correspondent relationships with a third country respondent institution and with respect to transactions and business relations with politically exposed persons and their family members or close associates)161 and can take simplified measures where the risks are demonstrated to be lower.162 So, contrary to the third AML/CFT Directive, the new Directive does not permit situations where automatic derogations apply. Instead, decisions on when and how to undertake simplified customer due diligence will have to be justified on the basis of lower risk transactions or customer relationships, while minimum requirements of the factors to be taken into consideration will be specified. There is, indeed, no detailed description of the measures to be taken under such circumstances. The European supervisory authorities are to adopt guidelines on simplified customer due diligence within two years of the entry into force of the directive.163 In line with the international standards, the new instrument thus incorporates more risk-based elements which should lead to a more targeted approach to assessing money laundering and terrorist financing risks and dedicating resources where they are most needed. According to the Council, the strengthened rules on customer due diligence ‘reflect the need for the EU to adapt its legislation to take account of the development of technology and other means at the disposals of criminals’.164 To conclude on this point, in the new Action plan to combat terrorist financing within the EU, the Commission has planned to further strengthen the customer due diligence obligations of the 2015 Directive by establishing harmonized and enhanced due diligence measures for high-risk third countries (ie third countries with deficiencies in the fight against money laundering and terrorist financing to be identified on an EU ‘blacklist’).165 Regarding the new typologies of risks to be addressed, it also proposes tackling those of virtual currency exchange platforms and pre-paid instruments.166 D. Increasing effectiveness: other new provisions Beside stricter obligations vested upon obliged entities involved in the prevention of ML and TF, the new instrument envisages other improvements to address the ever-changing nature of criminal activities. It thus provides for reinforced and sometimes new duties imposed on other stakeholders as well as detailed rules on sanctions and reinforced coordination among FIUs. The issues of transparency of legal persons used as channels of crime is central for an effective AML/CFT legal framework: secretive ‘shell’ companies and trusts can play a central role in laundering and channelling funds, concealing behind a veil of secrecy the identity of individuals and irresponsible businesses involved in relevant serious crime.167 Thus, enhancing transparency, specific provisions on beneficial ownership of companies and other legal arrangements have been introduced in the fourth AML/CFT Directive. Following the new FATF Recommendations,168 legal persons are required to clearly identify their beneficial owners and maintain registers containing adequate, accurate, and up-to-date information on the same.169 The same obligation will also apply to trustees. All these subjects have to make the information available to competent authorities such as FIUs, law enforcement agencies, as well as obliged entities performing customer due diligence. The provision of reinforcing transparency on the real beneficial owners of companies or legal arrangements (such as trusts) is a welcome novelty, although it is likely to be difficult to comply with in practice. For instance, when legal entities are used by launderers as a means to conceal their identity and especially that of the actual beneficial owner, such legal persons may well hold registers listing false beneficial owners. Nevertheless, this provision is useful becauseit will at least provide a legal basis to criminalize such behaviour by Member States.170 Transparency will be further enhanced by another major innovation concerning the information on beneficial ownership, that is the ambitious disclosure rule providing for the creation of central registers located outside the company but within each Member State, where accurate and updated information on beneficial ownership (such as his/her name, month and year of birth, nationality, residency, and details on ownership) will be held to make publicly accessible the real owners of companies and trusts.171 The central register (for example a commercial register, companies register, or a public register) must ensure timely and unrestricted access by competent authorities and FIUs, without alerting the entity concerned and also allow timely access by obliged entities when performing customer due diligence.172 Under the new legislation, full access to company beneficial ownership data will be granted to law enforcement and relevant government bodies and FIUs without any restriction,173 and to the obliged entities in the framework of the conduct of custumer due diligence in accordance with the Directive. With the exception of trusts, partial access will be also provided to the public—that is to say to ‘any person or organization’, for example investigative journalists and NGOs—to the extent that it can demonstrate ‘a legitimate interest’ in the information.174 The institution of central registers storing beneficial ownership information can facilitate the professional task of obliged entities while performing costumer due diligence. It is also likely to ease the activity of FIUs and their international cooperation, thereby facilitating the search for the beneficial owner’s identity. However, to be effective, the registers would need to be continuously updated and controlled in order to be reliable, and this is not easy to achieve. Also, requiring the public to prove a legitimate interest is contradictory to the idea of the transparency that the new provisions should promote, and places all the burden on the public by adding a new layer of bureaucracy to manage requests.175 Yet, from a strictly legal viewpoint, the main drawback of the provision at hand is the lack of a definition of ‘legitimate interest’: since no further clarification is provided for in the text of the Directive, such a condition remains vague and may lead to discrepancies among Member States.176 It will, therefore, be interesting to see how this requirement is implemented in the individual States and what level of access will eventually be guaranteed in the single jurisdictions.177 Further, to address the transnational nature of money laundering and terrorist financing, the new text aims to bolster cooperation among national FIUs. The enhancement of exchange of information between FIUs across the EU is placed high in the hierarchy of measures to tackle money laundering and terrorist financing. In this respect, special reference is made to the decentralized computer network FIU.et or it successor and the techniques it offers.178 Reinforced cooperation among FIUs to better track the financial dealings of criminals should result in compliance with the obligations whereby Member States are thus required ‘to ensure that their FIUs co-operate with each other to the greatest extent possible, regardless of their organizational status’179 and inviting the Commission to lend the necessary assistance to facilitate coordination between FIUs within the Union, and also by convening regular meetings of the EU FIU’s Platform composed of representatives from Member States’ FIUs.180 Finally, the new provisions strengthen the sanctioning powers of competent authorities, setting out the key requirements of the Directive (costumer due diligence, record keeping, suspicious transaction reporting, and internal controls)—in respect of which serious, repeated, or systematic breaches should be sanctioned—and detailing what, at a minimum, should be included in each Member State’s suite of administrative sanctions and measures. Member States are required to ensure that more punitive, administrative pecuniary sanctions are permissible in the case of credit institutions and financial institutions (at least €5,000,000 or 10 per cent of total annual turnover in the case of a legal person, and at least €5,000,000 in the case of a natural person).181 Thus, the fourth AML/CFT Directive will, for the first time in an EU AML instrument, harmonize the maximum range of sanctions. At present, there is indeed a huge divergence across Member States, maximum sanctions currently range from a few thousands euro to tens of millions of euro.182 A key issue with broader policy and constitutional bearings concerns the relationship between administrative and criminal sanctions in this matter. Article 58(2) of the fourth AML/CFT directive provides that national rules on administrative sanctions implementing the Directive will be without prejudice to the right of Member States to provide for and impose criminal sanctions. The same article adds that Member States may decide not to lay down rules for administrative sanctions or measures for breaches which are subject to criminal sanctions in their national law. Some authors contend that it is debatable whether this lack of harmonization contributes towards the effectiveness of EU AML/CFT law. If the choice of the EU legislator has been to treat non-compliance with the preventive duties set out in the fourth AML/CFT directive by means of administrative sanctions, ‘then the choices of Member States to “gold-plate” implementation by imposing criminal sanctions should be limited by the requirement to ensure the effectiveness of EU law’.183 However, effectiveness in this context is not necessarily linked to criminalization. Instead, as with other post-Lisbon legislation (including in particular the market abuse legislation), the effectiveness of EU law may actually lead to de-criminalization, rather than over-criminalization.184 E. Balancing the need for security and the protection of fundamental freedoms and rights So far the EC/EU has adopted four directives on the prevention of money laundering and, later, terrorist financing (alongside a series of other measures including on confiscation and cash movements) which have been largely justified on the basis of the need to comply with the FATF requirements and incorporate FATF produced standards in EU law. Some authoritatively argue that the ‘(u)ncritical introduction in the Union legal order of standards challenging fundamental rights produced by an elite body with little transparency in its work … raises important issues of legitimacy and rule of law’.185 Even without going that far, the accommodation within the EU legal order of such standards admittedly creates tensions with certain EU fundamental freedoms and rights. The issue is how to strike the right balance between the protection of such freedoms and rights and AML/CFT prevention. In Jyske Bank Gibraltar186 and Ordre des Barreaux187 the European Court of Justice (ECJ) was asked to assess the compatibility of specific AML/CFT preventive measures, respectively, with the freedom to provide services under Article 56 TFEU and the right to a fair trial enshrined in Article 6 of the European Convention on Human Rights (ECHR). Regarding the compatibility of the EU AML/CFT framework with the freedom to provide services, on 25 April 2013, the Court rendered a landmark preliminary ruling in Jyske Bank Gibraltar, addressing the implementation of the third AML/CFT directive in Spain. Significantly, while confirming its usual ‘strict’ approach to analysing national measures which serve important interests that are recognized by the Union as valuable and able to restrict one of the four fundamental freedoms, the ECJ judgment is based on a balancing exercise of interests that both appear genuinely European: the freedom to provide services, on the one hand, and the need for security and the protection of the internal market through (national) implementation of the EU AML/CFT framework, on the other. Jyske Bank was a branch of the Danish Jyske Bank established in Gibraltar, which operated in Spain under the rules governing the freedom to provide services. Article 22(2) of the third AML/CFT Directive—which will be replaced by the near identical Article 33(1) of the fourth AML/CFT Directive—requires that information on suspicious transactions be forwarded to the FIUs ‘of the Member State in whose territory the institution or person forwarding the information is situated’.188 Pursuant to Spanish law, credit institutions operating in Spain must inform the Spanish FIU of transfers of more than €30,000 to or from tax havens and uncooperative territories, such as Gibraltar.189 Jyske bank only partially complied with the request forwarded by the Spanish FIU, invoking the banking secrecy in force in Gibraltar, resulting in a fine of €1,700,000. The bank appealed against the decision before the Spanish Supreme Court, which referred the case to the ECJ. The analysis of the Luxembourg-based Court was twofold. It first examined Article 22 of the third AML/CFT directive and then Article 56 TFEU, although the domestic court did not refer to the latter provision in its question.190 As to the first point, the ECJ stretched the limits of Article 22 of the third AML/CFT directive in maintaining that it ‘does not expressly prohibit’ the host Member State from requiring a credit institution carrying out activities in its territory under the rules on the freedom to provide services to forward the information referred directly to its own FIU ‘in so far as such legislation seeks to strengthen … the effectiveness of the fight against money laundering and terrorist financing’.191 According to the judges, however, credit institutions remain obliged to supply the required information to the FIU of the home State, which are in turn asked to cooperate with FIUs of other EU countries.192 Regarding Article 56 TFEU, the Court affirmed that a national measure such as the one adopted by Spain constitutes a restriction on the freedom to provide service, as it implies costs and is additional to the controls already conducted in the Member State where the institution in question is situated.193 It, hence, assessed whether such national measure was justified by an ‘overriding requirement relating to the public interest’, and whether the same legislation was appropriate and proportional for securing the attainment of the aim it pursued.194 As to the first question, in the light of a previous judgment concerning gambling services in France, the Court affirmed that the combating of money laundering and terrorist financing were ‘legitimate aims’.195 The ECJ then determined that the Spanish legislation was appropriate to attain such public objectives.196 The application of the proportionality test is the most intriguing point. According to the Court’s reasoning, the mechanism of cooperation between FIUs presents some flaws that impede authorities from acting in short time.197 Proportionality is thus respected to the extent that national legislation requires: credit institutions situated in another Member State to forward, concerning operations carried out under the freedom to provide services, information necessary for combating money laundering and terrorist financing directly to the FIU of the host Member State, only where there is no effective mechanism ensuring full and complete cooperation between the FIUs and allowing money laundering and terrorist financing to be combated just as effectively. 198 The judges maintained that FIUs were not obliged to automatically forward information to the FIU of another Member State.199 Moreover, inasmuch as Spanish legislation was limited to operations exceeding €30,000 and involving transfers of funds from or towards certain territories, it did not appear to be disproportionate.200 Significantly, the Court did not investigate the existence of less restrictive alternatives. Instead, in analysing the (flaws of the) general system of cooperation among FIUs, in some measure it shifted the focus from a national system to the EU AML/CFT framework and, hence, appreciates AML/CFT as a ‘European’ interest. In so doing, the ECJ assumes a genuine European perspective that also emerges, in a more nuanced fashion, when AML/CFT measures are weighted against issues concerning the fundamental right to a fair trial.201 The Community in fact adopted a controversial FATF imperative in its legal system—namely that lawyers are required to report suspicious transactions of their clients—since the entry into force of Directive 2001/97 EC. However, the same Directive provided for an exception. Lawyers were not required to report information obtained ‘in the course of ascertaining the legal position for their client or performing their task of defending or representing that client in … judicial proceedings, including advice on instituting or avoiding proceedings’.202 Further, where lawyers are required to report suspicious transactions, they should report to their own professional self-regulatory bodies and not to FIUs. Such rule aims to preserve their independence and the confidentiality of their relationships with their clients.203 To this end, Member States should nominate the bar association or other self-regulatory bodies for independent professionals as the body to which reports on possible money laundering and terrorist financing cases may be addressed.204 These bodies shall then forward the information to the FIUs promptly and unfiltered. The precise delimitation of the obligation imposed on lawyers was the outcome of the ECJ ruling in Ordre des barreaux, where the Court stated that the obligation to report suspicious transactions should not apply to lawyers acting within the scope of legal counselling or judicial proceedings. The ECJ was referred to by the Belgian Constitutional Court, before which the Belgian Bar Association had argued that the duty to report—as disciplined by the Belgian legislation transposing the second AML Directive including Articles 2(a)(5) and 6, whereby the Directive is applicable to notaries and other independent legal professionals when they assist clients in commercial or financial activities—was in breach of lawyers’ professional confidentiality and, hence, the right to a fair trial as protected by Article 6 of the ECHR. The ECJ confirmed the legality of the contested articles of the Directive vis-à-vis Article 6 of the ECHR on two main grounds. First, lawyers are subject to the obligations of information and cooperation only in certain transactions ‘listed exhaustively’ by the Directive.205 Secondly, referring to the exception of Article 6(3) of the Directive and solving a certain ambiguity in the text of this provision, the ECJ maintained that reporting obligations are limited to activities that take place ‘in a context with no link to judicial proceedings and, consequently, those activities fall outside the scope of the right to a fair trial’.206 The exemptions concerning assistance in defending the client, representation before the courts, and advice as to the manner of instituting or avoiding judicial proceedings, therefore, safeguard the right of the client to a fair trial.207 Through such interpretation of the relevant provisions of the Directive, the ECJ de facto reconciles the duty of lawyers to report the suspicious transactions of their clients with the fundamental right to a fair trial. The case remains important after the entry into force of the Third Directive and the adoption of the Fourth,208 as the reporting duty and the exception thereto in case of legal privilege circumstances are the same in these instruments. Two further considerations may be drawn by the case under discussion. First, although not expressly stated by the judges, ‘the objective of combating money laundering’, as Advocate General Poiares Maduro clearly remarked, has emerged ‘as an objective of general interest’ for the Union.209 Secondly, tension between AML/CFT effectiveness and the legal privilege dealt with by Articles 6 and 8 of the ECHR may still occur, as it can be difficult in real cases to distinguish neatly between what is related to a trial and what falls outside of its scope.210 In fact, the situation where a link with judicial proceedings is present is but one area where legal privilege has its function. So far, the question ‘has not been solved in non-contentious circumstances’.211 The Ordre des barreaux also reveals that the definition of ‘ascertaining the legal position for their client’—the second situation referred to by the Directive—is open to interpretation by national courts, which contributes to the uncertain outcome of the case of ‘Reporting Duty v Legal Privilege’.212 F. The interaction between AML/CFT law and data protection law The problematic coexistence of the freedom to provide service and the right to a fair trial does not exhaust the list of possible interferences with fundamental rights of the preventive system of the AML/CFT directive. As already observed, in order to be able to detect criminal operations and criminals who might hide behind the customers of an entity subject to the vigilance obligations of the directive, this system involves scrutiny of financial transactions by financial and credit institutions as well as other categories of a wide range of service providers (ie ‘obliged subjects’). Such operations necessarily require the processing and exchange, including the collection, retention, and further transfer, of a copious amount of the personal data of customers, which might potentially be used by law enforcement authorities. As such, the operations performed in the context of customer identification, due diligence, and reporting duties, represent an interference with the right to privacy and data protection, thus the need for strict data protection requirements. Dealing with one of the main shortcomings of all the previous instruments, the fourth AML/CFT directive incorporates several data protection safeguards. The presence of an EU interest to modulate data protection prerogatives for the purposes of AML/CFT prevention is now acknowledged in the very text of the Directive reading: ‘the processing of data’ for those purposes ‘shall be considered as a matter of public interest under Directive 95/56EC’.213 Moreover, the new instrument addresses some of the concerns that the European Data Protection Supervisor expressed in its opinion of July 2013 on the Commission’s proposal for the fourth AML/CFT Directive.214 Particularly, the directive now contains substantive provisions that explicitly refer to the applicable EU data protection law as transposed into national law and recall the principle of providing data subjects with information about the processing of data for the AML/CFT purposes;215 it explicitly states that the collection and further processing of data should be limited to what is strictly necessary and data should not be further processed in a way incompatible with its purposes, stressing that processing for commercial purposes in particular is strictly prohibited; it establishes a maximum temporal limit for the retention of data collected to comply with the record-keeping obligations after the end of the business relation with the customers (the data subjects) or after the date of an occasional transaction;216 finally, it includes direct reference to the purpose limitation, necessity, and proportionality principles when restricting the data’s subject right of access to personal data in case a suspicious transaction report is filed to the FIUs or an investigation ‘may’ be carried out (prohibition of tipping-off).217 Yet, some other choices are far more contentious. For instance, Member States are required to give FIUs maximum access to national databases (‘financial, administrative, law enforcement information’);218 however, as with the third Directive, no data protection provisions accompany this maximum access. Also, notwithstanding the EDPS’ clear indication, the directive does not expressly clarify whether (and which) sensitive data within the meaning of Article 8(1) of directive 95/46 have to be taken into account in carrying out customer due diligence. The right to access data is even more worrying: as mentioned above, under the directive it is left to Member States to adopt legislative measures restricting the right of access of the data subject due to the prohibition of tipping-off to the extent that such limitation ‘constitutes a necessary and proportionate measure in a democratic society’.219 However, the lack of further details can result in undue discrepancies among Member States and it seems disproportionate to limit the access right in relation to those suspicious transactions reports that are, subsequently, considered groundless and irrelevant (a matter on which the directive is silent).220 The right to access is indeed also prescribed by Article 8 of the Charter of Fundamental Rights of the EU (the Charter)221 and any limitation must be strictly interpreted. The EU legislator should have at least issued some guidelines as to when such limitation could be considered necessary and proportionate and mentioned that this limitation should be used on anexceptional basis.222 Finally, the retention period of the data appears to be highly problematic. In particular, Recital 44 and Article 40 of the fourth AML/CFT directive provide that obliged entities should maintain the information obtained through due diligence measures as well as records of the transactions for at least five years after the end of the business relationship with their customer or after the date of an occasional transaction. The retention period, however, may be extended by Member States for an additional five years after a thorough assessment of the necessity and proportionality of such further retention and consider it to be justified as necessary for the prevention, detection or investigation of money laundering or terrorist financing. While conceding that ‘a retention period of five years may seem reasonable (although it would have been welcomed if specific arguments had been provided)’, other authors stress that, in giving Member States a large amount of leeway, the rules on the possible extension of the retention period raise serious proportionality concerns and it would have been better if, as the EDPS had suggested, the fourth AML/CFT directive provided for a possible extension of the retention period after a thorough assessment on a case-by-case basis or, at least, for specific guidelines as to the circumstances under which such an extension would be necessary.223 To us, the choice of including only apodictic statements on the opportunity of such duration of the data retention period is all the more striking in view of the outcome of the recent jurisprudence of the Court of Justice of the EU (CJEU) on the right to privacy and the right to data protection. Particularly, it seems that the Union legislator ignored the powerful echo of the milestone ruling in Digital Rights224 (and of AG Cruz Villalón’s words225). Whereas such a judgment was rendered in a different context,226 some of the main reasons that led the Court to hold that the EU legislature had exceeded the limits of the principle of proportionality in relation to certain provisions of the Charter (Articles 7, 8, and 52(1)) by adopting Directive 2006/24227—and, hence, struck down the same directive— also appear to be outstandingly relevant for the analysis of the fourth AML/CFT Directive. For a start, it is worth recalling that in a similar way to the latter act, the ‘material objective’ of the data retention directive is crime prevention, especially the prevention of serious crimes such as terrorism.228 In more detail, in annulling Directive 2006/24 due to its excessive interference with fundamental rights, the focus of the Court’s reasoning was on its problematic rules on the definition of ‘serious crime’ and the duration of the data retention period. The Directive, indeed, did not define the concept of ‘serious crime’, thus leaving the provisions unacceptably generic.229 Moreover, according to the Court, it was not possible to reconcile the excessive length of the retention period (ie a maximum of two years) with the stated aims of Directive 2006/24, especially considering that the issue of proportionality—one of great relevance in light of Articles 7 and 52 of the Charter—remains unsubstantiated in the directive. As a result, the CJEU held that the EU legislature had ‘exceeded the limits imposed by compliance with the principle of proportionality’ for a practice—that of mass surveillance established by Directive 2006/24—which interfered with fundamental rights, especially the right to privacy and the right to data protection.230 This main argument of the Court’s decision could and, arguably, should also be seen as a strong warning regarding any future EU legislative initiatives in the field; a warning which went unheard when drafting the text of the fourth AML/CFT Directive. Certainly, in the context of the latter instrument, operations involving data collection and retention are performed in order to tackle two specific crimes, namely, money laundering and terrorist financing. However, as already illustrated, the definition of money laundering contained in the AML/CFT Directive depends on an open definition of ‘serious’ predicate ‘crimes’, which poses challenges to the principle of legal certainty.231 What is more, one can question whether the unsubstantiated extensible five-year data retention period contained in the same directive always corresponds to a demonstrated necessity of keeping the data and satisfies the proportionality principle.232 As also remarked elsewhere,233 the privacy and data protection concerns raised by the fourth AML/CFT directive may also be exacerbated by recent appeals by the European Commission to Member States to enhance the exchange of financial intelligence between EU FIUs and third country FIUs and between FIUs and the private sector, in line with FATF Recommendations and best practices.234 Conclusions The last 25 years have seen an upsurge of legislative and regulatory instruments aimed at countering newly perceived global threats—money laundering and terrorist financing. An exceptional normative production of international standards (in the form of international treaty instruments of ever greater scope and ‘soft law’ standards elaborated within the confines of the FATF) took place, ‘largely the outcome of a broad political consensus and synergies between the global, regional and national level’.235 The EU has made great efforts to keep up to speed with AML/CFT global initiatives by taking an active part in the form of the Commission and some Member States in international fora shaping global standards (such as the FATF Recommendations) and by attempting to implement such standards shortly after their adoption. The latter task has not been without legal difficulties. First, the accommodation of the criminal and preventive components of international AML/CFT standards within the EU has followed two different patterns. While the harmonization of criminal systems, foreseen in Article 83 TFEU—which is a process that is still in development236—and the persisting differences in the Member States’ legislations on the definition of money laundering and sanctions have led to difficulties for judicial and police cooperation and cross-border investigations, the EU has thus far adopted four directives (and a series of other measures) on prevention that have been largely justified on the basis of the need to incorporate the FATF Recommendations in EU law. In particular, with its innovative provisions designed to increase the effectiveness and efficiency of the AML/CFT preventive framework, the 2015 Directive is the most comprehensive EU measure to counter money laundering and terrorist financing with a broad impact on the daily financial lives of citizens and on mundane transactions. As well as representing one of the key actions of the European Security Agenda,237 it is a salient example of large-scale public–private security cooperation and an important but discrete case of a data-led fight against terrorism. Secondly, the adoption by the EU, in the form of binding legislation, of the international standards raises questions of compatibility with fundamental freedoms and rights, as the fight against money laundering and, above all, terrorist financing is increasingly viewed as a security issue. In Jyske Bank and Ordre des Barreaux, the ECJ reconciled AML/CFT measures with the freedom to provide services and the right to a fair trial by envisaging the fight against the crimes at issue as an objective of general interest to the Union and carefully assessing its effects on the aforementioned rights in the light of the principle of proportionality. Such an approach—especially, the thorough use of the proportionality test—should also guide the CJEU if other and more contentious issues of compatibility of the EU AML/CFT legislation with fundamental rights should arise. The immediate association is with rights to privacy and data protection prerogatives: whilst the 2015 Directive acknowledges the existence of an EU interest to modulate data protection prerogatives for AML/CFT purposes, as discussed, certain provisions of the same remain highly problematic when weighted against the aforementioned rights. With thanks to Alberto Alessandri (University Bocconi), Roberto De Michele (IADB), Michaël Fernandez-Bertier, (Université Catholique de Louvain), Francesco De Simone (IADB), Gianluca Esposito (Council of Europe), Nadim Kyriakos-Saad (IMF), Emmanuel Mathias, (IMF), Giorgio Sacerdoti (University Bocconi), John Vervaele (University of Utrecht) for suggestions and advice on earlier drafts. The usual disclaimer applies. Footnotes " 1Mcleod v Attorney-General for New South Wales, 1891, AC, pp. 455 ff., at 458. " 2Somchai Liangsiriprasert v US Government, 1991, 1, AC, pp. 225 ff., at 241. See also D Garland, ‘The limits of the sovereign state, strategies of crime control in contemporary society’, (1996) 36 British Journal of Criminology, 445. " 3 WC Gilmore, ‘Money laundering’, in N Boister and RJ Currie (eds), Routledge Handbook of Transnational Criminal Law (London/New York: Routdlege) 377, at 377. " 4 A peculiar feature of money laundering is its inherent relationship with a preceding offence (predicate offence), the proceeds of which are subject to the laundering process: money laundering has been classified within the category of the so-called ancillary (derivative or after-the-fact) offence, the common characteristic of which is that they bear some kind of auxiliary relationship to primary harm crimes. See N Abrams, ‘The new ancillary offences’, 1(1) Criminal Law Forum, 1–39. " 5 See JD McClean, International Cooperation in Civil and Criminal Matters (Oxford: Oxford University Press, 2002), 261. " 6 See, ex multis, J Black, A Century of Conflicts. War 1914–2014 (Oxford: Oxford University Press, 2015), 173–4. " 7 For a fuller account of the different financial needs and risks posed by single terrorist cells and individuals compared to structured terrorist organizations see FATF, Emerging Terrorist Financing Risk (Paris: FATF, 2015), 7–43. " 8 Gilmore (n 3), 332. " 9 See, eg, D Chaikin and J Sharman, Corruption and Money Laundering: A Symbiotic Relationship (New York: Palgrave Macmillan, 2009), 15 and, for terrorist financing, A Aust, ‘Counter-terrorism: A new approach. The International Convention for the Suppression of the Financing of Terrorism’, in JA Frowein and R Wolfrum (eds), Max Planck Yearbook of United Nations Law 2001 (The Hague: Martinus Nihoff Publiser, 2002), 285, 294–5. " 10 See UN General Assembly Res. No. 66/177, 19 December 2011, Strengthening International Cooperation in Combating the Harmful Effects of Illicit Financial Flows Resulting from Criminal Activities, para. 2. " 11 M Pieth, ‘International standards against money laundering’, in M Pieth, and G Aiolfi (eds), A Comparative Guide to Anti-Money Laundering. A Critical Analysis of Systems in Singapore, Switzerland, the UK and the USA, (Cheltenham/Northampton: Edward Elgar Publishing, 2004), at 5. " 12 See C Fijinaut, ‘Transnational crime and the role of the United Nations in its containment through international cooperation: A challenge for the 21st century’, (2000) 8(2) European Journal of Crime, Criminal Law and Criminal Justice, 119–27. " 13 As B Unger, ‘Money laundering regulation: from Al Capone to Al Qaeda’, in B Unger and D van der Linde (eds), Research Handbook of Money Laundering, (Cheltenham/Northampton: Edward Elgar Publishing), 21. " 14 See, ex multis, V Mitsilegas, Money Laundering Countermeasure in the European Union. A New Paradigm of Security Governance Versus Fundamental Legal Principles (The Hague/London/New York: Kluwer Law International, 2003), at 18; WC Gilmore, Dirty Money. The Evolution of International Measures to Counter Money Laundering and the Financing Act of Terrorism (Strasbourg: Council of Europe, 2004) at 13. " 15 Through money laundering, criminals may pollute the whole economic environment and, eventually, integrate themselves and their businesses within local societies: the case of the boss of the drug cartel of Medellin, Pablo Escobar Gaviria, who, at the apex of his power during the 1980s, volunteered to adjust the Colombian public debt, is just the most notorious example of such contamination. For a vivid testimony of how money laundering is also used by criminal organizations to penetrate into the legal economy and proliferate as highly competitive organizations in legal businesses see Europol, Threat Assessment. Italian Organized Crime (The Hague: Europol, 2013), esp. 15. " 16 See further N Kyriakos-Saad, G Esposito, and N Schwarz, ‘The incestuous relationship between corruption and money laundering’, 2012 (83) Revue Internationale de Droit Pénal, 161–72. " 17 International Convention for the Suppression of Financing of Terrorism 1999, 39 International Legal Materials, 27 (2000), in force 10 April 2002. " 18 Unger (n 13), 21. " 19 For instance, in the guise of legal charity, donations are moved to sponsor terrorist organizations. While isolated terrorist attacks are usually relatively inexpensive, running and maintaining a terrorist organization require substantial financial means. Such funds can be collected in three main ways; (i) state sponsorship of terrorism (so called, state-financing); (ii) financing by business, charities, diaspora support, and other legitimate means; and (iii) private financing by unlawful means that include outright lawful means (eg drug trafficking; bank robberies; extortion; kidnapping; trafficking in cigarettes, weapons, human beings, or diamonds; and petty crime). " 20 See J Vervaele, ‘Economic crime and money laundering: A new paradigm for the criminal justice system?’ in Unger and van der Linde (n 13), 385–6. " 21 Unger (n 13), 20. The Taliban, for example, profited from the trafficking of opium and taxing the drug trade in areas under its control, and these funds were subsequently used to support terrorist organizations like Al Qaeda. See Resolution 1333/2000, adopted by the UN Security Council on 19 December 2000, S/Res/1333/2000. According to the United Nations Office on Drugs and Crime, estimates of the income derived by the Taliban from taxes levied on opium production range from $15 to $27 million per annum. See UN Doc. S/2001/511, para. 60. By the same token, the recent Resolution 2199/2015, adopted by the UN Security Council on 12 February 2015, S/Res/2199/2015 also underscores the possibility that terrorism is financed by the proceeds of organized crime and drug trafficking. " 22 The FATF is an ad-hoc body based at (but not forming part of) the Organization for Economic Cooperation and Development. It was founded in 1989, which, initially, consisted of developed countries but now includes strategically important developing countries as well. The FATF currently comprises 35 member jurisdictions (including 15 EU Member States) and two international organizations (the EU is represented by the Commission). It represents most major financial centres in all parts of the globe and can be rightly considered as the main global body that sets standards and supervises the fight against money laundering and terrorist financing. It relies on a combination of annual self-assessments and periodic mutual evaluations to do so. Despite FATF’s limited membership, its mutual assessment methodology has also been applied in other jurisdictions. FATF-style regional bodies (FSRBs) have been established in eight regions to promote the FATF standards outside of the 35 FATF members. These eight FSRBs work together with the actual FATF members to create a network of nearly 200 countries. WC Gilmore, Dirty Money: The Evolution of International Measures to Counter Money Laundering and the Financing of Terrorism (4th edn, Strasbourg: Council of Europe Publishing, 2011), 91, defines the FATF as ‘the single most influential international body in terms of formulation of Anti-Money Laundering policy and mobilization of global awareness of the complex issues involved in countering this sophisticated form of criminality’. " 23 See PA Schott, Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism (2nd edn, Washington DC: The World Bank/IMF, 2006), 5–36. " 24 For example, the CIA estimates that it cost Al Qaeda about US$30 million a year to sustain its activities before the 9/11 suicide attacks. See CIA, Final Report of the National Commission on Terrorist Attacks upon the United States (Washington DC: CIA, 2006), ch 5.4. It is of note that FATF experts found that, despite the non-financial aim of terrorism, little difference can be found between the sources of funding of terrorist and organized crime groups. See FATF, Report on Money Laundering Typologies (2001–2002), Doc. FATF-XII (2002) at 28. " 25 See further, Section III below. " 26 1999 International Convention for the Suppression of the Financing of Terrorism (n 17). " 27 See V Mitsilegas, ‘The European Union and the globalisation of criminal law’, in Cambridge Yearbook of European Legal Studies 2009–2010 vol 12 (Cambridge: Cambridge University Press, 2010) 337–407. " 28 Council Directive of 10 June 1991 on prevention and use of financial system for the purpose of money laundering, OJ L166, 28 June 1991, 77–82 (hereinafter: first AML Directive). " 29 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, in OJ L 141, 5 June 2015, 73–117, hereinafter: fourth AML/CFT Directive. " 30 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, in OJ L 141, 5 June 2015, 1–18. " 31 E Nadelmann, ‘Unlaundering dirty money abroad’, (1986) 18 Inter-American Law Review 33. " 32 See UNODC, Report on Financial Havens, Bank Secrecy, and Money Laundering (Vienna: UNODC, 1998), ch 1. " 33 H Shams, Legal Globalization. Money Laundering Law and Other Cases (London: The British Institute of International and Comparative Law, 2004) 11–13. " 34 See further D Masciandaro, ‘Money laundering: The economics of regulation’, (1999) 7(3), European Journal of Law and Economics 225–240. " 35 Gilmore (n 3), 345. " 36 Vienna, 20 December 1988, 1582 UNTS 95 (hereinafter: 1988 Drugs Convention) in force 11 November 1990. As of December 2015 it had attracted some 189 parties. " 37 DW Sproule and P Saint-Denis, ‘The UN Drug Trafficking Convention: An ambitious step’, (1989) 263 Canadian Yearbook of International Law 277–82. " 38 1988 Drugs Convention (n 36), Art. 3(1)(a). " 39 Gilmore (n 3), 333. " 40 See further Sproule and Saint-Denis (n 37), 270–7. " 41 See Gilmore (n 3), 334. " 42 For a fuller account of such key provisions see Gilmore (n 3), 334–5. " 43 1988 Drugs Convention (n 36), Art. 5(3). " 44 See E van der Does de Willebois, EM Halter, RA Harrison, J Won Park, and JC Sharman, The Puppet Masters. How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It (Washington DC: World Bank, 2011). " 45 See JA Blum, M Levi, RT Naylor, and P Williams, Report on Financial Havens, Banking Secrecy and Money Laundering (New York: UN Office for Drug Control and Crime Prevention, 1998). " 46 In contrast with confiscation, the drafters of the 1988 text were able to build upon an established and developing international practice in this area in relation to which the Council of Europe had played a major role. " 47 Gilmore (n 3), 337. " 48 8 November 1990, ETS No 141 (hereinafter: Strasbourg Convention) in force 1 September 1993. For an overview of this treaty and its successor, the Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, 16 May 2005, CETS 198; in force 1 May 2008 (hereinafter: Warsaw Convention), see Gilmore (n 22), 175–95. " 49 Similarly, the 1988 Drugs Convention provided a precedent that was central to the early work of the FATF. " 50 United Nations Convention against Transnational Organized Crime, 15 November 2000, 2225 UNTS 209, in force 29 September 2003, hereinafter: UNCTOC. " 51 JD McClean, Transnational Organized Crime. A Commentary on the UN Convention and its Protocols (Oxford: Oxford University Press, 2007), 69. " 52 McClean (n 51), 92–108. " 53 McClean (n 51), 69–73. " 54 UNCTOC (n 50), Art. 6(2)(c). " 55 UNCTOC (n 50), Art. 6(2)(e). " 56 See the 1990 Forty Recommendations of the Financial Action Task Force on Money Laundering, available at: http://www.fatf-gafi.org/, (accessed 15 December 2015), Recommendation 7. " 57 UNCTOC (n 50), Art.10(2). " 58 Gilmore (n 3), 339. " 59 McClean n (51), 126–9. " 60 United Nations Convention Against Corruption, 31 October 2003, 2349 UNTS 41, in force 14 December 2005. Italy ratified the UNCAC on 5 October 2009 (hereinafter: UNCAC). " 61 M Arnone and L Borlini, Corruption. Economic Analysis and International Law (Cheltenham/Northampton: Edward Elgar Publishing, 2014) 426–9. " 62 See Gilmore (n 3), 340. " 63 See Arnone and Borlini (n 61), 490–2. " 64 International Convention for the Suppression of the Financing of Terrorism (n 17), Art. 2(1). " 65 The absence of a shared definition of terrorism in a widely known lacuna of international law. See, ex multis, E Greppi, ‘Terrorism under international law: UN and EU definition issues’, in M Pedrazzi, I Viarengo, and A Lang (eds), Individual Guarantess in the European Judicial Area in Criminal Matters (Brussels: Bruylant, 2011), 11; C Focarelli, ‘Brevi note sul problema della definizione del terrorismo internazionale’ in M Meccarelli, P Palchetti, and C Sotis (eds), Le regole dell’eccezione. Un dialogo interdisciplinare a partire dalla questione del terrorismo, (Macerata: EUM, 2011), 313–21. " 66 See Aust (n 9), 288–98 and I Bantekas, ‘The international law of terrorist financing’, (2003) 97 American Journal of International Law, 315 e ss. " 67 See International Convention for the Suppression of the Financing of Terrorism (n 17), Art. 2(1)(a) and (b). " 68 Gilmore (n 3), 341 and Aust (n 9), 295–6. " 69 See International Convention for the Suppression of the Financing of Terrorism: Message from the President of the United States, 106th Congress, 2nd Session, Senate, Treaty Doc. 106–49, VII. " 70 International Convention for the Suppression of the Financing of Terrorism (n 17), Art. 2(3). " 71 See also Bantekas (n 66), 325. " 72 On the comprehensive scope of the UN’s strategy to combat terrorism see United Nations, General Assembly, UN Doc. A/RES/60/288, 8 September 2006, The United Nations Global Counter-Terrorism Strategy. " 73United Nations Global Counter-Terrorism Strategy (n 72), 315. " 74 See Resolution 1373(2001) adopted by the Security Council, on 28 September 2001, S/Res/1373/2001. " 75 Focarelli (n 65), at 315–20. " 76 See, respectively, Resolution 1617(2005) adopted by the Security Council on 29 July 2005, S/Res/1617/2005 and Resolutions 2253(2015) adopted by the Security Council on 17 December 2015, S/Res/2253/2015. " 77 FATF, International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations, adopted in 2012 and updated in 2013 and 2015, available at: http://www.fatf-gafi.org/, (accessed 2 February 2016) (hereinafter: the FATF Recommendations). " 78 The FATF Recommendations are, therefore, a peculiar case of soft law, at least insofar as this expression is meant as referring to ‘any international instrument other than a treaty containing principles, norms, standards, or other statements of expected behaviour’. See D. Shelton, ‘International law and “relative Normativity”’, in MD Evans (ed.), International Law, (Oxford: Oxford University Press, 2003), 145–72, at 166. On soft law, see also, among others, I Brownlie, ‘To what extent are the traditional categories of Lex lata and Lex Ferenda still viable?’ in A Cassese and JHH Weiler (eds), Change and Stability in International Law-Making, (Berlin and New York: de Gruyter, 1988), 66; F Francioni, ‘International “Soft Law”: A contemporary assessment’, in V Lowe and M Fitzmaurice (eds), Fifty Years of the International Court of Justice: Essays in Honour of Sir Robert Jennings, (Cambridge: Cambridge University Press, 1996), 167 ff.; C Chinkin, ‘The challenge of soft law: Development and change in international law’, (1989) 38 The International & Comparative Law Quarterly 850 ff. " 79 See Gilmore (n 3), 342–5; S Gadinis, ‘Three Pathways to Global Standards: Private, Regulation and Ministry Networks’, (2015) 109(1) American Journal of International Law, 28–32. " 80 Transformation of soft law into conventional law is not a rare occurrence. For further considerations on this specific kind of ‘hardening’ of soft law see T Treves, International Law: Achievements and Challenges, mimeo, 2006, 137–9. " 81 See among others, Vervaele (n 20), 387–90. " 82 The two groups of measures are strongly inter-twined. For example, as also emphasized by Recital 7 of the Third EU AML Directive, a definition of money laundering based on a broad range of predicate offences ‘facilitates the reporting of suspicious transaction and international cooperation in this area’, that it to say one of the most typical obligations of the AML/CFT preventive strategy. See 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, OJ L 309, 25/11/2005, 15–36 (Hereinafter: third AML/CFT Directive). " 83 V Mitsilegas and B Gilmore, ‘The EU legislative framework against money laundering and terrorism finance: A critical analysis in the light of the evolving global standards’, (2007) 56(1) International & Comparative Law Quarterly, 135. While all EU AML directives have been justified as necessary to implement the FATF Recommendations in the Union legal order, when looking at FATF membership today, it is striking that only the 15 ‘old’ EU Member States, along with the Commission, are full FATF members. Although they are all members of MONEYVAL (the Committee of Experts on the Evaluation of Anti-Money Laundering Measures, established in 1997 under the auspices of the Council of Europe), indeed, none of the 12 Member States which joined the EU in 2004 and 2007 is a FATF member. This fragmentary membership means that the Union’s executive, the European Commission, can have an influence together with certain Member States, in the shaping of FATF standards and ensuring compliance with these standards, ‘but that participation in regional fora such as the Council of Europe is equally important for the EU in order to put forward a further layer of compliance with global standards—with MONEYVAL benchmarks are not limited to Council of Europe standards but also include FATF, UN and EU anti-money laundering standards’. " 84 Mitsilegas and Gilmore (n 83), 136, recall that: ‘(w)hile the Commission originally proposed that money laundering should be treated as a criminal offence under the Directive, Member States reacted in the Council, taking the view that the Community had no such competence’. " 85 Mitsilegas and Gilmore (n 83), 136. " 86 Mitsilegas (n 14), 65. " 87 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, in OJ L 344, 28 December 2001, 76–82 (hereinafter: second AML Directive). " 88 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, in OJ, L 127/39. " 89 EU Commission, ‘Indicative Roadmap for a Proposal to harmonize the criminal offence of money laundering in the EU’, tabled in October 2012, available at: http://ec.europa.eu/smart-regulation/impact/planned_ia/docs/2013_home_006_money_laundering_en.pdf, (accessed 18 November 18 2015). " 90 EU Joint Action on money laundering, the identification, tracing, freezing and confiscation of the instrumentalities and the proceeds of crime, OJ L333, 9/12/1998. " 91 Strasbourg Convention (n 48), Art. 1(e), italics added. " 92 2001/500/JHA: Council Framework Decision of 26 June 2001 on money laundering, the identification, tracing, freezing, seizing and confiscation of instrumentalities and the proceeds of crime, in OJ L 182, 5 July 2001, 1–2. " 93 2005/212/JHA: Council Framework Decision of 24 February 2005 on Confiscation of Crime-Related Proceeds, Instrumentalities and Property, in OJ L 68, 15 March 2005, 49–51. " 94 See fourth AML/CFT Directive (n 29), Art. 1(3). Essentially, the Directives includes any manipulation of property derived from the predicate offences, whether to conceal its origin, location, disposition, movement, ownership, or any other rights with respect to the property. " 95 Fourth AML/CFT Directive (n 29), Art. 1(4). " 96 Fourth AML/CFT Directive (n 29), Art. 3(4). " 97 Convention Drawn up on the Basis of Article K.3 of the Treaty on European Union, on the Protection of the European Communities’ Financial Interests in OJ C 316, 27 November 1995, 49–57. " 98 See RA Johnson and S Sharma, ‘About Corruption’ in RA Johnson (ed), The Struggle against Corruption: A Comparative Study,(New York: Palgrave Macmillan, 2004), 1–19. " 99 On the malleable notion of ‘organized crime’ in the EU legal system and the possible of legal certainty it raises see F Calderoni, ‘A Definition that Could Not Work: the EU Framework Decision on the Fight against Organised Crime’, (2008) 16 European Journal of Crime, Criminal Law and Criminal Justice 265. " 100 See also D Langlois, ‘The revision of the EU Framework to the Prevention of Money Laundering’, (2013) 3 Eucrim 97 and at 98 fn. 5. " 101 ‘Terrorist financing’ is defined as ‘the provision or collection of funds, by any means, directly or indirectly, with the intention that they 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 Articles 1 to 4 of Council Framework Decision 2002/475/JHA’. See Council Framework Decision 2002/475/JHA of 13 June 2002 on Combating Terrorism, in OJ L 164, 22 June 2002, 3–7, Arts. 1–4: the concept of terrorism offences is a combination of two elements: an objective element, as it refers to a list of serious criminal conducts, as defined by reference to national law, and a subjective element, as these acts shall be deemed to be terrorist offences when committed with a specific intent. " 102 As noted by Mitsilegas and Gilmore (n 83), 126 fn. 45, the difference with the UN Convention lies in the mens rea element, where the wording is slightly different (Art. 2(1) refers to ‘unlawfully and wilfully’ collecting), as well as, and more importantly, in what exactly constitutes terrorism. " 103 Mitsiligas (n 14), 110. " 104 Mitsiligas (n 14), 117. This seems also to be confirmed by the Deloitte Report to the European Commission, DG Internal Market and Services—Budget, Final Study on the Application of the Anti-Money Laundering Directive, Service Contract ETD/2009/IM/F2/90, 285. " 105 See EU Commission (n 89), 1–2. " 106 Whilst in several States, in fact, money laundering covers proceeds from a restrictively enumerated list of offences, others have opted for the laundering of open-ended categories of crime, identified through national standards, such as the type and the gravity of sanctions, the size of wealth it generates, the involvement of organized criminal groups, and whether the offence threatens the integrity of the financial sector. " 107 See E Herlin-Karnell, ‘EU competence in criminal law after Lisbon’, in A Biondi, P Eeckhout, and S Ripley (eds), EU Law after Lisbon (Oxford: Oxford University Press, 2012), 343. " 108 V Mitsilegas, EU Criminal Law (Oxford: Hart, 2009), 107–10. See also M Chaves, European Criminal Law: Reshaping Criminal Justice Across the European Union (London, Mimeo, 2009). " 109 See further M Bergtröm, ‘EU anti-money laundering regulation: Multilevel cooperation of public and private actors’, in C Eckes and T Konstadinides (eds), Crime Within the Area of Freedom, Security and Justice: A European Public Order (Cambridge: Cambridge University Press, 2011), 97. " 110 See, eg, Commission (n 92), 1, and European Parliament Resolution of 23 October on Organised Crime, Corruption and Money Laundering: Recommendations on Actions and Initiatives to be Taken, (final report) (2013/2107)(INI)). " 111 Council Framework Decision of 26 June 2001 (n 95). " 112 E Herlin-Karnell, The Constitutional Dimension of European Criminal Law (Oxford: Hart, 2012), 175–7. See also S Peers, EU Justice and Home Affairs 3rd edn, Oxford: Oxford University Press, 2011), 780–803; and S Miettinen, Criminal Law and Policy in the European Union (London/New York: Routledge, 2013), 145–75. " 113 Chaves (n 108). " 114 M Chaves, ‘EU’s harmonization of national criminal law: Between punitiveness and moderation’, (2015) 21(3) European Public Law, 544–5. " 115 D Chalmers, G Davies, and G Monti, European Union Law. Text and Materials (Cambridge; Cambridge University Press, 2014), 658. However, such development of EU criminal law—based on the premise that it ought to facilitate the mutual recognition of judicial decisions and other forms of mutual legal assistance—is not without obstacles: as Peers (n 112), 297 notes, ‘extensive harmonization in these sensitive areas … ends up with in the fire of constitutional objections and political obstacle to further development of this policy in practice’. " 116 See also Section II.B. " 117 The Action Plan on the Stockholm Program set priorities for the EU area regarding justice, freedom and security for the period 2010–14 (COM (2010) 171 final and 2010/C 115/01). " 118 EU Commission (n 89), 3. " 119 EU Commission (n 89), 3. " 120 European Commission, Report on the Application of the Third Anti-Money Laundering Directive. Frequently Asked Questions, MEMO/12/246, Brussels, 11 April 2012. " 121 See also A Met-Domestici, ‘The reform of the fight against money laundering in the EU’ (2013) 3 Eucrim, 90. " 122 V Mitsilegas and N Vavoula, ‘The evolving EU anti-money laundering regime. Challenges for fundamental rights and the rule of law’, (2016) 23(2) Maastricht Journal of European and Comparative Law, 61, 268–9. " 123 See further M Bergström, ‘Money laundering’, in V. Mitsilegas, M Bergström, and T. Konstadinides (eds), Research Handbook on EU Criminal Law (Cheltenham/Northampton: Edward Elgar, 2016), 335, 336–42. " 124 Bergström (n 123), 269. It is worth recalling that, whereas the use of Art. 114 TFEU as the sole legal basis for the fourth AML/CFT directive ensures maximum participation by EU Member States in its provisions, resorting to Art. 83(2) TFEU has constitutional implications including the granting to Member States of the possibility of triggering an emergency brake in negotiations, the non-participation of Denmark in the adoption of the instrument and the possibility of an opt-out for the United Kingdom and Ireland. " 125 Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC, and 2004/72/EC, [2014] OJ L 173/1; and Directive 2014/57/EU of the European Parliament and of the Council of 16 April 2014 on criminal sanctions for market abuse [2014] OJ L 173/179. However, Mitsilegas and Vavoula (n 122), 267, noting that the Fourth AML/CFT Directive adds to the proliferation of the list of relvant predicate crimes ‘by expressly requiring Member States to treat tax offences as predicate offences. This expansive approach raises a number of questions regarding the observance of the principle of legality at EU level and the extent to which legislative and policy choices in the fields may lead to uncritical over-criminalization.’ On the concept of over-criminalization see D Husak, Overcriminalization. The Limits of the Criminal Law (Oxford University Press, 2007). " 126 E Herlin-Karnel, ‘The Lisbon Treaty and the Area of Criminal Law and Justice’, (2008) 3 European Policy Analysis, 1, 9, discussing the Third AML/CFT Directive. " 127 N Lacey, ‘Historicising criminalisation: Conceptual and empirical issues’, (2009) 72 Modern Law Review, 936, at 946. " 128 European Commission, Proposal for a Directive of the European Parliament and of the Council on combating terrorism and replacing Council Framework Decision 2002/475/JHA on combating terrorism, Brussels, 2 December 2015 COM(2015) 625 final 2015/0281 (COD), Art. 11. " 129 European Commission, Communication on an Action Plan for strengthening the fight against terrorist financing, COM(2016) 50/2, 2 ff. " 130 M Van den Broek, Preventing Money Laundering: A Legal Study on the Effectiveness of the Supervision in the European Union (The Hague: Eleven International Publishing, 2015), 16. " 131 Van den Broek (n 130). " 132 European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC, Brussels, 5 July 2016 COM(2015) 550 final 2016/0208 (COD); hereinafter: proposal for amending the fourth AML/CFT directive. " 133 The CJEU has clearly stated that measures adopted on the basis of Art. 114 TFEU must genuinely have as their object the improvement of the conditions for the establishment and functioning of the internal market. See C-376/98 Germany v Parliament and Council (Tobacco Advertising), (2000) ECR I-8419, para. 83. " 134 While the Directive 2015/489 enjoys pride of place in the efforts of the Union to prevent ML and to curb TF, it is not comprehensive in its coverage. The Directive and Regulation 2015/847 are part of a broader set of legislative measures including Regulation 1889/2005 on cash controls (OJ L309, 21 November 2005, 9), which requires persons entering or leaving the EU to declare cash sums they are carrying if the value amounts to €10,000 or more); EU Council Decision 2000/642 concerning arrangements for cooperation between financial intelligence units of the Member States in respect of exchanging information (OJ L271, 24 October 2000, 4); Directive 2007/64/EC on payment services in the internal market (OJ L319, 5 December 2007, 1); and a number of EU legal instruments imposing sanctions and restrictive measures on governments of third countries or non-state entities and individuals. " 135 See in particular European Commission (n 120). " 136 Fourth AML/CFT Directive (n 29), Recital 4. " 137 See Mitsilegas and Gilmore (n 83), 119–22. " 138 The proposal of the Commission provided for an even lower limit of €7,500, but some Member States considered it as an inappropriate limitation to the use of cash. " 139 FATF Recommendations (n 77), Rec. No 22. " 140 FATF Recommendations (n 77), Rec. No 3. " 141 Fourth AML/CFT Directive (n 29), Art. 3.4(f). " 142 The main caveat is that the complexity of national tax laws and their differences make it extremely problematic for professionals of the financial intermediaries and other designated subjects to analyse transactions and assess the risk level of related money laundering. " 143 Langlois (n 100), 97. " 144 Mitsilegas and Vavoula (n 122), 270. " 145 Fourth AML/CFT Directive (n 29), Arts 20–23. " 146 Commission Directive 2006/70 EC of 1 August 2006 laying down implementing measures for Directive 2005/60 of the European Parliament and of the Council as regards the definition of ‘politically exposed person’ 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 L 214/29, 4 August 2006, Art. 2. " 147 On the extent to which a lawyer must contribute to AML/CFT obligations see Section IV.E below. " 148 The inclusion of all gambling providers was an important issue discussed during the negotiations of the proposed new directive. While all Member States seemed to agree on the extension of the obligations of the directive to gambling services beyond the mere casino sector, the exact scope of services to be included remained debated till a final compromise was reached in the fourth AML/CFT Directive (n 29), Art. 2(2), according to which: ‘With the exception of casinos, and following an appropriate risk assessment, Member States may decide to exempt, in full or in part, providers of certain gambling services from national provisions transposing the provisions of this Directive on the basis of the proven low risk posed by the nature and, where appropriate, the scale of operations of such services.’ " 149 Proposal for amending the fourth AML/CFT directive (n 132), Art.1. " 150 M Bergström, K Svedberg Helgesson, and U Mörth, ‘A new role for for-profit actors? The case of anti-money laundering and risk management’, (2001) 49(5), Journal of Common Market Studies, 1044. " 151 See Shams (n 33), 80. " 152 Earlier the focus was on enhancing the sanctioning power of regulators (ruled-based approach), whereas, since the adoption of the FATF Revised Recommendations in 2003—and, even more distinctly with their last revision in 2012—it has been commonly accepted that a greater role for self-regulation of the interested sectors and individual institutions is needed. " 153 P Costanzo, ‘The risk-based approach to anti-money laundering and counter-terrorist financing in international and EU standards’, in Unger and Van der Linde (n 13), 352. However, Mitsilegas and Vavoula (n 122), 274 claim that, whereas it remains to be seen whether such an approach will lead to a more effective AML/CFT framework ‘by granting a greater degree of discretion to the private sector, it may create a greater degree of legal uncertainty for those called upon to comply with the preventive anti-money laundering duties’. " 154 See EU Commission, Report from the Commission to the European Parliament and the Council on the Application of Directive 2005/60/EC on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing, COM (2012), 168 final, 11 April 2012. " 155 Fourth AML/CFT Directive (n 29), Arts 45–6. " 156 The Commission and Member States shall conduct periodic risk assessments on money laundering and terrorist financing risks, respectively, affecting the Internal Market and relating to cross-border activities and within national jurisdictions, with a view to devising regulatory and policy options (so-called ‘macro’ risk assessments). The underlying rationale is that in order to shape AML/CFT defences through regulation and policy, regard must be given to risk factors in the overall European or national context, as opposed to those related to specific situations which are to be performed by obliged subjects (so-called ‘micro’ risk assessments). See the fourth AML/CFT Directive (n 29), Arts 6–8. " 157 The Commission’s risk-assessments will take into account the joint opinion of the European Bank Authority, European Insurance and Occupational Authority, and the European Securities and Markets Authority. See Art. 6(5) Fourth AML/CFT Directive (n 29). " 158 Fourth AML/CFT Directive (n 29), Art. 13. " 159 Fourth AML/CFT Directive (n 29), Art. 3(6). " 160 Met-Domestici (n 121), 92. " 161 Fourth AML/CFT Directive (n 29), Arts 18–23. Further, Art. 24 requires Member States to prohibit credit institutions and financial institutions from entering into, or continuing, a correspondent relationship with a shell bank. " 162 Fourth AML/CFT Directive (n 29), Arts 15–17. " 163 Fourth AML/CFT Directive (n 29), Art. 15. " 164 European Council, Press Release, Anti-Money Laundering: Creating a Modern EU Framework Capable of Responding to New Threats, IP/12/357, available at: http://europa.eu/rapid/press-release_IP-12–357_en.htm?locale=en (Acccessed 25 October 2015). " 165 See further the proposal for amending the fourth AML/CFT directive (n 132), Art.18a. " 166 European Commission (n 129). Particularly, prepaid cards—that can be purchased online—offer an easy way to transfer funds while maintaining anonymity. " 167 See, ex multis, FATF, The Misuse of Corporate Vehicles Including Trust and Company Service Providers (Paris: FATF, 2006). " 168 FATF Recommendations (no. 77), Rec. No 24. " 169 Fourth AML/CFT Directive (n 29), Art. 30(1). Beneficial owners are natural persons who ultimately hold or control the customer and/or the natural person on whose behalf a transaction or activity is being conducted. In terms of data protection safeguards, these references point to the direction of data minimization and data quality principles without being accompanied by a specific list of the documents and data that would be adequate for the purposes of the fourth AML/CFT directive. " 170 See also Met-Domestici, (n 121), 93. " 171 Fourth AML/CFT Directive (n 29), Art. 30(3)–(5). " 172 Fourth AML/CFT Directive (n 29), Art. 30(36) " 173 Fourth AML/CFT Directive (n 29), Art. 30(4)(a)-(b). " 174 Fourth AML/CFT Directive (n 29), Arts. 30(4)(c), 31(4). The final text, thus, struck a compromise between the initial positions of those who demanded full transparency (such as the European Parliament, which voted 640–30 in favour of public registers, and some Member States, like Austria which favoured a central register and ful public access) and those who defended some secrecy for beneficial owners (some Member States led by Germany). On the possible amendments of such provisions, see the Commission’s proposal for amending the fourth AML/CFT directive (n 132), Arts 30 and 32a. " 175 Transparency International, ‘EU Agrees Money Laundering Transparency Reforms but Full Access Denied’, 17 December 2014, available at: http://www.transparencyinternational.eu/wp-content/uploads/2014/12/2014–12–17_PR-AMLD.pdf, accessed 14 January 2016. " 176 The proposal for amending the fourth AML/CFT directive (n 132), provides for some further clarifications on the concept of ‘legitimate interest’. According to recital 35: ‘The legitimate interest with respect to money laundering, terrorist financing and the associated predicate offences should be justified by readily available means, such as statutes or mission statement of non-governmental organisations, or on the basis of demonstrated previous activities relevant to the fight against money laundering and terrorist financing or associated predicate offences, or a proven track record of surveys or actions in that field.’ " 177 The proposal for amending the fourth AML/CFT directive (n 132) specifically addresses the issue of improving FIUs’ access to—and exchange of—information held by obliged entities. " 178 Fourth AML/CFT Directive (n 29), Art. 56. " 179 Fourth AML/CFT Directive (n 29), Art. 52. Due to the freedom left by the third EU AML/CFT Directive in this respect, in some Member States, FIUs are independent administrative bodies, whereas in others they are embedded within national police forces or in yet others they are departments within a ministry. Such differences, though not an impediment to the effectiveness of the AML/CFT mechanisms at the national level, may hamper European cooperation between FIUs. For instance, FIUs within the police may not be allowed to exchange information with their European counterparts without prior authorization from a prosecutor. " 180 Fourth AML/CFT Directive (n 29), Art. 51. " 181 Fourth AML/CFT Directive (n 29), Art. 59. " 182 Langlois (n 100), 97. " 183 Mitsilegas and Vavoula (n 122), 272. " 184 V Mitsilegas, ‘From overcriminalisation to decriminalisation—the many faces of effectiveness in European criminal law’, (2014) 15 New Journal of European Criminal Law, 415–24. " 185 Mitsilegas (n 108), 313. " 186 Case C-212/11, Jyske Gibraltar Ltd. v Administración del Estado, 2013, ECR, I-0000. " 187 Case C-305/05, Ordre des Barreaux Francophones et Germanophones v Conseil des Ministres, 2007, ECR, I-5305. " 188 Third AML/CFT Directive (n 82), Art. 22(2), italics added. " 189Jyske Bank Gibraltar Ltd., Case C-212/11 at para. 20. Territories regarded as tax havens and uncooperative territories were specified by Royal Decree 1080/1991 of 5 July 1991 (BOE No 167, of 13 July 1991, p. 233371), and by order ECO/2652/2002 of 24 October 2002 on the implementation of disclosure obligations in relation to operations with certain States to the Servicio Ejecutivo of the Commission for the prevention of money laundering and monetary offences (Orden ECO/2652/2002 por la que se desarrollan las obligaciones de comunicación de operaciones en relación con determinados países al Servicio Ejecutivo de la Comisión de Prevención del Blanqueo de Capitales e Infracciones Monetarias; BOE No 260 of 30 October 2002, p. 38033). Gibraltar is on this list. " 190Jyske Bank Gibraltar Ltd., para. 38. " 191Jyske Bank Gibraltar Ltd., at paras 45, 48, italics added. " 192Jyske Bank Gibraltar Ltd., paras 51, 54. " 193Jyske Bank Gibraltar Ltd., para. 60. " 194Jyske Bank Gibraltar Ltd., para. 62. " 195 Case 212/08, Zeturf Ltd. v Premier Ministre, 2011 ECR 1–5633, paras 45–46. " 196 See further Jyske Bank Gibraltar Ltd., Case C-212/11, paras 60–1. " 197Jyske Bank Gibraltar Ltd., paras 73–75. " 198Jyske Bank Gibraltar Ltd., para. 81. " 199 This will not change under the reinforced cooperation established by the Fourth AML/CFT Directive. See Section IV.D. " 200Jyske Bank Gibraltar Ltd., Case C-212/11, para. 83. " 201 See J Komarek ‘Legal professional privilege and the EU’s fight against money laundering’, (2008) 27 Civil Justice Quarterly, 13. " 202 Second AML Directive (n 87), Art. 6(3). " 203 See further fourth AML/CFT Directive (n 29), Recital 39. " 204 Fourth AML/CFT Directive (n 29), Art. 34 (1). " 205Ordre des Barreaux Francophones et Germanophones v Conseil des Ministres, Case C-305/05, 26 June 2007, para. 22. " 206Ordre des Barreaux Francophones et Germanophones para. 33. " 207Ordre des Barreaux Francophones et Germanophones para. 34. " 208 Fourth AML/CFT Directive, (n 29), Art. 34 (2). " 209 Opinion of Advocate General Maduro Case C-305/05, Ordre des Barreaux Francophones et Germanophone v Conseil des Ministres, 14 December 2016, E.C.R. 2007 I-05305, para. 78, italics added. " 210 See M Luchtman and R van der Hoeven, ‘Case C-305/O5 Ordre des Barreaux Francophones et Germanophones et al.v. Conseil des Ministres, Judgement of the Court of Justice of 26 June 2007, Grand Chamber; (2007) ECR I-5305’, (2009) 46 CML Rev, 2009, 301–18. " 211 M Stouten and A Tilleman, ‘Reporting duty for lawyers versus legal privilege—unresolved tension’, in Unger and van der Linde (n 13), p. 431. For istance, in ECtHR, Case No. 12323/11, Michaud v France, 6 December 2012, the ECtHR concluded that the obligation for lawyers to report suspicious transactions, being limited only to tasks performed by lawyers similar to those performed by other professions subject to the same obligation, does not constitute a disproportionate interference with the fundamental right of professional confidentiality, as protected by Art. 8 ECHR. " 212 Stouten and Tilleman (n 211), 431, who report the diverse interpretations of such a notion provided by different Member States’ courts and legislation. " 213 Fourth AML/CFT Directive (n 29), Art. 43 and Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, OJ, L 281, 23/11/1995, 0031–0050, Art. 13. " 214 European Data Protection Supervisor, (EDPS) Opinion of the European Data Protection Supervisor on a proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, and a proposal for a Regulation of the European Parliament and of the Council on information on the payer accompanying transfers of funds’, Brussels, 4 July 2013. " 215 Fourth AML/CFT Directive (n 29), Art. 41(1)-(3). " 216 Fourth AML/CFT Directive (n 29), Art. 40(1). " 217 Fourth AML/CFT Directive (n 29), Arts 39(1) and 41(4). " 218 Fourth AML/CFT Directive (n 29), Art. 32(4). " 219 Fourth AML/CFT Directive (n 29), Art. 39(4). " 220 See also EDPS (n 214), 15–6. " 221 Charter of Fundamental Rights of the European Union [2012] OJ C326/391. " 222 Mitsilegas and Vavoula (n 122), 281. " 223 Mitsilegas and Vavoula (n 122), 281 and EDPS (n 214), 14. " 224Digital Rights Ireland Ltd v Minister for Communications, Marine and Natural Resources and others and Kärntner Landesregierung and others, Joined Cases C-293/12 and C-594/12, (Grand Chamber), 8 April 2014, available at: http://curia.europa.eu/, accessed 12 April 2016. " 225 Opinion of Advocate General Cruz Villalón, delivered on 12 December 2013, Case C-293/12, available at: http://curia.europa.eu/, esp. paras 146–9, accessed 12 April 2016. AG Cruz Villalón remarked that ‘a human being lives out his existence over a period which is by definition limited where the past, his own history and in the final analysis his memory, and the present, the more or less immediate lived experience, the awareness of what he is in the process of living through, converge. (…) What appears unquestionable is the possibility of distinguishing between the perception of present time and the perception of the past. In each of those perceptions, an individual's awareness of his own life, his ‘private life’ particularly, as a ‘recorded’ life may play a part. Further, there is a difference according to whether that ‘recorded life’ is the one which is perceived as his present or the one which is experienced as his own history' (ib. para 146). He went on arguing that such considerations could be applied to the analysis of the proportionality of the data retention obligation as defined by the Data Retention Directive, maintaining that ‘if the principle of retaining all that personal documentation for a certain period of time is considered lawful, it remains to ask whether it is inevitable, that is to say, necessary, for it to be imposed on individuals over a period which covers not only ‘the present time’ but also ‘historical time'’ (ib. para 147). He then concluded that ‘[a]lthough the necessity of the interference in the dimension of present time seems to be sufficiently justified’, he found ‘no justification for an interference extending to historical time’, and that, in the various views defending the Data Retention Directive he did not find ‘any sufficient justification for not limiting the data retention period to be established by the Member States to less than one year’ (ib. para 149, italics added). " 226 Space precludes a full account of the case. See, further, among others, O Pollicino and M Bassini, ‘The Luxembourg sense of the internet: Towards a right to digital privacy?’ in G Ziccardi Capaldo, The Global Community Yearbook of International Law and Jurisprudence 2014(I), (Oxford: Oxford University Press, 2015), 223–46; A Vedaschi and V Lubello, ‘Data retention and its implications for the fundamental right to privacy. A European perspective’, (2015) 20 Tilburg Law Review, 14–34. " 227 Directive 2006/24/EC of the European Parliament and of the Council of 15 March 2006 on the retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks and amending Directive 2002/58/EC in OJ L 105/54, 13 April 2006 (data retention directive). " 228 The Court indeed assessed the proportionality of the Directive in light of its ‘material objective’—crime prevention—rather than its stated objective—market harmonization. See Digital Rights Ireland (n 224), paras 56–59. It is no secret that the legislative process that led to the adoption of the directive found strong impetus in the aftermath of the terrorist attacks in Madrid in March 2004 and in London in July 2005. See S Peers, ‘Background to the EU Data Retention Directive’(2014) in EU Analysis, available at: http://eulawanalysis.blogspot.it/2014/04/background-to-eu-data-retention.html, accessed 28 May 2016. " 229 Peers (n 228), para. 57. " 230 Peers (n 228), paras 56, 64. " 231 See Section II.B. " 232 See also EDPS (n 214), 14. " 233 Mitsilegas and Vavoula (n 122), 291. " 234 See European Commission (n 129), 4. " 235 Mitsilegas (n 108), 312. " 236 Peers (n 112), at 813–30. As documented, a new thrust for the adoption EU criminal instruments in the AML/CFT field has followed the publication of the Commission Action Plan for Strengthening the Fight against Terrorist Financing in February 2016. " 237 See European Commission, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, The European Agenda on Security, COM(2015)185 final. © The Author 2017. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals-permissions@oup.com
TI - Regulating Criminal Finance in the EU in the Light of the International Instruments
JF - Yearbook of European Law
DO - 10.1093/yel/yew030
DA - 2017-01-01
UR - https://www.deepdyve.com/lp/oxford-university-press/regulating-criminal-finance-in-the-eu-in-the-light-of-the-0RGLA2y73x
SP - 553
VL - 36
IS - 
DP - DeepDyve
ER -