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European anti-money laundering developments

20 June 2012

The Law Society has called for the European Commission to maintain the flexibility of the risk-based approach in anti-money laundering and counter-terrorist financing (AML/CTF) compliance as they develop a 4th European Money Laundering Directive.

The Law Society has encouraged the Commission to:

  • reinforce the protection of legal professional privilege and professional secrecy
  • retain the flexibility of a risk-based approach to due diligence, especially for pooled client accounts held by solicitors
  • take a proportionate and practical approach to transparency of corporate entities and legal arrangements
  • support the involvement of professional bodies in supervising compliance with obligations, and
  • ensure that amendments to data protection requirements do not put firms at risk of being abused by criminals for the purposes of money laundering.

HM Treasury has also published its response to the Commission's consultation. They echo many of the Law Society's concerns around the need to retain flexibility of the risk-based approach, proportionality in corporate transparency initiatives and practicality in balancing competing interests in new data protection provisions.

The Commission is expecting to publish the text of a draft 4th Directive and accompanying impact assessment in October 2012. Any amendments are likely to be incorporated into UK law by the end of 2014.

The Law Society will continue to make representations on behalf of the profession, encouraging effectiveness and proportionality in proposed measures, throughout the development of the 4th Directive.

Read the Law Society's submission

On a related issue, the UK government has decided not to opt in to the draft European directive on the freezing and confiscation of the proceeds of crime.

The UK's reasoning for not opting in at this stage is based on the fact that the UK's regime goes beyond the minimum standards proposed in the draft directive and that the proposals would significantly restrict the operation of the UK's civil recovery regime.

James Brokenshire MP, in addressing the House of Commons on this decision on 12 June 2012, advised that in 2011-12 UK law enforcement agencies froze or recovered more than  1 billion of criminal assets. Non-conviction based confiscation powers under the civil recovery regime amounted for  20 million of those recovered assets.

He indicated that the UK will continue to contribute to negotiations on the proposed directive as the government is committed to promoting enhanced cross-jurisdictional recovery of criminal assets. The UK government may exercise their right to opt in at a later stage, should their key areas of concern be addressed.