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Summaries of EU Legislation

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Preventing money laundering by means of the financial system

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Preventing money laundering by means of the financial system

SUMMARY OF:

Directive 2005/60/EC on preventing the use of the financial system for money laundering and terrorist financing

SUMMARY

WHAT DOES THIS DIRECTIVE DO?

  • It seeks to prevent the financial and certain non-financial sectors from being used for money laundering and terrorist financing in line with Financial Action Task Force (FATF) global standards.
  • It sets out measures to establish the true identity of customers, report suspicious transactions and set up preventive systems within their organisations.

KEY POINTS

In addition to the financial sector, the directive applies to certain non-financial sectors including lawyers, notaries, accountants, estate agents, providers of gambling services, trust and company service providers, and to all providers of goods when payments are made in cash in excess of €15,000.

Among other things, those subject to the directive are required to:

  • identify and verify the identity of their customer (‘customer due diligence’) and of the beneficial owner*, and to monitor their business relationship with the customer,
  • report suspicions of money laundering* or terrorist financing* to the public authorities, normally the national financial intelligence unit,
  • ensure that personnel are properly trained and that appropriate internal preventive policies and procedures are set up.

The directive introduces additional requirements and safeguards (‘enhanced due diligence’) for situations posing a higher risk of money laundering and terrorist financing, for example, trading with correspondent banks situated outside the EU.

FROM WHEN DOES THE DIRECTIVE APPLY?

It entered into force on 15 December 2005. EU countries had to incorporate it into their national law by 15 December 2007.

In June 2015, the EU adopted Directive (EU) 2015/849. It repeals Directive 2005/60/EC from 26 June 2017.

BACKGROUND

For more information, see:

KEY TERMS

* Beneficial owner: the person(s) who ultimately owns or controls the customer on whose behalf a transaction is being carried out, e.g. in the case of a company, the owner of a sufficient percentage of the shares or votes.

* Money laundering: the conversion, by various means, of the proceeds of crime into apparently ‘clean money’, for example, by changing its form or by moving funds to a place where they are less likely to be under suspicion.

* Terrorist financing: the provision or collection of funds used to carry out any of the offences defined in Council Framework Decision 2002/475/JHA on combating terrorism, such as the drawing-up of false administrative documents and the leadership of a terrorist group.

ACT

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, pp. 15–36)

The successive amendments and corrections to Directive 2005/60/EC have been incorporated into the original text. This consolidated version is of documentary value only.

RELATED ACTS

Commission Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive 2005/60/EC 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 of 4.8.2006, pp. 29–34)

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 (OJ L 141, 5.6.2015, pp. 73–117)

last update 02.02.2016

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