The European Union money laundering Directive of 1991 has been replaced by a new Directive that extends the definition of money laundering beyond drugs-related offences to cover the proceeds of all serious crime. The amendments also extend the types of business that fall within the scope of the Directive. The Directive must be implemented in EU member states’ legislation by June 15, 2003.

Why do we need a new money laundering Directive?

There were a number of shortcomings with the Directive that the amendments seek to address. Also, it was felt that the Directive should be updated and extended in line with recent international developments in the anti-money laundering effort. The new Directive extends the definition of money laundering beyond drugs-related offences to all serious crime. This facilitates a wider scope for suspicious transaction reporting and more concerted international co-operation. Improved co-operation could contribute to increasing the relatively limited numbers of prosecutions, convictions and asset seizures based on suspicious transaction reports. Serious offences will include terrorism, armaments trafficking, fraud, illegal gambling, blackmail and robbery.

Who will the new Directive apply to?

The amendments expand the types of finance and insurance business falling within the scope of the Directive, and also extend it to a series of non-financial activities and professions that are vulnerable to misuse by money launderers. Requirements on client identification, record-keeping and reporting of suspicious transactions will be extended to external accountants and auditors, real estate agents, notaries, lawyers, dealers in high-value goods such as precious stones and metals or works of art, and casinos.

Will we need to change the way we do things?

For those credit and financial institutions already covered by the Directive, their anti-money laundering procedures will remain the same. However, such institutions should be aware that, since the definition of money laundering will extend to the proceeds of all serious crime, the requirements for customer identification and reporting of suspicious transactions will be wider and should be enforced more rigorously. If your business falls into one of the categories previously listed, then you will now be obliged by the Directive to follow the prescribed measures to counter money laundering. Briefly, you will be required to obtain identification of any customers when beginning a business relationship; when a single transaction or linked transactions exceed e15,000; keep records of all your dealings; report any suspicious transactions; develop employee awareness and capability through training; and appoint a compliance officer.

Is there anything else we need to plan for?

In line with international efforts to stamp out money laundering, there is much recent and prospective UK legislation, such as the Terrorism Act 2000 (reporting obligations for suspicions of terrorist funds), the Proceeds of Crime Bill and the Anti-Terrorism, Crime and Security Act 2001 (both introducing an objective test for suspicion – if you have reasonable grounds to suspect money laundering or funds intended for terrorism, it is an offence not to make a report even if you do not form a suspicion). Other member states of the EU will be strengthening their regimes. Both financial and non-financial institutions in Europe must ensure they are aware of any new obligations imposed and have efficient monitoring systems and infrastructures to deal with the changes. Training will be particularly important to ensure your personnel recognise suspicious signs. Businesses should also be aware of the recommendations of the Financial Action Task Force, which aim to cracks down on terrorist funding (www1.oecd.org/fatf). They must also be aware of any international sanctions, such as those promulgated in the wake of September 11.

Peter Stone is a commercial partner at London law firm Berwin Leighton Paisner