EU: The EC Money Laundering Directive
| Pages | 68-73 |
| Published date | 01 March 1998 |
| Date | 01 March 1998 |
| DOI | https://doi.org/10.1108/eb027172 |
| Author | Richard Alexander |
| Subject Matter | Accounting & finance |
Journal of Money Laundering Control — Vol. 2 No. 1
EU:
The EC Money Laundering Directive
Richard Alexander
The Council Directive on prevention of the use of
the financial system for the purpose of money
laundering1 was passed on 10th June, 1991, and the
anti money laundering legislation of the Member
States of the European Union (EU) is now largely
based on it. It had its origins in the growing aware-
ness from the mid-1980s onwards that money
laundering was an international problem and
therefore international action was needed if it was
to be combated effectively. This had led to the
United Nations Convention Against Illicit Traffic
in Narcotic Drugs and Psychotropic Substances,
adopted in 1988 and generally referred to as the
Vienna Convention, and the Council of Europe
Convention on the laundering, tracing, seizure and
confiscation of the proceeds of crime, drawn up in
1990 and generally referred to as the Strasbourg
Convention. Both the Vienna and the Strasbourg
Conventions are explicitly referred to in the Pre-
amble to the Directive. Other activity had included
a study by the Financial Action Task Force
(FATF), which published its report, with recom-
mendations in 1991. That said, certain countries
had already taken some action against money laun-
dering: in the UK for example, the laundering of
the proceeds of drug trafficking had been a crimi-
nal offence, carrying up to 14 years' imprisonment,
since 1986.2
The reasons for the directive are explicitly stated
in the preamble. First, laundering of criminal pro-
ceeds through the banking system reduces the
credibility of the institutions involved and may
undermine the entire financial system. It should be
commented here that the FATF 1991 report
recommends that countries who are not seen to
take adequate action to prevent money laundering
should be regarded as inherently suspect and, as
such isolated from the international financial arena.
Secondly, a direct link is drawn between money
laundering and organised crime, in particular to
drug trafficking. This reflects the general concen-
tration of attention on drug trafficking as opposed
to other forms of serious crime. In the UK, for
example, a general ban on the laundering of the
proceeds of any crime was only introduced, in
response to the directive, in
1993.3
In France,
although the Penal Code contains a general ban on
money laundering,4 this is supplemented by provi-
sions specifically dealing with the laundering of the
proceeds of drug trafficking,5 which also provide
for rather stiffer penalties. But whether drug
traf-
ficking or not, all organised crime is identified in
the directive as being linked to money laundering.
This surely makes sense. The aim of most crime
is,
after all, to make money: indeed, criminals, par-
ticularly organised criminals, have been defined as
businessmen who choose not to play according to
the rules. Given that they will not wish to draw
attention to the fact that they are making money in
ways of which the law disapproves, yet at the same
time enjoy it, they will therefore need to find ways
of making their income look legitimate, ie launder
it. Organised crime without money laundering can
therefore simply not function, or at least not for
very long. There is also the aspect that many coun-
tries now have legislation providing for the confis-
cation of the proceeds of crime, making the
laundering of such proceeds from the point of
view of the criminals even more important.
Historically, the response to money laundering
has been by means of the criminal law: it is a
criminal offence and those who do it may be
prosecuted and sent to prison. It is worth recalling
at this point that it is not simply organised crimi-
nals who are forbidden to launder money: the pro-
hibition applies to all, whether natural persons (ie
individuals) or legal entities. This includes the
financial institutions themselves. Banks, their
directors or employees which are knowingly
involved in the money laundering operation will
therefore themselves commit the offence and be
criminally liable. (In those countries whose crimi-
nal justice systems do not allow for liability of legal
corporations, the directors, if they had knowledge
of the offence and certainly if they took an active
part, may be prosecuted.)
However, the directive recognises that this is
only of limited use. If a person is prepared to
commit predicate offences for which a substantial
prison sentence may be imposed, the fact that
laundering the proceeds is a further criminal
offence is unlikely to deter him. The directive's
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