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3L3 AML Task Force Compendium Paper Summary

Executive Summary

This compendium paper provides an overview of the supervisory implementation practices of the Third Money Laundering Directive (2005/60/EC) across EU Member States. It highlights the differences in how customer due diligence (CDD) and customer identification and verification are applied, and includes a synopsis of the legal frameworks in place. The paper does not cover all obligations of the Directive, but focuses on the key areas of supervisory practice.

The application of CDD helps deter money laundering by ensuring financial institutions understand their customers and detect suspicious transactions. The data in this paper is based on two surveys conducted in 2008 by the 3L3 AMLTF, which includes responses from 27 EU Member States. Some Member States have not fully implemented the Directive, and their practices reflect earlier directives or are in the process of finalizing new legislation.

While the Directive has led to greater harmonization of AML/CTF frameworks, there are still technical differences due to varying legal traditions and interpretations of the risk-based approach. Identifying these divergences helps the AMLTF propose supervisory convergence and promote good practices.

Introduction

The AMLTF

The AMLTF supports CEBS, CESR, and CEIOPS in supervisory matters related to the Third AML Directive. Its focus is on practical solutions to issues arising from the daily application of AML/CTF rules. The AMLTF has identified the need for financial institutions to understand the legal and institutional frameworks in each Member State to ensure cooperation and manage reputation risk.

Development of EU Directives

• First Directive (91/308/EEC): Introduced customer identification obligations, particularly for opening accounts or offering safe custody.
• Second Directive (2001/97/EC): Expanded the scope to include non-face-to-face customers and required specific measures to address increased laundering risks.
• Third Directive (2005/60/EC): Detailed CDD requirements, including identification of customers and beneficial owners, understanding business relationships, and ongoing monitoring.

Supervisory Approaches

Differences in supervisory approaches across Member States are attributed to legal frameworks and varying traditions in implementing a risk-based approach. Some supervisors are more experienced in risk-based practices than others.

Implementation Status

As of the time of the review, a few Member States had not fully implemented the Third Directive. The paper includes their current practices and implementation plans. It may need updating once all Member States have completed the transposition.

Chapter 3: Survey on Customer Due Diligence Cross Border Issues

3.1 Introduction

The survey collected responses from 27 Member States regarding CDD at a group level. It highlights differences in the application of CDD measures, especially in cross-border contexts.

3.2 CDD Measures at a Group Level

• Global Information Use: Most Member States allow the use of global information from the entire group, with three encouraging a consolidated approach.
• Notification of Third Country Impediments: Only three Member States received notifications regarding the inability to apply equivalent CDD measures in Third Countries. Some require verification with the third country authority or the bank to take measures to overcome insufficiencies.
• Group-Wide Risk Management: Seventeen Member States require group heads to develop a consolidated CDD risk management approach. Two have proposed laws for this, while nine do not have a legal obligation but expect it during inspections.

3.3 Third Party Introduction / Reliance

• Authorized Third Parties:
  • Credit institutions: 25 Member States
  • Financial institutions: 22 Member States
  • Professionals: 18 Member States (auditors, accountants, tax advisors, notaries, etc.)
  • Trust and company service providers: 4 Member States
• Location of Third Parties: Most require third parties to be within the EEA or EU. Twenty-one recognize equivalent Third Countries, while some have agreements with them.
• Scope of Reliance: Twenty-two Member States allow third parties to handle customer and beneficial owner identification, ownership structure, and business purpose. Some limit this to specific parts of the Directive.
• Transmission of ID Documents: Six Member States require automatic transmission, while twenty-one expect it upon request. Most require copies or references of ID documents.
• Acceptance of Local CDD: Twenty-one Member States accept third-party CDD based on local laws if they are considered equivalent. Five require adherence to national CDD requirements.
• Non-Face-to-Face Identification: Seven Member States do not allow reliance on non-face-to-face identification by third parties. Twelve accept it, with eight requiring enhanced due diligence. Three plan to address this issue in the future.
• Ongoing Monitoring: Eleven Member States treat third-party identification as face-to-face, while seven consider it non-face-to-face and require additional measures.

3.4 Equivalence of Third Countries

• National Lists: Twenty-two Member States have published lists of equivalent Third Countries, some of which are in the process of updating. These lists are based on informal agreements, and some include overseas territories.
• Voluntary Lists: Some Member States have voluntary lists, and institutions are reminded that this is not a substitute for their own assessment.
• Self-Assessment of Equivalence: Seven Member States allow financial institutions to assess equivalence. Two require notification to competent authorities, while five do not but may be expected to justify decisions upon request. No notifications have been received yet.

3.5 Supervision of Foreign Entities

• Subsidiaries and Branches: All Member States apply local AML/CTF laws to foreign financial institutions’ subsidiaries and branches. Supervision of subsidiaries is integrated with broader supervision, while branches of EEA institutions have more limited oversight.
• Free Provision of Services: Eighteen Member States do not apply AML/CTF laws to foreign institutions under "free provision of services." Some allow voluntary reporting, while nine consider the host country’s laws fully applicable.

Chapter 4: Survey on Customer Identification Requirements (Face-to-Face Situations)

4.1 Introduction

This survey aimed to identify common minimum requirements for customer identification and verification in face-to-face situations. It includes data on what information is collected, verified, and recorded.

4.2 Overview of Survey Responses

• Common Data Collected: All Member States collect and record the first and last name of the customer.
• Variation in Identification Documents: ID cards are widely used, but not all. Data on ID cards varies significantly, and some Member States require additional documents.
• Additional Data Collected:
  • Date of Birth: Required in 25 Member States, with some using it for enhanced CDD.
  • Place of Birth: Recorded in 19 Member States, with some requiring it only when a national ID number is not available.
  • Purpose of Business Relationship: Required in 24 Member States, with some only applying it in enhanced CDD situations.

Key Findings

• Harmonization: The Third Directive has led to greater harmonization of AML/CTF frameworks.
• Divergences: Differences in interpretation and application of the Directive remain, especially regarding risk-based approaches and cross-border CDD.
• Supervisory Convergence: The AMLTF aims to identify good practices and areas for convergence to strengthen the European AML/CTF framework.
• Legal and Institutional Frameworks: Member States have varying legal and institutional structures, and financial institutions must be aware of these when operating cross-border.