EU Anti-Money Laundering legal framework: the race has started again…

by Dalila DELORENZI (FREE Group Trainee)

After two years, the revision of the new EU Anti-Money Laundering (AML) framework has finally come to an end. The 20th May the European Parliament at its second reading has adopted the Fourth Directive AML  (Directive (EU) 2015/849) along with the new Regulation on information on the payer accompanying transfers of funds (Regulation (EU) 2015/847).

The revision was triggered by the necessity to adapt the legal framework to counter new threats of money laundering and terrorist financing and to reflect recent changes due to revised Financial Actiont Task Force (FATF)  Recommendations. In the following lines the new legal framework is presented by including some crucial measures which could represent a real step-up in the fight against money laundering, financing terrorism and tax evasion.

  1. Introduction of an European register of beneficial ownership

The creation of an European register of beneficial ownership has been one of the sticking point and the reason why the text has attracted much more political attention than the latest directives and the negotiations have taken much longer than it was expected.

1.1 Definition of beneficial ownership and the problems caused by “phantom firms”

A beneficial owner  is a natural person – a real, live human being and not another company or trust – who stands behind a company (or trust) as the ultimate owner and controller, directly or indirectly exercising substantial control over the company or receiving substantial economic benefits (such as receipt of income) from the company. If the true owner’s name is disguised, we deal with “anonymous companies”. In a majority of countries, keeping unknown the true owner’s name is perfectly legal and there is typically no requirement to disclose that the names listed are merely front-people.

Such anonymous companies can be created by using “nominees”, people who front the company in place of the true owner, or by incorporating one or more of the companies in a country which does not make details of the beneficial owners publicly available. Also called “phantom firms”, they exist only on paper, with no real employees or office.

Now, it’s certainly true that such entities can also have legitimate uses, but the untraceable company can also be a vehicle of choice for crimes such as money laundering, tax evaders and financier of terrorism.

1.2 The role of anonymous companies in money laundering

Although there are countless ways to launder money, money laundering can be broken down into three stages:

  • Placement: the initial entry of illicit money into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account.
  • Layering: the second step consists in the process of separating the funds from their source. This purpose is often followed by using anonymous shell companies: for instance, wiring money to account owned by anonymous shell company.
  • Integration: money re-enter the legitimate economy. For instance, by investing the funds into real estate and luxury assets.
  • That being said, it is clear that these secretive “shell” companies and trusts play a central role in laundering and channelling funds, concealing behind a veil of secrecy the identity of corrupt individuals and irresponsible businesses involved in activities, including tax evasion, terrorist financing, and the trafficking of drugs and people. More precisely, it is impossible for law enforcement officials go back to the real individuals ultimately responsible for the company’s actions and to track the origin of illicit funds.
  • 1.3 The importance of central registers

Continue reading

VERFASSUNGSBLOG : Europe’s Justice Deficit

SEE ORIGINAL CONTRIBUTIONS HERE

The EU affects the lives of many people in ways they perceive as profoundly unjust. Lives are dramatically affected by the policies of austerity, widely understood to be EU-imposed. With the Court of Justice appearing to stand for its own authority and EU autonomy at any cost; with migrants attempting to reach fortress Europe and drowning en masse as the EU cuts back its rescue services; and with economic inequalities in the Member States reaching new heights, could it be that there is a justice deficit in Europe, exacerbated by the European Union? There is an urgent need to address the question of justice as an EU objective openly and without reservation, and not to permit nationalists and Eurosceptics to monopolize this debate. On the occasion of the newly launched book “Europe’s Justice Deficit?”, co-edited by EU constitutional law scholars Dimitry Kochenov, Gráinne de Búrca and Andrew Williams, we put this question up for debate.

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Summer School on The European Area of Criminal Justice (Brussels, 29 June – 3 July 2015)

NB: This Summer School is particularly designed for practitioners in the field of police cooperation and judicial cooperation in criminal matters, EU or national civil servants, as well as researchers and students interested in EU “Freedom, Security and Justice” policies.

Programme (See updated version here)

The 12th edition of the Summer School “The EU Area of Criminal Justice” will take place in Brussels from 29 June – 3  July  2015.

The objective of the Summer School is to provide participants with an extensive knowledge of EU criminal law. The classes are both theoretical and practical. They are conducted by academics, national experts or European officials who deal every day with the European criminal area.

The Summer School is specially designed for practitioners in the field of police and judicial cooperation in criminal matters, EU or national civil servants as well as researchers and students interested in the EU area of freedom, security and justice.

Concerning the programme: the Summer School takes place over a week, lectures are in English, participants receive a certificate of attendance, the final examination entitles participants to receive 3 ECTS and lawyers to gain 37 points from the OBFG (Ordre des Barreaux Francophones et Germanophone de Belgique).

The Summer School covers essentially 5 topics :

  • subject I (day 1): general introduction (historical evolution, institutional issues – Schengen included, judicial control – EU accession to ECHR included);
  • subject II (day 2): cooperation between national authorities in criminal cases, covering both police cooperation and judicial co-operation. The latter will address the evolution from classic judicial cooperation (Mutual Legal Assistance instruments) to mutual recognition instruments, with special attention to the  European Arrest Warrant;
  • subject III (day 3): approximation of criminal law, in theory and practice. Thus, following a class on the approximation of substantive criminal law, the example of financial crimes will be addressed. Similarly, the theoretical course on approximation of procedural law will be complemented with the study of the Directive on the right of access to a lawyer;
  • subject IV (day 4): current and future actors of the European criminal area, particularly Eurojust, Europol and the EPPO.
  • subject V (day 5): data protection and external dimension of the EU area of criminal justice. The Summer School will end with a negotiation exercise.

Special events during the Summer School:

  • Mid-week conference : “Foreign fighters – a criminal law revolution?” 

The conference will be chaired by Hans G. Nilsson (General Secretariat of the EU Council) and will count on speeches from illustrious practitioner and professors. For details, please download the programme on the right.

The Summer School is organised by the Institute for European Studies of the Free University of Brussels (IEE-ULB) in collaboration with the European Criminal Law Academic Network (ECLAN).

CHEERLEADING OR JUDGING? THE CJEU UPHOLDS THE EU’S UNITARY PATENT SYSTEM

ORIGINAL PUBLISHED IN EU LAW ANALYSIS

by Steve Peers

Two new CJEU judgments (here and here) have today upheld the legality of the EU rules on the unitary patent. To what extent are the Court’s reasons convincing and coherent?

Background

The background to today’s rulings was summarised in my previous blog post, on the Advocate-General’s opinion. Suffice it to say that: the EU has tried for decades to agree on patent rules, and the Treaty of Lisbon created a specific legal base for the adoption of EU intellectual property rules (Article 118 TFEU). The main rules are to be adopted by the ordinary legislative procedure (qualified majority voting in Council, joint power for the European Parliament), but the languages rules, which apply in this case to translations of the patent (or patent claims), must still be agreed by unanimity.

Since Member States could not reach the required unanimity on the patent translation rules, most Member States agreed to apply the process of ‘enhanced cooperation’, ie adopting EU legislation that applied to some Member States, but not others. This entailed a two-step procedure: authorisation of enhanced cooperation by the Council (by a qualified majority vote of all Member States), and then the adoption of the legislation to implement enhanced cooperation, with only the participating Member States voting. Spain and Italy challenged the initial authorisation (adopted in 2011) regarding patents, but the CJEU ruled against them in 2013. The two Regulations implementing enhanced cooperation in this area were adopted, in the meantime, at the end of 2012, concerning the substantive rules governing a ‘unitary patent’ and thelanguage rules.  Spain (this time without Italy) challenged these measures in turn; those two challenges are the subject of today’s judgment.

The EU legislation on this issue is closely linked to two international treaties. First of all, the European Patent Convention, agreed in 1973, which binds all EU Member States and a number of non-Member States, and which sets up a legal framework for registering a patent in a number of European countries, by means of an application to the European Patent Office which it established. This results in a ‘European patent’, but the legal title concerned is not genuinely uniform, but depends on the national law of each of the countries where the patent is registered. The point of the EU legislation is to create a form of European patent that will have uniform existence in all of the participating Member States, also reducing the costs of translation that would otherwise apply.

The second treaty concerned is a treaty among Member States creating a Unified Patent Court, in order to reduce the costs of litigation concerning European patents and the planned unitary patent. (Although the CJEU had objected to aspects of these plans in its Opinion 1/09, Member States believe that they have addressed the Court’s concerns). That treaty will come into force once thirteen Member States, including France, Germany and the UK, have ratified it. So far six Member States have, including France. The application of the EU’s unitary patent law is dependent upon this treaty coming into force, and the unitary patents will only be valid in Member States which have ratified the treaty (all Member States except Spain, Poland and Croatia have signed it; all Member States except Spain, Italy and Croatia participate in the Regulations).

The judgments

Spain’s legal arguments against the two EU Regulations differed somewhat. As regards the main Regulation, Spain argued that it was invalid because it created a unitary patent dependent upon the acts of the European Patent Office, whose acts are not subject to judicial review. Secondly, the Regulation did not create ‘uniform protection’ within the meaning of Article 118 TFEU. Thirdly, there is a ‘misuse of power’, ie enhanced cooperation was used for a purpose other than the Treaties allow for. Next, the Regulation breached the rules concerning the conferral of implementing power upon the Commission, because it gives power to the Member States to decide on issues such as renewal fees.

As regards the languages Regulation, Spain argued that the special status of the French, English and German languages set out in that Regulation was discriminatory. Also, it argues that there is no legal power for the EU to regulate language issues in the event of a dispute, as the Regulation does, and that the Regulation violates the principle of legal certainty.

In both cases, Spain argued that the rules on adopting implementing measures were invalid, since powers to implement EU law were granted to a non-EU body, the European Patent Office. Also, it argued that making the application of the Regulations dependent upon the ratification of the treaty creating the unified patent court breached the principle of the autonomy of EU law.

The CJEU has rejected all of these arguments. In its view, the main Regulation doesn’t violate the rule of law, since it simply takes the form of a ‘special agreement’ as provided for in the EPC. Secondly, the Court said that Article 118 TFEU was the correct legal base for the legislation, since it established a system of uniform protection for unitary patents. It did not matter that it referred to national law as regards some issues, since Article 118 does not require the EU to fully harmonise the particular intellectual property right at issue, and at least this provided for more harmonisation than the EPC, which is in effect a bundle of national patents. Thirdly, there was no ‘misuse of power’, since the Regulation did not secretly aim at a purpose other than its purported end. Next, it was acceptable for the Regulation to confer upon Member States the power (acting via their participation in the EPO) to implement its rules, since the EU Treaties only require implementing powers to be conferred upon the conditions where ‘uniform’ implementing measures were required. Nor did the Regulation violate the ‘Meroni principle’ of an impermissible delegation of discretionary powers. Finally, the Spanish government’s challenges relating to the unified patent court treaty were inadmissible, and its challenge to the rules on the timing of the application of the Regulation were rejected on the merits. The Court ruled that the EU is free to defer application of EU legislation until preparatory steps have been taken, and that limiting the application of the Regulation to those Member States which have ratified the unified patent court treaty was acceptable, since it only affected a few provisions of the Regulation.

As for the languages Regulation, the CJEU ruled that while it was discriminatory in principle to confine translations to three languages only, there was no rule of EU law that all EU languages have to be equally valid as regards all issues linked to EU law. The discrimination as regards languages could be justified by the need for reducing costs and therefore encouraging innovation. It was appropriate to use the three languages already used by the EPO, in light of the link between the EPO and the EU system, and the EU law was not disproportionate, in light of the rules in the Regulation designed to address the concerns of patent holders using other languages. The Court also ruled that the entire Regulation fell within the scope of the ‘legal base’ relating to languages issues, and that there was no breach of the principle of legal certainty.

Comments

The CJEU did not really rule on any of the many interesting questions about thesubstantive grounds governing the implementation of enhanced cooperation, simply because Spain did not raise them. However, the argument relating to discrimination touches indirectly upon those issues.

Parts of the Court’s ruling are convincing, particularly as regards the possibility of delaying the entry into force of EU laws to wait for other developments, the ‘legal certainty’ issues relating to the languages Regulation and the legal base issue regarding the same Regulation. However, with respect, some of its reasoning was only partially convincing. The Court’s case for using a limited number of languages is sensible only if one accepts its underlying premise that the unitary patent system will have the overall impact of enhancing innovation. Many critics of the patent system argue that it does the reverse, by giving an overly lengthy monopoly to the patent-holders. To be fair, though, it would be too much to expect the Court to enter into this argument, particularly since Spain did not raise it.

Similarly, the Court’s argument that the Meroni principle was not infringed is sensible enough – if one accepts its separate conclusion that the main Regulation validly conferred implementing powers upon Member States. But that conclusion brings us to the chain of contradictions in the Court’s reasoning. For the powers that Member States will exercise when implementing the unitary patent Regulations will not result in divergent approaches in each country’s individual national laws, as is normally the case when Member States are left with the powers to implement EU law in practice. Rather, they must exercise their powers collectively, to adopt uniform rules regarding the unitary patent, within the context of the EPO. Indeed, the Court’s other conclusionsinsist upon the uniform nature of that patent. This points us inexorably toward the conclusion that uniform rules to implement the Regulations were necessary – which means (according to the Treaties) that such powers ought to have been conferred upon the Commission.

For the same reasons, the Court’s dismissal of the argument against limiting the application of the main Regulation to those Member States which have ratified the unified patent court treaty is unconvincing. The Court is indeed right to say that this limitation affects only a few provisions of the Regulation – but these are the provisions relating to the uniform nature of the patent, which the Court relied on so heavily when it defended the legal base of this Regulation.

This stress on the uniform nature of the patent also contradicts the first part of the Court’s reasoning on the main Regulation, which deferred to the EPC system and argued rather that EU law did not alter that system at all. The Court did not adequately answer the argument that the EU lacked power to do this, and entirely side-stepped the important argument that the EPO should be subject to judicial review. This contrasts with the Court’s famous insistence in Kadi upon the need for adequate review of international bodies whose acts impact upon the EU legal order.

In the Court’s view, the unitary patent system is valid because it largely refers back to the EPO system, and also because it does not. With respect, the Court is trying to have its cake and eat it too. A better argument would have been to embrace the hybrid nature of the system rather than run away from it. After all, the drafters of the Treaty of Lisbon were well aware of the existence of the EPO. In light of the discussions on a possible EU patent which were underway when that Treaty’s predecessor (the Constitutional Treaty) was drawn up, a hybrid solution based on a combination of the EPO and EU law was presumably exactly what the Treaty drafters were aiming to facilitate when they added Article 118 TFEU to the Treaties.

Whether the Treaty drafters ought to have intended this is, of course, another question. But the best place for a debate about the fundamental merits of intellectual property protection is the political arena, not the courts. While today’s judgments confirm the legal validity of the EU’s unitary patent system, and enable it to go forward in the near future (after several more ratifications of the patent court treaty), their circular and contradictory reasoning suggests that the Court simply wanted to approve the patent system regardless of the legal arguments against. But this approach to judicial analysis could ultimately hinder, rather than bolster, the broader legitimacy of the unitary patent system.

THE UK IMPLEMENTS EU FREE MOVEMENT LAW – IN THE STYLE OF FRANZ KAFKA

ORIGINAL PUBLISHED ON EU LAW ANALYSIS 

Thursday, 19 March 2015

By Steve PEERS

Most laws are complicated enough to start with, but with EU Directives there is an extra complication – the obligation to transpose them into national law. A case study in poor transposition is the UK’s implementation of the EU’s citizens’ Directive, which regulates many aspects of the movement of EU citizens and their family members between EU Member States. Unfortunately, that defective implementation is exacerbated by a further gap between the wording of this national law and its apparent application in practice, and by the unwillingness of the EU Commission to sue the UK (or other Member States) even for the most obvious breaches of the law.

It’s left to private individuals, who usually have limited means, to spend considerable time and money challenging the UK government in the national courts. One such case was the recent victory in McCarthy (discussed here), concerning short-term visits to the UK by EU citizens (including UK citizens living elsewhere in the EU) with third-country (ie, non-EU) family members.  The UK government has just amended the national rules implementing the EU citizens’ Directive (the ‘EEA Regulations’) to give effect to that judgment – but it has neglected to amend the rules relating to another important free movement issue.

Implementing the McCarthy judgment

The citizens’ Directive provides that if EU citizens want to visit another Member State for a period of up to three months, they can do so with very few formalities. However, if those EU citizens are joined by a third-country family member, it’s possible that this family member will have to obtain a short-term visa for the purposes of the visit. The issue of who needs a short-term visa and who doesn’t is mostly left to national law in the case of people visiting the UK and Ireland, but it’s mostly fully harmonised as regards people visiting all the other Member States.

Although the EU’s citizens’ Directive does simplify the process of those family members obtaining a visa, it’s still a complication, and so the Directive goes further to facilitate free movement, by abolishing the visa requirement entirely in some cases. It provides that no visa can be demanded where the third-country family members have a ‘residence card’ issued by another EU Member State. According to the Directive, those residence cards have to be issued whenever an EU citizen with a third-country family member goes to live in another Member State – for instance, where a British man moves to Germany with his Indian wife. Conversely, though, they are not issued where an EU citizen has not left her own Member State – for instance, a British woman still living in the UK with her American wife.

How did the UK implement these rules? The main source of implementation is the EEA Regulations, which were first adopted in 2006, in order to give effect to the citizens’ Directive by the deadline of 30 April that year. Regulation 11 of these Regulation states that non-EU family members of EU citizens must be admitted to the UK if they have a passport, as well as an ‘EEA family permit, a residence card or a permanent residence card’. A residence card and permanent residence card are creations of the EU Directive, but an ‘EEA family permit’ is a creature of UK law.

While the wording of the Regulation appears to say that non-EU family members of EU citizens have a right of admission if they hold any of these three documents, the UK practice is more restrictive than the wording suggests. In practice, having a residence card was usually not enough to exempt those family members from a visa requirement to visit the UK, unless they also held an EEA family permit. Regulation 12 (in its current form) says that the family member is entitled to an EEA family permit if they are either travelling to the UK or will be joining or accompanying an EU citizen there. In practice, the family permit is issued by UK consulates upon application, for renewable periods of six months. In many ways, it works in the same way as a visa requirement.

An amendment to the Regulations in 2013 provided that a person with a ‘qualifying EEA State residence card’ did not need a visa to visit the UK. But only residence cards issued by Germany and Estonia met this definition. This distinction was made because the UK was worried that some residence cards were issued without sufficient checks or safeguards for forgery, but Germany and Estonia had developed biometric cards that were less likely to be forged.

In the McCarthy judgment, the CJEU ruled that the UK rules breached the EU Directive, which provides for no such thing as an EEA family permit as a condition for admission of non-EU family members of EU citizens with residence cards to the territory of a Member State. The UK waited nearly three months after the judgment to amend the EEA Regulations to give effect to it.

The new amendments cover many issues, but to implement McCarthy they simply redefine a ‘qualifying EEA State residence card’ to include a residence card issued by any EU Member State, as well as any residence card issued by the broader group of countries applying the EEA treaty; this extends the rule to cards issued by Norway, Iceland and Liechtenstein. Presumably this brings the rules into compliance with EU law on this point (the new rules apply from April 6th). That means that non-EU family members of EU citizens will not need a visa to visit the UK from this point, provided that they hold a residence card issued in accordance with EU law, because they are the non-EU family member of an EU citizen who has moved to another Member State. However, this depends also on the practice of interpretation of the rules, including the guidance given to airline staff.

Surinder Singh’ cases Continue reading

DENMARK AND EU JUSTICE AND HOME AFFAIRS LAW: DETAILS OF THE PLANNED REFERENDUM

ORIGINAL PUBLISHED ON EU LAW ANALYSIS

Tuesday, 17 March 2015

by STEVE PEERS 

Danish participation in cross-border criminal law measures is symbolised by ‘The Bridge’, the ‘Nordic Noir’ series about cross-border cooperation in criminal matters between Denmark and Sweden. But due to the changes in EU law in this field, that cooperation might soon be jeopardised. As a result, in the near future, Denmark will in principle be voting on whether to replace the current nearly complete opt-out on EU Justice and Home Affairs (JHA) law with a partial, selective opt-out. I have previously blogged on the implications of this plan in general terms, but it’s now clear exactly what this vote will be about.

First of all, a short recap of the overall framework (for more detail, see that previous blog post). Back in 1992, Denmark obtained an opt-out from the single currency, defence and aspects of JHA law (it’s widely believed that it also obtained an opt-out from EU citizenship, but this is a ‘Euromyth’). These opt-outs were formalised in the form of a Protocol attached to the EU Treaties as part of the Treaty of Amsterdam. The JHA opt-out was then amended by the Treaty of Lisbon.

At present, Denmark participates in: the EU policing and criminal law measures adopted before the entry into force of the Treaty of Lisbon; measures relating to the Schengen border control system (as  matter of international law, not EU law); the EU rules on visa lists (as a matter of EU law); and the EU’s Dublin rules on allocation of asylum applications, ‘Brussels’ rules on civil jurisdiction and legislation on service of documents (in the form of treaties with the EU). In contrast, Denmark does not – and cannot – participate in other EU rules on immigration and asylum law or cross-border civil law, or policing and criminal law rules adopted since the entry into force of the Treaty of Lisbon.

The Protocol on Denmark’s legal position either allows it to repeal its JHA opt-out entirely, or selectively. If it chooses to repeal the opt-out selectively, it would then be able to opt in to JHA measures on a case-by-case basis, like the UK and Ireland, although (unlike those states) it would remain fully bound by the Schengen rules. Indeed, those rules will then apply as a matter of EU law in Denmark, not as a matter of international law. Continue reading

Future of EU migration, home and justice policies. Some questions to the new candidates commissioners..

by Steve PEERS, Henri LABAYLE and Emilio DE CAPITANI

The would-be Commissioners for immigration and home affairs and Justice will shortly be questioned by Members of the European Parliament (MEPs) in hearings, to determine whether the EP should vote to confirm them in office. MEPs have already asked some written questions and the would-be Commissioners have replied. Since most of the written questions were not very searching (except for a couple of questions on data protection issues), the Commissioners did not reply in much detail. However, the hearings are an opportunity for MEPs to ascertain the Commissioners’ plans, and to secure important political commitments, in these fields. To that end, we have therefore suggested a number of oral questions which MEPs should ask in the hearings.

Immigration and asylum

The Commission consider that migration policy should be framed by the (non binding) objectives of the global approach to migration (GAMM) and relations with third countries should be dealt with by “Mobility Partnership” which are more diplomatic declarations than binding acts. Would you propose a binding legal basis for treaties with the countries concerned, grounded on Articles 77, 78 and 79 of the TFEU?

What actions will the Commission take to ensure that EU legislation in this field is fully and correctly implemented by the Member States?

Will the Commission propose an immediate amendment to the EU visa code, to confirm that Member States are obliged to give humanitarian visas to those who need them and who apply at Member States’ consulates in third countries?

When will the Commission propose EU legislation to guarantee mutual recognition of Member States’ decisions regarding international protection, including the transfer of protection?

When will the Commission make proposals for a framework for sharing responsibility for asylum-seekers and persons who have been granted international protection, starting with those who have applied outside the territory of the Member States?

Will the Commission propose an immigration code, and what will its main contents be?

The Court of Justice has recognised that search and rescue obligations are interlinked with external borders surveillance (Case C-355/10). The EU adopted rules in this field which governing only border control coordinated by Frontex. Do you intend to propose that such rules should apply to all Member States’ border controls as a general rule, by formally amending the Schengen Borders Code ?

What immediate and longer-term steps will the Commission take to address the death toll of migrants crossing the Mediterranean?

Will the Commission propose to amend the EU legislation on facilitation of unauthorised entry to confirm that anyone who saves migrants from death or injury during a border crossing, or who otherwise acts from humanitarian motives, is exempt from prosecution?

Internal Security and Police cooperation Continue reading