Representatives of financial transactions services have criticised harshly the EU's draft legislation to fight money laundering which will go through its first parliamentary vote today (20 February) and enjoys the support of the anti-corruption champion, Transparency International.
The European Commission proposal, tabled in February last year, is aimed at tightening EU rules on financial transactions in a bid to step up the fight against money laundering and terrorism funding.
One of the main elements of the proposal is the introduction of a mechanism to name the beneficial owners of companies, in order to prevent the illicit activities which are often carried out under anonymity.
The proposal also includes requirements to increase customer due diligence and tightening the rules obliging financial companies to identify their clients and the legitimacy of their activities.
After months of talks, MEPs have agreed on a few amendments to the original text, which do not challenge the pillars of the proposal and are described as "balanced".
But the industry directly affected by its provisions is arguing that it may significantly increase costs without bringing the expected benefits.
A range of financial transactions companies, including Western Union, a money transfer service, PayPal, an online money transfer service, and MasterCard, a payment cards service provider, have also underlined in a conference held yesterday in Brussels that higher costs may reduce consumers' appetite to use their services.
They claim the text may have perverse effects by increasing underground financial activities or recourse to cash, which is an easier instrument for illegal transactions than electronic money.
Transparency International, the non-governmental organisation focused on countering bribery and graft, considers the current proposal "a major blow against corruption," according to its director for Europe, Carl Dolan.
Today, the economic and monetary affairs committee and the civil liberties committee of the EU Parliament will hold a joint meeting to approve the text agreed after months of talks.
The draft law is likely to be voted by the plenary of the European assembly before the European elections in May, but is unlikely to be agreed with EU member states within the mandate of the existing Parliament, as acknowledged by one of the rapporteurs of the text, MEP Krišj?nis Kari?š, from the centre-right European People's Party (EPP).
"Flows of dirty money can damage the stability and reputation of the financial sector, while terrorism shakes the very foundations of our society. Our aim is to propose clear rules that reinforce the vigilance by banks, lawyers, accountants and all other professional concerned," said the EU commissioner in charge of the Internal Market, Michel Barnier, at the launch of the legislative proposal.
MasterCard presented a study showing how disproportionate anti-money laundering legislation could affect financial inclusion of people who have no access to basic financial services, such as a bank account, and called for "simplified due diligence", according to Matthew Lanford, the Head of the prepaid department in Europe for MasterCard,.
"Upfront verification for players like us would be disproportionate," said PayPal Director Fabienne Weibel, arguing that the company carries out checks on its customers only after a certain number of transactions, because most of them deal with minor sums.
For Western Union, the revised directive, as it is now, "risks driving many remittance transactions underground," because is disproportionately increasing costs and requirements for legitimate providers of financial services, said Western Union Vice President Fabrice Borsello.
"Corruption around the world is facilitated by money laundering," argued Carl Dolan of Transparency International. "We very much welcome the proposed introduction of public registers of beneficiaries," he said underlining that the proposed legislation would be a valid tool against corruption.
The spread of international terrorism over the last 15 years has prompted a global tightening against money laundering activities which are often crucial to provide funding for terrorist activities.
The Financial Action Task Force, an inter-governmental body representing rich nations around the world, adopted in February 2012 new standards against money laundering and terrorism financing.
The new standards have been turned into a legislative proposal by the European Commission in February 2013 and have been debated by EU member states and the European Parliament for most part of 2013.
- Press release on proposals to tackle money laundering (5 Feb. 2013)
- Financial crime
- Draft directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (5 Feb. 2013)