EU Directives

European Union
Directives on Money Laundering
M A Islam, CDCS, CSDG, CAMS Compliance Route

European Union (EU)
Definition
The modern EU was founded in the Treaty of Maastricht on European Union,

signed in 1992 and effective in 1993. The EU is a politico-economic union of
member states located primarily in Europe. Member states have set up three
common institutions (the European Parliament, the European Commission,
and the Council of the European Union) to which they delegate part of their
sovereignty so that decisions on specific matters of collective interest can be
made democratically at the European level. As a result, people, goods,
services and money flow freely through the EU.
European Union (EU)

Types of EU law
EU treaties
Treaties are the starting point for EU law and are known in the EU as primary law.
Regulations
Regulations are legal acts that apply automatically and uniformly to all EU
countries as soon as they enter into force, without needing to be transposed
into national law. They are binding in their entirety on all EU countries.
Directives
Transposition into national law must take place by the deadline set when the
directive is adopted (generally within 2 years). When a country does not transpose
a directive, the Commission may initiate infringement proceedings.
Decisions
Recommendations
Opinions Must Take place

European Union Directives on ML
The unique nature of the EU as a “community of states” makes it

fundamentally different from other international organizations.
The EU can adopt measures that have the force of law even without the
approval of the national parliaments of the various member states.
European law prevails over national law in the case of directives
EU Directives have far more weight than the voluntary

standards issued by groups.
FATF
Basel Committee
European Union Directives on ML
Like all directives adopted by the Council, it required member

states to achieve (by amending national law, if necessary) the
specified results.
Directive applies only to EU member states and not to

other countries

EU Directive
EU Directive on Prevention of the Use of the
Financial System for the Purpose of ML/TF
Definition
First adopted by the EU in June 1991 and updated in 1997, 2005, and 2015, the directive
requires EU member states to ensure that ML and TF are prohibited. The Directive
applies to a broad spectrum of entities, including FI, accountants, notaries, trust
companies, estate agents, and some providers of gambling services. Member states are
expected to identify and mitigate risks appropriately. They are to oversee FI and other
obliged entities, including establishing standards for CDD; prohibition of shell banking
relationships; establishing FIUs; developing standards for document retention; and
requiring consequences for failure to comply.

International AML/CFT Standards
European Union
1st EU Directive o (1991)
2nd EU Directive (2001)
3rd EU Directive (2005)
4th EU Directive (2015)
5th EU Directive (2018)

1st DIRECTIVE
“Prevention of the Use of the Financial System

for the Purpose of ML,” : 1991
1 Predicate offenses : Drug trafficking
1st Directive confined predicate offenses to ML to drug

trafficking as defined in Vienna Convention(1988). However,
member states were encouraged to extend the predicate
offenses to other crimes.
1st Directive required the members to enact legislation to

prevent their domestic financial systems from being used for
ML.

Q. What must EU member countries do with the EU Directives?
A EU members may transpose the Directives into law.
B EU members must transpose the Directives into law
C EU members and non-member must transpose the Directives into law.
D All of these

Q. What are the European Union Directives on Money Laundering?
A They are voluntary codes of best practice for the financial sector
B They are written by the Wolfsberg Group
C They require members to implement certain laws to prevent ML
D They require financial institutions to report suspicious activity to the

Egmont Group in Brussels

Q. Which statements are true regarding the European Union Money
Laundering Directives? Choose teo:
A They apply to all the European countries.
They require member states to enact laws to comply with the

B
directives
C They set forth non-binding best practices for financial

institutions within the member states
D They apply to member states of the European Union

Q. What did the EU First Directive on Money Laundering cover?
A Terrorist financing
B Corruption
C Drug Trafficking
D All of the above

Q. Which AML standards have force of law?
A FATF 40 Recommendations
B Standards as defined by the Wolfsberg Group
C Standards as defined by Egmont Group
D European Union Money Laundering Measures

2nd DIRECTIVE
In December 2001, the EU agreed on a Second Directive that amended the first one to require
stricter ML controls across the continent.
The following were the key features of the Second Directive:
1 Criminal activity : drug trafficking
2 AML coverage: MSB
3 Objective factual circumstances
4 Definition of Money Laundering
5 Widened: businesses and professions

2nd DIRECTIVE
1 Criminal activity : drug trafficking
The definition of “criminal activity” was expanded to cover not

just drug trafficking, but all serious crimes, including corruption
and fraud against the financial interests of the European
community.
2 AML coverage: MSB
It explicitly brought bureaux de change and money

remittance offices under AML coverage.

2nd DIRECTIVE
3 Objective factual circumstances
It clarified that knowledge of criminal conduct can be

inferred from objective factual circumstances.

2nd DIRECTIVE
 The conversion or transfer of property with knowledge that it is derived from criminal activity
or from participation in that activity, for the purpose of concealing or disguising the illicit origin
of the property, or assisting anyone who is involved in the commission of the activity to evade
the legal consequences of his action.
 Concealing or disguising the nature, source, location, disposition, movement, rights with
respect to, or ownership of property, knowing that the property is derived from criminal activity
or from an act of participation in that activity.
 The acquisition, possession or use of property, knowing, when it is received, that it was
derived from criminal activity or from an act of participation in the activity.
 Participation in, association to commit, the attempt to commit, and the aiding, abetting,
facilitating or counselling the commission of any of the mentioned actions.

2nd DIRECTIVE
5 Widened: businesses and professions
It widened the businesses and professions that are subject to the obligations of
the directive.
Certain persons, including lawyers when they participate in the

movement of money for clients, were required to report to authorities
any fact that might indicate ML.
Covered groups included: auditors, external accountants,

tax advisers, real estate agents, notaries and legal professionals

Q. What was not introduced into the scope of the EU Second
Directive on Money Laundering?
A Willful blindness
B Politically Exposed Persons
C Precise definition of laundering
D Bureaux de change and money transmitters

Q. What was the primary way in which the European Union’s Second Directive on
Prevention on the Use of the Financial System for the Purpose of Money Laundering
(2001) expanded the scope of the First Directive? Select the true sentence.
A Definition of “criminal activity” was expanded to cover not just drug

trafficking, but have no specification.
B Definition of “criminal activity” was expanded to cover not just drug

trafficking, but only one serious crimes that is corruption
C Definition of “criminal activity” was expanded to cover not just drug

trafficking, but only two serious crimes that are corruption and fraud
Definition of “criminal activity” was expanded to cover not just drug

D
trafficking, but all serious crimes, including corruption and fraud.

Q. According to the Second European Union Money Laundering Directive, what may
knowledge of criminal conduct be inferred from?
A Subjective factual circumstances
B Objective factual circumstances
C Objective non-factual circumstances
D Subjective non-factual circumstances

3rd DIRECTIVE
“Prevention of the Use of the Financial System for the Purpose of ML and TF”
Adopted 2005 : based on elements of FATF’s revised 40 R.
In line with FATF’s R., the Third EU Directive extended the scope of the 1st and 2nd directives by:
Defining “ML” and “TF” as separate crimes
Extending CI and SAR obligations
Detailing a RBA to CDD
Safe Harbour
Statistics
BO of A/C : 25%

3rd DIRECTIVE
“Prevention of the Use of the Financial System for the Purpose of ML and TF”
Adopted 2005 : based on elements of FATF’s revised 40 R.
In line with FATF’s R., the Third EU Directive extended the scope of the 1st and 2nd directives by:
Defining “ML” and “TF” as separate crimes
The directive’s measures were expanded to

cover not only the manipulation of money
derived from crime, but also the collection of
money or property for terrorist purposes.

3rd DIRECTIVE
3rd EU Directive extended the scope of the 1st and 2nd directives by:
Extending customer identification and SAR obligations
TCSP
Life insurance intermediaries
Dealers selling goods for cash payments of more than EUR 15,000
Detailing a RBA to CDD
The extent of due diligence that is performed on customers, whether

simplified or enhanced, should be dependent on the risk of ML /TF they pose.

3rd DIRECTIVE
Safe Harbour
Protecting employees who report suspicions of ML/TF. This provision

instructs member states to “do whatever is in their power to prevent
employees from being threatened.”
Statistics
Obligating member states to keep comprehensive statistics regarding the use of and
results obtained from suspicious transaction reports such as:
I.the number of STR filed;

II.the follow-up given to those reports;
III.the annual number of cases investigated,
IV.persons prosecuted and
V.persons convicted.
3rd DIRECTIVE
BO of A/C : 25%
Requiring all FI to identify and verify the “BO” of all A/C

held by legal entities or persons. “BO” refers to the natural
person who directly or indirectly controls more than 25
percent of a legal entity or person.

3rd DIRECTIVE
The Third ML Directive applies to:
I. Credit institutions.
II. FIs.
III. Auditors, external accountants and tax advisors
IV. Legal professionals.
V. TCSP
VI. Estate agents.
VII. High value goods dealers who trade in cash over 15,000 Euros.
VIII. Casinos.

3rd DIRECTIVE
The scope of the 3RD Directive differs from the 2ND Directive :
1 It specifically includes the category of TCSP
2 It covers all dealers trading in goods who trade in cash over EUR 15,000
3 The definition of FI includes certain insurance intermediaries

Q. What was introduced into the scope of the EU Third Directive on Money
Laundering ? Choose three
A Protection for employees reporting suspicious transactions
B Collection of statistics on suspicious transactions
C Fraud and other serious predicate crimes
D Life insurance intermediaries
E Objective factual circumstances

Q. Which three entities does the Third European Union Money
Laundering Directive apply to?
AA Financial Institutions
BB Real Estate Agents
C Virtual Currency Exchanger
D
D Casinos

Q. What are the following scope of the European Union’s Third Money Laundering
Directive differ from the Second Money Laundering Directive? Choose three
EU 3rd ML Directive covers all dealers trading in goods who trade in cash over
A 10,000 Euros
BB EU 3rd ML Directive specifically includes the category of TCSP
C EU 3rd ML Directive: the definition of financial institution includes certain insurance

intermediaries.
D EU 3rd ML Directive specifically includes the category of trust and company
EU 3rd ML Directive covers all dealers trading in goods who trade in cash over
EE
15,000 Euros

Q. In relationship to life insurance business, the third European Directive states that
Member States may allow the identity verification of the beneficiary under the policy
after the business relationship has been established, but before which events?
A At or before a premium payment has been accepted for the policy

purchased
B At or before the policy is issued to the beneficiary by the insurance

company
C At or before the time of payout or before the beneficiary intends to

exercise rights vested under the policy
D At or before 30 days of the relationship being established under the policy

4th DIRECTIVE
Directive (EU) 2015/849
and
of 20, May 2015
The prevention of the use of the financial system for the purposes of ML or TF
Effect on June 26, 2015.
Member states have 2 years from that date to adapt their

national legislations accordingly.
This directive repealed the 3rd Directive and its

predecessors.

Changes in the 4th ML Directive :
1 Increased Scope 9 PEPs
2 Casinos 10 Third parties for CDD
11 Beneficial Ownership
3 CDD
12 Statistical Data
4 New definitions
13 Group-wide policies
5 Tax crimes
14 Penalties
6 Occasional Financial activity 15 Cooperation Rule
7 Report Submission 16 Directive VS Regulation
8 High-risk third countries 17 Risk Assessment

1
4th DIRECTIVE
Increased Scope
The threshold for entities obliged to report suspicious transactions

(i.e., persons trading in goods or carrying out transactions)
decreased from EUR 15,000 to EUR 10,000.

Casinos
The scope of obliged entities was enlarged from just casinos to all
“providers of gambling services”

4th DIRECTIVE
3
CDD
CDD is to be applied for Fund Transfer exceeding EUR 1,000.

4th DIRECTIVE
4
New definitions
Correspondent relationship
PEP’s family members and persons known to

be close associates.
Senior management and others

4th DIRECTIVE
5
Tax crimes
Tax crimes relating to direct and indirect taxes are included in the
broad definition of ‘criminal activity’, in line with the revised FATF
Recommendations.
Changes in the 4th ML Directive : Occasional Financial activity
An explanation of “financial activity on an occasional or very limited

basis” was included.

7
4th DIRECTIVE
Report Submission
The European Commission must submit a report every two

years on the findings of the risk assessment of ML/TF affecting
the internal Market.
8
Changes in the 4th ML Directive : High-risk third countries

deficiencies
The EU executive is also in charge of identifying third-country

strategic
jurisdictions having strategic deficiencies with regard to AML and

CFT (i.e., “high-risk third countries”).

4th DIRECTIVE
9

PEPs
EDD should be applied to every PEP whether the

individual is a domestic or third-country citizen.
The risk these persons’ pose was extended to 12 months

and measures they are subject to must also applied to
their family members and their known close associates.

10
4th DIRECTIVE
Third parties for CDD
For groups (and their branches and subsidiaries) this

directive sets the criteria for adequate compliance related
to third parties for CDD.

11
4th DIRECTIVE
Beneficial Ownership
New requirements regarding Beneficial Ownership information have been

introduced
Particularly for trusts and similar legal arrangements.
Subject to data protection rules, this information
Must be held in central registers in each member state

Must be made
 Competent authorities
available
to
 FIUs obliged entities

 Any person with legitimate interest
12 4th DIRECTIVE
Statistical Data
Data in the statistics relevant to the effectiveness of

systems to combat ML/TF were enlarged to include
Size and importance of sectors
Number of cross-border requests for

information dealt with by FIUs

13
4th DIRECTIVE
Group-wide policies and procedures
Obliged entities that are part of a group are required to

implement group-wide policies and procedures as well as
to take measures proportionate to their risks.
Criminals or their associates, convicted in relevant

Convicted areas, are prevented from holding management
Prevent Criminals functions or indirectly controlling certain obliged entities.

14 4th DIRECTIVE
Penalties
Administrative sanctions
With regard to penalties for breach of the provisions, the set of

administrative sanctions and measures now range from
“name and shame” to withdrawal of authorization.
Pecuniary sanctions
Pecuniary sanctions for natural persons are set to at least

EUR 5M or 10% of the total annual turnover for entities.

15 4th DIRECTIVE
Cooperation Rule
An entire section of the directive is dedicated to the rules for

cooperation among Member state
FIUs
European Supervisory Authorities (ESAs)
EU Commission

16 4th DIRECTIVE
Directive VS Regulation
Because it is a directive and not a regulation, this legislative act

gives some discretion to member states on the application of the
provisions.

17 4th DIRECTIVE
Risk Assessment
At the national level, the directive requests that member

states conduct An ML/TF risk assessment as well as Designate
a responsible authority.
Moreover, they must ensure that obliged entities take

appropriate steps to identify and assess their own risks.

17 4th DIRECTIVE
Risk Assessment
Non-exhaustive lists of potentially lower and higher risks are provided for guidance in
these risk assessments and are based on :
Customer risk factors, such as

Public administrations versus Cash-intensive businesses.
Product/ service, transaction or delivery channel risk factors, such as

Low premium insurance policies versus Private banking.
Geographical risk factors, such as

Member states versus Countries subject to sanctions.

Q. Pursuant to the Fourth European Union Money Laundering Directive,
how long after being out of prominent office should a person NOT be
considered to be a Politically Exposed Person (PEP)?
A 1 year
B 2 years
C 3 years
D 5 years

Q. Which of the EU directives on money laundering defined “money
laundering” and “terrorist financing” as separate crimes?
A First
B Second
C Third
D Fourth

Q. According to the EU 4th Directives, CDD is to be applied for Fund
Transfer when exceeding which of the following threshold?
A EURO 500
B EURO 1000
C EURO 3000
D EURO 10000

Q. According to the EU 4th Directives, which of the following threshold
for entities (i.e., persons trading in goods or carrying out transactions)
obliged to report suspicious transactions?
A EURO 500
B EURO 1000
C EURO 3000
D EURO 10000

Q. Which three of the following statements are true in respect of the
Fourth EU Anti-Money Laundering Directive?
A Member countries can decide when and if the incorporate it

into their own local laws.
B It repeals and replaces the Third EU Directive on Anti-

Money Laundering
C The beneficial owner is defined as having a minimum of

25% direct or indirect ownership of the company.
D The definition of a PEP is expanded to include domestic

persons.

Q. According to the EU Directives an independent legal professional is
obligated to report suspicion of money laundering in a client
relationship when:
A Representing a client in a legal matter.
B Ascertaining the legal position for a client.
C Participating in financial or corporate transactions.
D Obtaining information associated with a judicial proceeding.

Q. Which three statements are true about the 4th EU Directive on Money Laundering?
It:
A The threshold for entities obliged to report suspicious transactions

decreased from EUR 15,000 to EUR 10,000
B Repeats the definition of a politically exposed person in previous

Directives.
C New requirements regarding Beneficial Ownership information have been

introduced. Particularly for trusts and similar legal arrangements
D CDD is to be applied for Fund Transfer exceeding EUR 10,000.
E An explanation of “financial activity on an occasional or very limited basis”

was included.
Answer : A C E
Q. Pursuant to the 4th European Union Money Laundering Directive, how long after
being out of prominent office should a person NOT be considered to be a Politically
Exposed Person (PEP)?
A 6 months
B 12 months
C 18 months
D 24 months

Q. Which three statements are true about the 4th EU Directive on
Money Laundering? It:
A Updates European Community legislation to be further in line with the

Financial Action Task Force (FATF) 40 Recommendations.
Repeats the definition of a politically exposed person in previous

B
Directives.
C Repeats the customer due diligence requirements of the previous

Directives, but adds more detail to the requirements by, for example,
including a specific requirement to identify the beneficial owner and
includes ongoing monitoring requirements.
D Requires firms to apply the customer due diligence requirements to

existing customers at appropriate times on a risk sensitive basis.

How does the scope of the European Union’s Third Money
Laundering Directive differ from the Second Money Laundering
Directive?
What must EU member countries do with the EU Directives?
What was the primary way in which the European Union’s

Second Directive on Prevention on the Use of the Financial
System for the Purpose of Money Laundering (2001) expanded
the scope of the First Directive?

What was considered a predicate offense for money laundering
under the First EU Money Laundering Directive?
What is the revised threshold for reporting suspicious transactions

under the Fourth EU Money Laundering Directive?

5th DIRECTIVE
Directive (EU) 2018/843 (“Fifth Anti-Money Laundering Directive”) of the European

Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the
prevention of the use of the financial system for the purposes of money laundering or
terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU.
The 5th AML Directive was adopted and entered into force
on 9 July 2018
Member states had to implement these new rules into their

national legislation by 10 January 2020.

5th DIRECTIVE
Changes brought about through the introduction of the 5th AML Directive
are detailed below :
Extended scope of persons subject to AML
obligations
Beneficial Ownership
Centralized Bank Account Registers
Politically Exposed Persons (PEPs)
Prepaid Cards
High-Risk third Countries
High-risk transactions
Virtual currencies
Q. Which of the following Entity is newly included as the obliged entity
under the 5th EU Directives?
A Estate agents
B High value goods dealers
C Casinos
D Custodian wallet providers

Q. According to the EU 5th Directives, which of the following threshold
for Prepaid Cards, the obliged entities may not apply CDD measure.
A Up to EURO 150
B Upto EURO 200
C Up to EURO 300
D Up to EURO 500

Muhammad Ashraful Islam
CDCS CSDG CAMS MBA

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European Union

Directives on Money Laundering

M A Islam, CDCS, CSDG, CAMS Compliance Route

The modern EU was founded in the Treaty of Maastricht on European Union,

M A Islam, CDCS, CSDG, CAMS Compliance Route

M A Islam, CDCS, CSDG, CAMS Compliance Route

The unique nature of the EU as a “community of states” makes it

European law prevails over national law in the case of directives

EU Directives have far more weight than the voluntary

Like all directives adopted by the Council, it required member

Directive applies only to EU member states and not to

M A Islam, CDCS, CSDG, CAMS Compliance Route

M A Islam, CDCS, CSDG, CAMS Compliance Route

1st EU Directive o (1991)

2nd EU Directive (2001)

3rd EU Directive (2005)

4th EU Directive (2015)

5th EU Directive (2018)

M A Islam, CDCS, CSDG, CAMS Compliance Route

“Prevention of the Use of the Financial System

1 Predicate offenses : Drug trafficking

1st Directive confined predicate offenses to ML to drug

1st Directive required the members to enact legislation to

M A Islam, CDCS, CSDG, CAMS Compliance Route

A EU members may transpose the Directives into law.

B EU members must transpose the Directives into law

C EU members and non-member must transpose the Directives into law.

M A Islam, CDCS, CSDG, CAMS Compliance Route

B They are written by the Wolfsberg Group

C They require members to implement certain laws to prevent ML

D They require financial institutions to report suspicious activity to the

M A Islam, CDCS, CSDG, CAMS Compliance Route

A They apply to all the European countries.

They require member states to enact laws to comply with the

C They set forth non-binding best practices for financial

D They apply to member states of the European Union

M A Islam, CDCS, CSDG, CAMS Compliance Route

D All of the above

M A Islam, CDCS, CSDG, CAMS Compliance Route

B Standards as defined by the Wolfsberg Group

C Standards as defined by Egmont Group

D European Union Money Laundering Measures

M A Islam, CDCS, CSDG, CAMS Compliance Route

1 Criminal activity : drug trafficking

2 AML coverage: MSB

3 Objective factual circumstances

4 Definition of Money Laundering

5 Widened: businesses and professions

M A Islam, CDCS, CSDG, CAMS Compliance Route

The following were the key features of the Second Directive:

1 Criminal activity : drug trafficking

The definition of “criminal activity” was expanded to cover not

2 AML coverage: MSB

It explicitly brought bureaux de change and money

M A Islam, CDCS, CSDG, CAMS Compliance Route

The following were the key features of the Second Directive:

3 Objective factual circumstances

It clarified that knowledge of criminal conduct can be