Maintaining risk-based approach to prevention obligations
Subjecting e-money institutions to anti-money laundering legislation
Comment


The government recently adopted legislation strengthening the legal framework combating money laundering and terrorist financing. Two decrees adopted on October 3 2012 and February 28 2013 implement the European Union's risk-based approach by reinforcing prevention obligations in high-risk situations, while recognising specific exceptions for low-risk online payment operations. Moreover, a law passed on January 28 2013 aims to modernise the French legal framework by including e-money institutions in the professional bodies that are subject to prevention obligations such as verifying a client's identity and declaring potential risks of illegal activities.

Maintaining risk-based approach to prevention obligations

On October 3 2012 the government adopted Decree 2012-1125 on obligations of vigilance and declaration for the purpose of preventing the use of the financial system for money laundering and terrorist financing.(1) The decree clarifies and reinforces the vigilance requirements of the Monetary and Financial Code that apply to certain professionals where a high risk of money laundering and/or terrorist financing exists.

To do so, Decree 2012-1125 imposes new responsibilities on financial institutions:

  • Article R561-10 expands the obligation of all professionals listed in Article L561-2 (ranging from financial institutions to lawyers and sports agents) to identify 'occasional' clients with whom a business relationship has not yet been established, without a minimum deposit, payment amount or suspicion being required. While before the reform this obligation applied only to money transfer operations, it now applies to manual foreign exchange operations if the client or its legal representative is not physically present to be identified.
  • Article R561-16(5°) restricts the situations in which professionals may abstain from applying existing vigilance requirements with regard to e-money instruments. This exception applies only in situations where e-money instruments are used to purchase goods or services.
  • Article R561-20 imposes additional vigilance measures when professionals listed in Article L561-2 detect a high risk of money laundering or terrorist financing. Specifically, relevant professionals are required to collect additional information on clients, the business relationship established with them and the actual beneficiary of the relationship, as well as to update such information more frequently.
  • Article R561-12 specifies that the above-mentioned obligations to collect, update and analyse client information apply for the duration of the business relationship, subject to proportionality and the detected level of risk.

In addition, Decree 2013-183,(2) adopted on February 28 2013, inserts a new Article R561-16-1 into the Monetary and Financial Code to relieve professionals of existing vigilance obligations in the context of low-risk online payment operations. Article R561-16-1 exempts banks, payment institutions and e-money institutions from the requirement to identify the actual beneficiary of the business relationship when the online payment service provided to the client satisfies the following conditions:

  • The only payment service relates to a debit, transfer or debit card payment operation;
  • The funds are exchanged between accounts in financial institutions established in France, an EU member state or an European Economic Area member state; and
  • The individual operation does not exceed €250 and the aggregate amount of all operations performed over the past 12 months does not exceed €2,500.

Such conditions are both strict and cumulative. As a result, the exception set out in Article R561-16-1 does not undermine the underlying vigilance rule.

Subjecting e-money institutions to anti-money laundering legislation

Law 2013-100, adopted on January 28 2013, seeks to adapt French anti-money laundering legislation to EU legislation.(3) While the above-mentioned decrees touch on what prevention obligations apply, the law focuses on who is subject to those obligations.

In particular, Article 13 of Law 2013-100 amends several provisions of the Monetary and Financial Code, under which e-money institutions are now required to take part in anti-money laundering and terrorist financing efforts.

The main modifications and additions are as follows:

  • Article L561-2, which lists all of the professionals required to combat money laundering and terrorist financing, now includes e-money institutions.
  • Article L561-3 aligns French legislation with EU legislation by requiring payment institutions and e-money institutions established in the European Union or the European Economic Area to appoint a permanent representative in the country where their agents distribute e-money. This permanent representative is charged with making preventive declarations of potential money laundering or terrorist financing risk and responding to information request from the relevant authorities. In other words, Article L561-3 seeks to centralise information to facilitate communication on illegal activities.
  • Article L561-1-1 was added to require a declaration to Tracfin (the anti-money laundering section of the Ministry of Economy) of any money transfers originating from a cash or e-money deposit above a certain amount.

Comment

Overall, the reforms contribute to the European Union's goal of protecting the financial system against money laundering and terrorist financing, and clarify the obligations of professionals that may be involved in such transactions. As a result of the amendments, affected parties should develop their internal capacity to evaluate money laundering and terrorist financing risks, as well as increasing oversight of the relevant transactions and their client relationships generally.

French anti-money laundering legislation may soon undergo more in-depth revisions. First, at the EU level the EU Third Anti-money Laundering Directive is already under discussion. The European Commission released its official proposal in February 2013,(4) which will need the support of both the European Parliament and the Council of Ministers under the ordinary legislative procedure in order to be adopted. Second, the French government concomitantly presented a bill for ratification by the National Assembly of the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and the Financing of Terrorism.

For further information on this topic please contact Philippe Blaquier-Cirelli or Sârra-Tilila Bounfour at DLA Piper by telephone (+33 01 40 15 24 84), fax (+33 01 40 15 24 03) or email (philippe.blaquiercirelli@dlapiper.com or sarra-tilila.bounfour@dlapiper.com).

Endnotes

(1) Decree 2012-1125 (October 3 2012) relating to the obligations of vigilance and declaration for the purpose of preventing the use of the financial system for money laundering and terrorist financing, available in French at www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000026457407&dateTexte=& categorieLien=id.

(2) Decree 2013-183 relating to obligations of vigilance in online payment services for preventing the use of the financial system for laundering money and financing terrorism, available in French at www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000027123150&dateTexte=&categorieLien=id.

(3) Law 2013-100 (January 28 2013) relating to various provisions adapting legislation to EU law applicable to economic and financial matters, available in French at www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000026998473&fastPos=4&fastReqId=919572572&categorieLien=id&oldAction=rechTexte.

(4) European Commission, Proposal for a Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, 2013/OO25 (COD), available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0045:FIN:EN:PDF.