The European Union's proposal for a fourth directive to govern money laundering controls is unlike any of its predecessors and promises to be nothing like the directive which, according to its text, will supersede it in a few years.

The main rule-changes

Rather than contain many draconian suggestions for new predicate offences, reporting obligations or regulatory powers, it suggests instead that all EU-based multinationals should impose EU-style controls wherever they have branches in the world and should also keep records of all the substantial beneficial owners of their corporate and other collectively-held customer-firms and counterparties. These provisions, if they come into force, will be onerous.

There is one new predicate offence whose proceeds are to be outlawed everywhere in the EU: tax fraud. Countries such as the UK have long criminalised the proceeds of tax evasion (and even, since about 1999, the proceeds of foreign tax evasion) but the EU now wishes to make this universal and many countries will be experiencing this for the first time if this version of the draft becomes EU law. Article 3(4)(a) contains a proposal to expand the existing operative phrase, “criminal activity,” to include “all offences, including tax crimes related to direct taxes and indirect taxes, which are punishable by deprivation of liberty or a detention order for a maximum of more than one year or, as regards those states which have a minimum threshold for offences in their legal system, all offences punishable by deprivation of liberty or a detention order for a minimum of more than six months”.

Article 12 seeks to oblige banks to verify the identity of every customer and of every beneficial owner who owns 25 per cent or more of the entity in question before the business relationship begins. No transaction is to take place before this happens.

There is also a drive to introduce new requirements for domestic “politically exposed persons” and PEPs who work in international organisations, subject for the first time to the dictates of a vague and unspecified form of risk management. At present, Italian private banks need not conduct “enhanced due diligence” on the accounts of Silvio Berlusconi, at least on the pretext that he is a PEP. Under the proposals, this should change. EDD is to apply for at least 18 months (rather than the current 12) after every office-holding PEP (the definition of PEP also includes nuclear family members – which bizarrely rules out uncles and nephews – and an undefined collection of “close associates”) vacates his office.