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New EU Customs Law To Combat Money Laundering

by Ulrika Lomas, for LawAndTax-News.com, Brussels 15 June 2007

As from today (June 15), travellers entering or leaving the European Union will have to declare cash movements of more than EUR10,000 (US$13,300) as new customs laws designed to thwart money laundering and terrorist financing take effect.

The European Commission says that the new legislation aims to introduce an EU-wide common approach to controlling cash movements into and out of the EU while complementing the EU's Money Laundering Directive, which has already introduced a monitoring of transactions made through credit and financial institutions.

"The new rules will make it more difficult for terrorists to enter or leave the Community with the cash required to finance their illegal actions while at the same time it will not put disproportionate administrative formalities on the majority of travellers and traders given that the EUR10,000 threshold is high enough" said Taxation and Customs Commissioner László Kovács.

"A single uncomplicated system of this type will also be fairer to legitimate travellers who will no longer be faced with control measures that vary depending on where they enter or leave the Community," he added.

Under the new rules customs authorities are empowered to undertake controls on people and their luggage and detain cash that has not been declared. They are required to initiate proceedings against people who fail to declare cash of an amount of EUR10,000 or more. The rules also require the declaration of the equivalent amount in other currencies or easily convertible assets such as non crossed cheques. As for penalties resulting from such proceedings it is up to Member States to ensure that they are proportionate to the offence, so as to have a deterrent effect.

Member States must record information obtained through declaration or through control and make it available to the authorities competent for fighting against money laundering and financing of terrorism. Where there is evidence that cash is being carried for the purpose of money laundering or terrorist financing, Member States may exchange information.

The new Regulation takes into account the 2002 Commission report on cash movements into and out of the EU. This report revealed that from September 1999 to February 2000, EU customs authorities observed a considerable amount of cash plus other assets such as cheques, securities, gems and precious metals moving in and out of the EU - a total of EUR1.6 billion of which EUR1.35 billion was cash.

The European Commission said it considers that the transportation of such a volume of cash presents a potential risk to EU and national interests. "Bringing cash into the EU to convert into another currency is a classic money laundering scenario," it said.

As there was a risk that the application of the monitoring system introduced by the EU's Money Laundering Directive would lead to an increase in cross-border cash movements for illicit purposes, the Commission proposed in June 2002 to extend the controls to cover cash movements.

The new rules also take into account the 'Special Recommendation IX' adopted on 22 October 2004 in Paris by the Financial Action Task Force on Money Laundering, which calls on governments to put measures into place to detect physical cross-border cash movements.

At present, not all Member States monitor cash movements across their national frontiers and in those that do, these national rules vary greatly. According to the Commission, this lack of an EU wide-arrangement undermines the effectiveness of controls and leaves open loopholes for criminals to exploit. The new legislation harmonizes therefore the rules at Community level to ensure an equivalent level of control on movements of cash crossing the borders of the Community while it does not prevent them for taking further national measures as for instance intra-community controls.

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