UK pondering legal challenge against new EU anti-money laundering rules

Correspondence between the government and the House of Lords' EU Committee details the potential for a legal challenge to be lodged before the Court of Justice of the EU (CJEU) against the planned new Anti-Money Laundering (AML) Directive (91-page / 697KB PDF).

Lord Deighton, commercial secretary to the Treasury, said (4-page / 825KB PDF) in his letter: "The government will consider itself bound by the new Directive, despite not opting in, until such a time as the Court of Justice were to strike down the measure. Once the measure has been adopted, the government will consider whether or not we wish to challenge the legal base of the measure before the Court of Justice."

The UK has negotiated a right to opt in or out of EU policy measures concerning justice and home affairs (JHA).

Under the Directive, EU countries would have to each establish 'financial intelligence units' (FIUs) responsible for identifying links between suspicious transactions and criminal activity and to crack down on money laundering and terrorist financing. The FIUs would be required to exchange information with one another to aid each other with their activities.

However, according to a letter sent to Lord Deighton last June by Lord Boswell (2-page / 127KB PDF), chair of the Lords' EU Committee, the UK government has raised concerns that these provisions contain "a substantial JHA content".

In that June letter, Lord Boswell had said the Committee "cannot believe" the UK government was raising objection to the FIU provisions "solely on the ground that it should not apply to the UK because the government has not opted in", and since the government had supported the provisions during earlier negotiations on the new Directive.

In a new letter (2-page / 96KB PDF) dated Wednesday, Lord Boswell criticised Lord Deighton for the delay in response to his June letter and called on him to provide further reasons for the UK government's position.

"The very brief explanation you have supplied seems to confirm that the government in indeed consider a challenge to the legal base of the Directive, once adopted, which, if the challenge is successful, will result in the annulment of a measure which the government has throughout supported, as have we," Lord Boswell said.

"You are no doubt aware that, in the context of international agreements, the government has attempted similar challenges before the Court [of Justice], and has five times failed. We would be grateful for your explanation of what possible advantage there can be in attempting such a challenge yet again. An attempt to preserve the government's position on the legal base, a position which the Committee is incorrect, seems to us a totally inadequate reason," he said.

Financial services litigation and compliance expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said: "Such uncertainty about the government’s approach to the implementation and applicability of the Directive will no doubt lead to uncertainty on the behalf of businesses and individuals required to comply with the Directive’s requirements."

"This uncertainty will lead to additional cost in relation to consideration of the issues, advice and any subsequent changes to AML measures should the government successfully challenge the Directive. The government should clearly express its position and identify what it expects of businesses and individuals impacted by the Directive and any challenge to it."

The Council of Ministers and European Parliament reached political consensus on the anti-money laundering reforms last month. The Directive is now in the final stages of being formally endorsed and approved.