EU Takes Steps to Block Terrorist Financing

European Commission (EC) presented a new regulation aimed at blocking terrorists' and other criminals' access to financial resources. It is part of the wide-ranging anti-terrorism measures the British EU presidency put at the top of the agenda less than a week after the 7 July bombings in London. The EC expects all member states to endorse the proposed regulation by December, after which it will be submitted to the European Parliament for approval before entering into force in January 2007.
"The fight against terrorism requires a sustained and focused effort on many fronts," EU Internal Market Commissioner Charlie McCreevy said in a statement on 26 July. "One of these is to cut off the funding for terrorist actions."
To that end, the proposed regulation envisions the imposition of tighter controls on all money transfers in order to ensure their full traceability.
"Money is the nerve of war, and at present there are few possibilities to trace funding sources," said Ceu Pereira, an EC official, who presented the regulation to reporters in Brussels. According to him, the new regime should "make the environment increasingly harsh for terrorists".
Under the regulation, payment service providers would be able to receive money transfers from countries outside the EU, provided they are accompanied by the required complete information on the sender's identity, i.e., name, address and account number. Payment service providers would also have to verify that the complete information has been supplied in cases when the recipient is in a country outside the Union.
However, for transfers of funds to recipients outside the EU not exceeding 1,000 euros, payment service providers may determine the extent of such verification in view of the risks of money laundering and terrorist financing, the regulation reads.
If any of the required details about the sender is missing or is incomplete, the receiving bank may either reject the funds or ask for complete information. In the latter case, it may decide to hold the funds until the information has been supplied, or make the funds available to the recipient. But in all circumstances, the payment service provider must ensure that the applicable legislative or administrative provisions related to money laundering and terrorist financing are being observed.
At the same time, the regulation would allow a simpler regime for transfers when both payment service providers -- of the sender and the recipient -- are situated in EU member states. In that case, the sender's bank account number would only have to be provided. However, the payment service provider of the recipient would have three days to enquire about the sender's name or address if they became suspicious.
If a payment service provider repeatedly fails to supply the required information on the sender, the payment service provider of the recipient must reject any transfers of funds from that institution or end its business relations with it, the regulation says. The payment service provider of the recipient would also be obliged to report that fact to the relevant authorities dealing with money laundering or terrorist financing.
The payment service providers covered by the regulation would have to keep records of every transfer for five years and to make available the information on the sender's identity to law enforcement authorities "detecting, investigating and prosecuting terrorists and other criminals and tracing their assets".
The proposed regulation would turn into EU law a set of recommendations on terrorist financing made by the international Financial Action Task Force on money laundering in 2004, but imposing an even stricter regime than the one recommended by that group.
European banks have reportedly welcomed the proposed rules.
"It will require greater scrutiny and additional procedures, but we want to make our contribution to diminishing the scope for terrorist action in scuttling money around Europe," the “International Herald Tribune” quoted Robert Priester, head of the legal department at the European Banking Federation in Brussels, as saying.