Posteitaliane. - Comments by Poste Italiane S.p.A. - Divisione BancoPosta

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1 Posteitaliane Divisione BancoPosta Invitation for public comment on DG Internal Market services Working Document in relation to the 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 (Third Directive) - Comments by Poste Italiane S.p.A. - Rome, 20 October 2005

2 Invitation for public comment on DG Internal Market services Working Document in relation to the 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 (Third Directive) - Comments by Poste Italiane S.p.A. - CONTENTS: 1. Introduction General Remarks The risk-based approach and the definition of technical criteria...3 Question Questions 2, 4 and The definition of Politically Exposed Persons (PEPs) The application of Article 40 (4) of the Third Directive Introduction Poste Italiane S.p.A. ( Poste Italiane ) welcomes the opportunity to submit its comments on DG Internal Market services Working Document related to Chapter VI (Implementing Measures) of the 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 (the Third Directive ). In our view, the implementing measures complete the legal framework created by the Third Directive and clarification of the technical aspects is necessary to ensure its effective and consistent implementation. In this document, Poste Italiane will present its position on the criteria to be followed in the implementation of the Third Directive and provide its comments on the three issues raised in the working document, namely: 1) The definition of technical criteria for the implementation of Article 40 (1) b of the Third Directive; 2) The technical aspects of the definition of Politically Exposed Persons (PEPs); 3) The application of Article 40 (4) of the Third Directive.

3 2. General Remarks The Third Directive requires the institutions and persons to which it applies, including credit and financial institutions, to contribute to the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. These institutions and persons should cooperate with public authorities with a view to preserving the integrity of the system. Poste Italiane is aware of the importance of anti-money laundering and antiterrorist financing regulations and believes that the synergy between the private sector and public authorities is remarkably valuable in order to achieve the aims of the Third Directive. Nonetheless, Poste Italiane would like to draw attention to the fact that the Third Directive requires private parties to comply with quite a lot of obligations and there are concerns that, unless a certain degree of flexibility is foreseen, the burden and cost of compliance could undermine the smooth functioning of the system put in place by the Third Directive. With this in mind, from a general perspective, Poste Italiane would welcome that Articles 40 (1) (b) and 40 (1) (d) be implemented in such a way that the burdens on credit and financial institutions are always proportionate to the risks connected to the nature of a client or of a transaction. 3. The risk-based approach and the definition of technical criteria In Poste Italiane s view, the Commission should, where possible, define technical criteria in broad terms or at least - require their non-cumulative fulfillment. This would allow provisions of the Third Directive such as Articles 2 (2), 11 (2) and 11 (5) to produce their useful effect, while reducing the burden on private parties to the minimum, so that resources can be invested to address situations where the risk of money laundering or terrorist financing is higher. Indeed, as Recital 43 of the Third Directive states, the clarification of the technical aspects of the rules lay down in the Directive itself may be necessary to ensure an effective and sufficiently consistent implementation of the directive, taking into account the different financial instruments, profession and risks in the different member States and the technical developments in the fight against money laundering. The task of the Commission, according to the same provision, is to define certain criteria for identifying low and high risk situations in which simplified due diligence could suffice or enhanced due diligence would be appropriate, provided that the essential elements of the Third Directive and the principles thereof are respected. When implementing Articles 2 (2), 11 (2) and 11 (5), the Commission should therefore provide sufficient guidance to the institutions and persons to which

4 the Third Directive applies, safeguarding the possibility of graduating duediligence measures in relation to the concrete risk. Consistently with these principles, Poste Italiane addresses below some of the questions raised by the Working Document. Question 1 In Poste Italiane s view, the application of the risk-based approach in relation to the normal CDD procedures should be retained as the normal tool to deal with low risk customers and products/transaction. In this respect, Article 8 (2) of the Third Directive provides for a satisfactory degree of flexibility while, at the same time, guaranteeing that financial and credit institutions carefully assess the risk connected with each transaction. It is our opinion that the risk-based approach should be retained, as opposed to application of a case-by-case approach implying the need of adopting implementing measures that, while increasing the procedural burdens, may not adapt quickly enough to the evolution of business practices. Poste Italiane would also recommend that non-binding guidelines be adopted, within a certain period from the transposition of the Third Directive, to orientate the action of the institutions and persons to which the Directive applies, in the light of the concrete experience and information collected on money laundering activities. Questions 2, 4 and 6 Following the approach above, it appears that the technical criteria proposed by the Commission in paragraphs 3.2, 3.3 and 4 of the Working Document were these to be applied cumulatively would leave very little room for the application of simplified CDD procedures, and would deprive the institutions and persons to which the Third Directive applies of any margin of appreciation of the risk created by each transaction. In relation to question No. 2, for instance, as the Commission acknowledges, the first set of cumulative criteria listed in paragraph 3.2 would hardly apply to any entities apart from credit and financial institutions which are already subject to simplified CDD. In Poste Italiane s view, the non-cumulative application of the same criteria would be sufficient to significantly reduce the necessity of a normal CDD: once the identity of customer is publicly available, transparent and certain (criterion 2) and/or the only material source of income is known, stable and of impeccable nature (criterion 6), it would be reasonable to consider that risks of money laundering and terrorist financing are low.

5 Again, as for question No.4, Poste Italiane would consider that the criteria related to products and transactions foreseen in paragraph 3.3 would be sufficient to allow the application of simplified CDD procedures, even if these were non-cumulative. When, for instance, a financial transaction is imposed by legislation as under criterion 1 risks of money laundering or terrorist financing are virtually excluded, as the purpose of the transaction is to fulfil a legal obligation, and the persons or entities involved have no choice as whether to carry out the transaction. Regarding question No. 6, in Poste Italiane s opinion, the criteria proposed by the Commission in paragraph 4 would force credit and financial institutions to carry out a rather deep and complex assessment, which would be in some respect as burdensome as a CDD process: the entities concerned should be able to define the total turnover of their customers, estimate the weight of financial activities in relative and absolute terms and ascertain that the financial activities are directly related to the main activity of the person. This preliminary assessment should be done in respect to a relevant number of customers and transactions, only to establish whether the Third Directive would be applicable to their specific case. Again, it would be preferable that the Commission define broader and simpler criteria in order to establish whether a legal or natural person is engaging in a financial activity on an occasional or very limited basis. Poste Italiane would recommend that the Commission seek to define simpler, broader and non-cumulative criteria, in order to allow financial and credit institutions to apply simplified CDD to low-risk transactions, focusing resources on situations where the risk of money laundering and terrorist financing is higher. 4. The definition of Politically Exposed Persons (PEPs) Regarding the definition of PEPs, Poste Italiane shares the Commission s view that a clarification of the definition is needed and that nevertheless it is recommendable that Member States preserve a sufficient degree of flexibility in implementing the Third Directive in this respect. Accordingly, Poste Italiane believes that the definition of interpretative criteria for the three main parts of the definition is a more appropriate solution than the simple drafting of a close list of categories of persons. The latter may indeed be excessively rigid, considering that the Third Directive should apply to 25 Member States with dissimilar institutional systems and that the risk of money laundering may vary with time. In its implementing measures, the Commission should rather precisely define the notions of immediate family members and of persons known to be associates of the PEPs, which will not diverge greatly from one Member

6 State to the other. Instead, regarding the definition of prominent public functions, it should limit itself to list certain minimal requirement. Also, to the benefit of legal certainty, Poste Italiane would strongly recommend that the Commission define the time limit following which a person who held public functions should still no longer be considered as being a PEP. Finally, Poste Italiane agrees with the Commission s proposal of preparing a guidelines paper in cooperation with Member States. The Commission should clearly define the meaning of the three parts of the definition of PEPs. However, Member States should have a margin of discretion in defining what prominent public functions are in their institutional system. A clear timeframe for the purpose of the application of PEP definition to persons no longer holding prominent public functions should also be defined. 5. The application of Article 40 (4) of the Third Directive Poste Italiane is aware of the importance that the Third Directive be applied not only to transactions that take place within the EU, but also to operations that are linked to a third country. In this respect, Poste Italiane would encourage the Commission to create a system whereby information on anti-money laundering measures adopted in third countries circulate among credit and financial institutions. This would help the institutions concerned with assessing the risks connected with a transaction. ********** Please note that Poste Italiane would be happy to expand on any of the points above. We also have no objection to our comments being made available to the public. Any question regarding these comments may be addressed to: Alessandra Fratini (a.fratini@oconnor.be) Claudio Bertuccelli (bertuccelc@posteitaliane.it)