Faced with a third Money Laundering Directive, and no evaluation of the second, Louise Delahunty asks whether the burden on lawyers is justified

As Tony Blair assumes the EU presidency, the citizens of France and Holland have dealt a decisive blow to our European masters by rejecting the constitution. As we face a third Money Laundering Directive only one year after dealing with the challenges, costs, and confidentiality implications of the second, is it time for us to say 'non'?


The initial stated purpose of the third directive was to widen the 'predicate offence' so that anti-money laundering law would apply to a wider range of crimes. Now we find that the new law has a much more comprehensive remit - to implement the Financial Action Task Force's 40 recommendations on identification, beneficial ownership, and politically exposed persons. Privilege may be under further threat through a new tipping-off clause.


Over the last year, the Law Society, the Council of Bars and Law Societies of the EU (CCBE), and other representative bodies have continually lobbied European lawmakers. Why is there a need to impose yet further burdens on us? Where is the evidence that more is required? Why has the European Commission not carried out its obligatory evaluation of the effect of the second directive on lawyers?


On 4 February, more than 40 presidents of EU bars signed an open letter to the European Commission, Parliament, and Council of Ministers, calling for European institutions to delay the third directive until a proper evaluation of the second directive has been carried out. They said: 'European lawyers have long argued, and continue to argue, that the reporting obligations imposed on them by the second directive breach the fundamental rights of EU citizens.'


In the UK, after initially reeling from the shock caused by the Proceeds of Crime Act 2002, lawyers have conscientiously implemented anti-money laundering systems and trained their firms. The National Criminal Intelligence Service has made considerable improvements in dealing speedily and effectively with reports. Yet there is still much confusion and dissatisfaction. A huge increase in lawyers' reports has now been reversed with the judgment in Bowman v Fels [2005] EWCA Civ 226.


But what do our efforts in compliance achieve? Is our burden justified? A report issued last year by the Inspector of Constabulary said: 'Most police forces acknowledge the potential of this intelligence source, but within financial intelligence units the analysis of suspicious activity reports (SARS) is rarely a high priority. Officers point to the volume of SARS - some 90,000 were generated in 2003/2004 - and suggest that many have very little obvious investigative merit.'


Even wider concerns apply in Europe. Despite their valiant efforts, the Law Society and the CCBE were dismayed to learn that most MEP amendments have been dropped, in order that the third directive could be passed in one European Parliament sitting. When the European Commission is asked about its evaluation report, it prays in aid the fact that some EU countries have not yet implemented the second directive.


This is circular logic, but highlights yet another problem in the EU. Not only do some countries delay in imposing the EU directives, but as these are 'minimum' directives, different standards apply in different countries. Dutch lawyers cannot open a file until they have done all their anti-money laundering compliance. UK lawyers can. UK lawyers have filed thousands of reports. German and Belgian lawyers have filed a handful.


Cross-border transactions bring headaches for international firms - which standards should they apply? The stated aim of the third directive is to enhance harmonisation throughout the EU. But will its effect be anything but harmonious? It is time for the prime minister to stand up for the UK legal profession, of which he should justly be proud, and say enough is enough.


Louise Delahunty is a partner at London white-collar crime specialist law firm Peters & Peters and a member of the CCBE's money laundering task force