EU?s new Counter-Terrorism Financing Proposals Tighten Fund Transfer Requirements

By Victor Comras

Europe�s heightened concern with terrorism and terrorism financing led the EU Commission this week to propose new regulations effectively eliminating anonymous fund transfers. The regulations would require that all transfers originating outside the EU banking system be accompanied by indications of the name, address and account number of the payee. Transfers from within the EU would require only the payer�s account number. Payments for commercial transactions would be exempted. And treatment of transfers of less than 1000 Euros unaccompanied by such information would still be permitted provided no other suspicious circumstances were present. Banks would be required to retain this information for at least five years. This new regulation is in line with a recent FAFT recommendation that funds transfers include accurate and meaningful originator information

US banks have had similar Requirements since 1995. In 1995, the U.S. Treasury issued a final rule that requires all financial institutions to include certain information in overseas transmittal orders for funds transfers of $3000 or more (31 CFR 103.33) This requirement is commonly referred to as the �Travel Rule.� Under the Travel Rule,. US banks must include the name of the transmitter, and, if the payment is ordered from an account, the account number of the transmitter. They should also provide the address of the transmitter, the amount of the transmittal order, date of the order and identify of the recipient�s financial institution.

It�s not clear just what obligations EU banks will have under the new regulations to provide similar information when transferring funds overseas. This issue is complicated by EU privacy restrictions. It appears that such information would be the norm unless there were reasons to believe that the recipient banks would not afford appropriate confidentiality of such information which should only be made available to authorized investigators and judicial authorities.

These new measures represent a �giant leap� beyond Europe�s current �know your customer� rules now in place. �Know Your Customer� puts the onus on the bank making the transfer to establish the bona fides of its own clients. The originating bank is also required, in most cases to retain records related to the transaction. The EU commission is treating the proposal as �draft legislation� and has called on EU member governments to approve the measure by December 2005. It would then have to be approved also by the European Parliament and, if approved on that timetable, would come into effect in January 2007.

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