Restrictions over providing services

National authorities may invoke the fight against money laundering and terrorist financing as a justified objective which warrants restrictions on the fundamental freedom to provide services enjoyed by every EU citizen and legal entity. Such restrictions must nonetheless be proportionate and indispensable for attaining the objective, the Court of Justice of the European Union recently confirmed.

The fundamental freedoms enshrined in the EU Treaty are not absolute

The EU law dealing with the prevention of money laundering obliges each member state to establish a central financial intelligence unit (FIU) which is responsible for receiving, analysing and disseminating information relating to potential money laundering or terrorist financing. Credit institutions are obliged to pass on information relating to suspicious transactions implicating money laundering to the FIU of the member state in whose territory the institutions are established.

Spanish law requires credit institutions operating in Spain, regardless of the place of their establishment, to inform the Spanish FIU of account transfers of more than €30,000 to or from tax havens and uncooperative territories. Jyske, a branch of the Danish bank NS Jyske Bank, is a credit institution established in Gibraltar which operates in Spain by virtue of the freedom to provide services, that is to say, without being established there.

EU law permits a credit institution to provide the services for which it has been authorised by a member state, throughout the Community, either through the establishment of a branch or the freedom to provide services, including by engaging an agent.

The Spanish FIU requested Jyske to provide it with certain information since it considered that there was a very high risk that Jyske was being used for money laundering operations in the context of its activities in Spain. Jyske sent some of the information requested, but it refused to provide the data on the identity of its clients and documentation on suspicious transactions carried out in Spain, relying on the banking secrecy rules applicable in Gibraltar. It considered that the EU prevention of money laundering directive imposed on it an obligation of disclosure only vis-à-vis the Gibraltar FIU.

After being reprimanded and fined by the Spanish authorities, the bank brought an action before the Spanish courts alleging that the Spanish law in question was unduly restrictive of the freedom to provide services. The Spanish court in turn made a preliminary reference to the European Court of Justice requesting guidance on the matter.

The CJEU observed that the EU’s prevention of money laundering directive does not expressly preclude member states from requesting credit institutions carrying out activities in their territory in terms of the freedom to provide services to forward any relevant information relating to money laundering and terrorist financing directly to the national FIU. Such an approach does not go contrary to the reporting requirements provided for by the directive nor does it impair the effectiveness of existing forms of cooperation and exchange of information between the various FIUs.

The court noted that the stance adopted by Spain did, however, constitute a restriction on the freedom to provide services in so far as it gave rise to difficulties and additional costs for those credit institutions availing themselves of the right to provide services in a member state other than that where they are established. The requirement imposed by Spain was over and above the controls already conducted in the member state where the institution is established.

The court conceded that such a restriction on the freedom to provide services could be justified by overriding reasons in the public interest, such as the fight against money laundering and terrorist financing.

It was then up to the national court to determine whether the Spanish law at issue was appropriate for attaining such an objective. The national court had to also determine whether such a law was being applied in a non-discriminatory manner and whether it was proportionate to the aim pursued. By way of example, the CJEU noted that the Spanish law ought to be considered as disproportionate where the cooperation mechanism established between the FIUs of the different member states already allowed the Spanish FIU to obtain the required information through the FIU of the member state where the credit institution is established.

The CJEU, however, observed that the current mechanism for cooperation between FIUs does suffer from certain deficiencies.

For instance, the court noted that though authorities need to act fast where money laundering is concerned, no provision is made in current EU law for a time-limit for information to be exchanged between the relevant FIUs. This means that where there is no effective mechanism in place, ensuring full and complete cooperation between the FIUs and allowing money laundering and terrorist financing to be combated effectively, a law like the Spanish one ought to be considered as being a proportionate one.

The fundamental freedoms enshrined in the EU Treaty are not absolute, the CJEU has confirmed. Limitations to these rights are permitted provided that the justifications offered are ones which are intended to safeguard the public interest, public health or public security besides being necessary and proportionate.

mariosa@vellacardona.com

Mariosa Vella Cardona is deputy chairwoman of the Malta Competition and Consumer Affairs Authority and a member of the National Commission for the Promotion of Equality.