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Identified entities that pose a risk to an organization

3rd EU Directive

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The directive is designed to prevent money laundering and terrorist financing through the financial system.

What is defined as terrorist financing and money laundering?

The member states of the European Union prohibit terrorist financing and money laundering and can implement stricter provisions in this area. The following conduct provides the definition for money laundering:
  • The transfer or conversion of property that is derived from or participation in criminal activity with the objective of hiding or disguising the origin of the property
  • Providing assistance to any individual involved in the commission of this type of activity
  • Disguising or intentionally concealing the nature, source, disposition, location, movement and ownership rights of the property
  • Acquiring, possessing and or using the property with full knowledge that the property derived from criminal activity. An individual who intentionally commits this type of behavior must recognize that the property in question derives from criminal activity.

Awareness, intention and purpose may be assessed through careful examination of the facts and circumstances surrounding the case. The directive goes on to include participation, association with, attempts to, aiding, advising and or facilitating of the items mentioned earlier. The directive considers that any activities that generated the property in relation to money laundering, whether within a member state or non-EU member state is considered part of the criminal activity. Terrorist financing is defined as providing and collecting funds, either directly or through a third party for the purpose of using them for the purpose of committing an offense as prescribed in articles 1 through 4 (refer to the Council Framework Decision 2002/475/JHA of 13 June 2002) concerning fighting terrorism. This includes falsifying documents, taking hostages and leading a terrorist group among others.


The legal professions responsibility concerning vigilance with their customers. The directive covers both financial institutions as well as individuals working in professional roles as accountants, auditors, notaries, tax advisors, real estate agents and other legal professions. Both the financial institutions as well as the previously mentioned professional segments are obliged to follow adequate due diligence processes in the following areas:
  • Beginning a new business relationship
  • Processing a financial transaction in excess of EUR 15,000
  • If a person is suspected to be carrying out terrorist financing or money laundering, without regards to the thresholds and or exemptions
  • If the customer information that was collected is suspected to be false and or inadequate

All of these measures require that the customer be properly identified and that said identity be verified. In addition, information concerning the business purpose, the nature of the business as well as identifying the recipient are also requirements. The degree to which each measure is completed will be determined by the organizations risk management assessment. This is dependent on the customer type and business relationship among other criteria. The directive allows member state and both the institutions and professionals operating under its guidelines to use third parties to meet the requirements.


Institutions and professional entities covered by the directive are obliged to conduct enhanced due diligence when the risk of terrorist financing or money laundering is high. This involves additional measures designed to verify and certify that information be factual. This is particularly the case where an individual isn’t physically present and or when dealing with an international relationship with a respondent institution from a non EU member country. The directive does not allow financial institutions to hold anonymous accounts/passbooks.

Member state requirement to install a financial intelligence unit (FIU)

Member states are obliged to implement a centralized (national) financial intelligence unit (FIU). The unit is tasked with compiling, analyzing and reporting to the appropriate authorities, any potential threat concerning either terrorist financing or money laundering. The unit must be provided with proper resources to perform its duties and the member states must ensure those said units have access to the necessary administrative, financial as well as law enforcement information it needs.


Both institutions and individuals operating under the directive are obliged to immediately inform the EU if the suspect that terrorist financing or money laundering is taking place. They are required to submit all of the information requested by the FIU.

Institutions and individuals operating under the directive are obliged to desist from executing a transaction that is suspected of being a part of terrorist financing or money laundering, until the FIU has been informed. The directive does however leave it up to the member states to decide whether individuals in a legal professional role abide by this rule, while in the course of defending and or representing their customer.

Institutions and individuals are required not to inform the customer or other related parties that the suspect information has been reported to the FIU. The exclusion would be only for law enforcement purposes. Institutions and individuals are required to maintain all information for a period of five years. In addition, they are required to develop due diligence procedures that include employee, training information dissemination, escalating information and record keeping.

Sanctions for failure to comply

Institutions and individuals operating in the member states are required to comply with the directive. Failure to do so will hold them liable to penalties designed to be both proportionate and dissuasive.