|European Court Allows Spain to Use Domestic Law to Seek Gib Bank Information|
The European Court of Justice has backed Spain’s use of domestic legislation to request information from a Gibraltar bank that offers services across the border.
The ECJ ruling found that Spanish law allowing law enforcement agencies to access financial information did not clash with an EU directive on money laundering and terrorist financing.
The case dates back to 2007, when authorities in Spain requested information from the local branch of Jyske Bank.
According to a press release issued by the European Court of Justice on Friday, Spanish investigators “...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.”
“The mechanism used for this purpose consisted in creating in Gibraltar corporate structures intended to prevent detection of the identity of the actual owner of property acquired in Spain, essentially on the Costa del Sol, and of the origin of the monies used.”
Spanish legislation requires credit institutions operating in Spain, regardless of the place of their establishment, to inform the Spanish authorities of account transfers of more than €30,000 “...to or from tax havens and uncooperative territories, such as Gibraltar,” the court statement added.
The wider legislative context to the case is an EU directive that aims to clamp down on money laundering and terrorist financing, and which imposes certain disclosure obligations on credit institutions.
The directive requires each Member State to establish a central financial intelligence unit (FIU) responsible for receiving, analyzing and disseminating to the competent authorities information concerning potential money laundering or terrorist financing.
It provides for that information to be forwarded to the FIU of the Member State in whose territory the institution is situated.
According to the ECJ, Jyske sent some of the information requested by Spain in June 2007, “...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.”
The Spanish Government’s Council of Ministers considered that Jyske had failed to fulfil its disclosure obligations under Spanish legislation and imposed on it two public reprimands and two financial penalties totaling €1 700 000.
Jyske argued that the directive imposed on it an obligation of disclosure only vis-à-vis the Gibraltar FIU and that, therefore, the Spanish legislation did not comply with the directive.
The bank initiated legal action before the Supreme Court in Spain, which decided to refer a question to the European Court of Justice on that subject.
“In today’s judgment, the Court declares that the directive does not expressly preclude the possibility of requiring credit institutions carrying out activities in Spain under the freedom to provide services to forward the required information in respect of the fight against money laundering and terrorist financing directly to the Spanish FIU,” the ECJ statement said.
“Therefore, the directive does not, in principle, preclude the Spanish legislation, in so far as it seeks to strengthen, in compliance with EU law, the effectiveness of the fight against those crimes.”
“Therefore, it cannot compromise the principles established by the directive concerning the reporting requirements on the part of entities subject to them, nor can it impair the effectiveness of existing forms of cooperation and exchange of information between the FIUs.”
The ECJ also looked at the issue of whether the Spanish legislation impacted on the bank’s freedom to provide services.
It found that the legislation was a restriction on that freedom and led to extra costs and difficulties, adding to the controls that were already in place in Gibraltar.
“However, that restriction on the freedom to provide services can be justified by overriding reasons in the public interest, such as the fight against money laundering and terrorist financing,” the ECJ statement said.
“Therefore, the national court must determine whether the legislation at issue is appropriate for attaining that aim, in particular, whether it allows Spain to supervise and suspend suspicious financial transactions concluded by credit institutions offering their services in the national territory and, if appropriate, to pursue and punish those responsible.”
“In that regard, the Court points out that such legislation enables Spain to supervise all financial transactions carried out by credit institutions in its territory, whatever the manner in which those institutions have chosen to provide their services, which appears to be suitable so as to attain, effectively and coherently, the aim pursued.”
The ECJ said the national court must determine whether domestic legislation was being applied in a non-discriminatory and proportionate manner.
A key element of that would be the degree of cooperation between Financial Intelligence Units in each jurisdiction and the extent to which they were able to share information.
The court noted that there were deficiencies in the mechanisms for cooperation and that speed was often vital in investigating financial crime.
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Published on our website on May 3, 2013