Back Matter

Back Matter

Author(s):
Robert Effros
Published Date:
June 1994
    Share
    • ShareShare
    Show Summary Details
    Appendix I Banking Legislation

    Appendix I 1 European Community First Banking Directive, as Partially Amended

    First Council Directive1

    12 December 1977

    on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions

    (77/780/EEC)

    The Council of the European Communities,

    Having regard to the Treaty establishing the European Economic Community, and in particular Article 57 thereof,

    Having regard to the proposal from the Commission,

    Having regard to the opinion of the European Parliament,

    Having regard to the opinion of the Economic and Social Committee,

    Whereas, pursuant to the Treaty, any discriminatory treatment with regard to establishment and to the provision of services, based either on nationality or on the fact that an undertaking is not established in the Member States where the services are provided, is prohibited from the end of the transitional period;

    Whereas, in order to make it easier to take up and pursue the business of credit institutions, it is necessary to eliminate the most obstructive differences between the laws of the Member States as regards the rules to which these institutions are subject;

    Whereas, however, given the extent of these differences, the conditions required for a common market for credit institutions cannot be created by means of a single Directive; whereas it is therefore necessary to proceed by successive stages; whereas the result of this process should be to provide for overall supervision of a credit institution operating in several Member States by the competent authorities in the Member State where it has its head office, in consultation, as appropriate, with the competent authorities of the other Member States concerned;

    Whereas measures to coordinate credit institutions must, both in order to protect savings and to create equal conditions of competition between these institutions, apply to all of them; whereas due regard must be had, where applicable, to the objective differences in their statutes and their proper aims as laid down by national laws;

    Whereas the scope of those measures should therefore be as broad as possible, covering all institutions whose business is to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities and to grant credits for their own account; whereas exceptions must be provided for in the case of certain credit institutions to which this Directive cannot apply;

    Whereas the provisions of this Directive shall not prejudice the application of national laws which provide for special supplementary authorizations permitting credit institutions to carry on specific activities or undertake specific kinds of operations;

    Whereas the same system of supervision cannot always be applied to all types of credit institution; whereas provision should therefore be made for application of this Directive to be deferred in the case of certain groups or types of credit institutions to which its immediate application might cause technical problems; whereas more specific provisions for such institutions may prove necessary in the future; whereas these specific provisions should nonetheless be based on a number of common principles;

    Whereas the eventual aim is to introduce uniform authorization requirements throughout the Community for comparable types of credit institution; whereas at the initial stage it is necessary, however, to specify only certain minimum requirements to be imposed by all Member States;

    Whereas this aim can be achieved only if the particularly wide discretionary powers which certain supervisory authorities have for authorizing credit establishments are progressively reduced; whereas the requirement that a programme of operations must be produced should therefore be seen merely as a factor enabling the competent authorities to decide on the basis of more precise information using objective criteria;

    Whereas the purpose of coordination is to achieve a system whereby credit institutions having their head office in one of the Member States are exempt from any national authorization requirement when setting up branches in other Member States;

    Whereas a measure of flexibility may nonetheless be possible in the initial stage as regards the requirements on the legal form of credit institutions and the protection of banking names;

    Whereas equivalent financial requirements for credit institutions will be necessary to ensure similar safeguards for savers and fair conditions of competition between comparable groups of credit institutions; whereas, pending further coordination, appropriate structural ratios should be formulated that will make it possible within the framework of cooperation between national authorities to observe, in accordance with standard methods, the position of comparable types of credit institutions; whereas this procedure should help to bring about the gradual approximation of the systems of coefficients established and applied by the Member States; whereas it is necessary, however, to make a distinction between coefficients intended to ensure the sound management of credit institutions and those established for the purposes of economic and monetary policy; whereas, for the purpose of formulating structural ratios and of more general cooperation between supervisory authorities, standardization of the layout of credit institutions’ accounts will have to begin as soon as possible;

    Whereas the rules governing branches of credit institutions having their head office outside the Community should be analogous in all Member States; whereas it is important at the present time to provide that such rules may not be more favourable than those for branches of institutions from another Member State; whereas it should be specified that the Community may conclude agreements with third countries providing for the application of rules which accord such branches the same treatment throughout its territory, account being taken of the principle of reciprocity;

    Whereas the examination of problems connected with matters covered by Council Directives on the business of credit institutions requires cooperation between the competent authorities and the Commission within an Advisory Committee, particularly when conducted with a view to closer coordination;

    Whereas the establishment of an Advisory Committee of the competent authorities of the Member States does not rule out other forms of cooperation between authorities which supervise the taking up and pursuit of the business of credit institutions and, in particular, cooperation within the Contact Committee set up between the banking supervisory authorities.

    Has adopted this Directive:

    Title I. Definitions and scope

    Article 1

    For the purposes of this Directive:

    • ‘credit institution’ means an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account,

    • ‘authorization’ means an instrument issued in any form by the authorities by which the right to carry on the business of a credit institution is granted,

    • ‘branch’ means a place of business which forms a legally dependent part of a credit institution and which conducts directly all or some of the operations inherent in the business of credit institutions; any number of branches set up in the same Member State by a credit institution having its head office in another Member State shall be regarded as a single branch, without prejudice to Article 4(1),

    • ‘own funds’ means the credit institution’s own capital, including items which may be treated as capital under national rules.

    Article 22

    1. This Directive shall apply to the taking up and pursuit of the business of credit institutions.

    2. It shall not apply to:

    • the central banks of Member States;

    • post office giro institutions;

    • in Belgium, the ‘Institut de Réescompte et de Garantie—Herdisconteringen Waarborginstituut’, the ‘sociétés nationales et régionales d’investissement—nationale engewestelijke investerings-maatschappijen’, the regional development companies (sociétés développement réginalesgewestelijke ontwik-kelingsmaatschappijen’), the ‘Sociétés Nationale du Logement—Nationale Maatschappij voor de Huisvesting’ and its authorized companies and the ‘Société Nationale Terrienne—Nationale Landmaatschappij’ and its authorized companies;

    • in Denmark, the ‘Dansk Eksportfinansieringsfond’, ‘Danmarks Skibskredit-fond’, ‘Industriens Realkreditfond’ and ‘Dansk Landbrugs Realkreditfond’;

    • in Germany, the ‘Kreditanstalt für Wiederaufbau’, undertakings which are recognized under the ‘Wohnungsgemeinnützigkeitsgesetz’ as bodies of State housing policy and are not mainly engaged in banking transactions and undertakings recognized under that law as non-profit housing undertakings;

    • in Greece, the “Eλληική Tράπϵξα Bιομηχανικήζ Aναπτύξϵωζ”, the “Tαμέιο Παρακατανηκών και Δανϵιων”, the “Tράπϵζα ϒπουηκών”, the “Tαχνδρομικό Tαμϵιϵντήριο” and the “Eλληνικαι Eξαγωγαι AE“;

    • in Spain, the ‘Instituto de Crédito Oficial, with the exception of its subsidiaries;

    • in France, the ‘Caisse des dépôts et consignations’;

    • in Ireland, credit unions and the friendly societies;

    • in Italy, the ‘Cassa Depositi et Prestiti’;

    • in the Netherlands, the ‘NV Export-Financieringsmaatschappij’, the ‘Nederlandse Financieringsmaatschappij voor Ontwikkelingslanden NV’, the ‘Nederlandse Investeringsbank voor Ontwikkelingslanden NV’, the ‘Nederlandse Waterschapsbank NV’, the ‘Financieringsmaatschappij Industrieel Gctmntiefonds Amsterdam NV’, the ‘Financieringsmaatschappij Industrieel Garantiefonds ‘s-Gravenhage NV’, the ‘NV Noordelijke Ontwikkelings maatschappij’, the ‘NV Industriebank Limburgs Instituut voor ontwikkeling en financiering’ and the ‘Overijsselse Ontwikfalingsmaatschappij NV’;

    • in Portugal, Caixas Economicas existing on 1 January 1986 which are not incorporated as limited companies;

    • in the United Kingdom, the National Savings Bank, the Commonwealth Development Finance Company Ltd, the Agricultural Mortgage Corporation Ltd, the Scottish Agricultural Securities Corporation Ltd, the Crown Agents for overseas governments and administrations, credit unions, and municipal banks.

    3. The Council, acting on a proposal from the Commission, which, for this purpose, shall consult the Committee referred to in Article 11 (hereinafter referred to as ‘the Advisory Committee’) shall decide on any amendments to the list in paragraph 2.

    4. (a) Credit institutions existing in the same Member State at the time of the notification of this Directive and permanently affiliated at that time to a central body which supervises them and which is established in that same Member State, may be exempted from the requirements listed in the first, second and third indents of the first subparagraph of Article 3(2), the second subparagraph of Article 3(2), Article 3(4) and Article 6, if, no later than the date when the national authorities take the measures necessary to translate this Directive into national law, that law provides that:

    • the commitments of the central body and affiliated institutions are joint and several liabilities or the commitments of its affiliated institutions are entirely guaranteed by the central body.

    • the solvency and liquidity of the central body and of all the affiliated institutions are monitored as a whole on the basis of consolidated accounts.

    • the management of the central body is empowered to issue instructions to the management of the affiliated institutions.

    (b) Credit institutions operating locally which are affiliated, subsequent to notification of this Directive, to a central body within the meaning of subparagraph (a) may benefit from the conditions laid down in subparagraph (a) if they constitute normal additions to the network belonging to that central body.

    (c) In the case of credit institutions other than those which are set up in areas newly reclaimed from the sea or have resulted from scission or mergers of existing institutions dependent or answerable to the central body, the Council, acting on a proposal from the Commission, which shall, for this purpose, consult the Advisory Committee, may lay down additional rules for the application of subparagraph (b) including the repeal of exemptions provided for in subparagraph (a), where it is of the opinion that the affiliation of new institutions benefiting from the arrangements laid down in subparagraph (b) might have an adverse effect on competition. The Council shall decide by a qualified majority.

    5. Member States may defer in whole or in part the application of this Directive to certain types or groups of credit institutions where such immediate application would cause technical problems which cannot be overcome in the short-term. The problems may result either from the fact that these institutions are subject to supervision by an authority different from that normally responsible for the supervision of banks, or from the fact that they are subject to a special system of supervision. In any event, such deferment cannot be justified by the public law statutes, by the smallness of size or by the limited scope of activity of the particular institutions concerned.

    Deferment can apply only to groups or types of institutions already existing at the time of notification of this Directive.

    6. Pursuant to paragraph 5, a Member State may decide to defer application of this Directive for a maximum period of five years from the notification thereof and, after consulting the Advisory Committee may extend deferment once only for a maximum period of three years.

    The Member State shall inform the Commission of its decision and the reasons therefor not later than six months following the notification of this Directive. It shall also notify the Commission of any extension or repeal of this decision. The Commission shall publish any decision regarding deferment in the Official Journal of the European Communities.

    Not later than seven years following the notification of this Directive, the Commission shall, after consulting the Advisory Committee, submit a report to the Council on the situation regarding deferment. Where appropriate, the Commission shall submit to the Council, not later than six months following the submission of its report, proposals for either the inclusion of the institutions in question in the list in paragraph 2 or for the authorization of a further extension of deferment. The Council shall act on these proposals not later than six months after their submission.

    Title II. Credit institutions having their head office in a Member State and their branches in other Member States

    Article 3

    1. Member States shall require credit institutions subject to this Directive to obtain authorization before commencing their activities. They shall lay down the requirements for such authorization subject to paragraphs 2, 3 and 4 and notify them to both the Commission and the Advisory Committee.

    2. Without prejudice to other conditions of general application laid down by national laws, the competent authorities shall grant authorization only when the following conditions are complied with:

    • the credit institution must possess separate own funds,

    • the credit institution must possess adequate minimum own funds,

    • there shall be at least two persons who effectively direct the business of the credit institution.

    Moreover, the authorities concerned shall not grant authorization if the persons referred to in the third indent of the first subparagraph are not of sufficiently good repute or lack sufficient experience to perform such duties.

    3. (a) The provisions referred to in paragraphs 1 and 2 may not require the application for authorization to be examined in terms of the economic needs of the market.

    (b) Where the laws, regulations or administrative provisions of a Member State provide, at the time of notification of the present Directive, that the economic needs of the market shall be a condition of authorization and where technical or structural difficulties in its banking system do not allow it to give up the criterion within the period laid down in Article 14(1), the State in question may continue to apply the criterion for a period of seven years from notification.

    It shall notify its decision and the reasons therefor to the Commission within six months of notification.

    (c) Within six years of the notification of this Directive the Commission shall submit to the Council, after consulting the Advisory Committee, a report on the application of the criterion of economic need. If appropriate, the Commission shall submit to the Council proposals to terminate the application of that criterion. The period referred to in subparagraph (b) shall be extended for one further period of five years, unless, in the meantime, the Council, acting unanimously on proposals from the Commission, adopts a Decision to terminate the application of that criterion.

    (d) The criterion of economic need shall be applied only on the basis of general predetermined criteria, published and notified to both the Commission and the Advisory Committee and aimed at promoting:

    • security of savings,

    • higher productivity in the banking system,

    • greater uniformity of competition between the various banking networks,

    • a broader range of banking services in relation to population and economic activity.

    Specification of the above objectives shall be determined within the Advisory Committee, which shall begin its work as from its initial meetings.

    4. Member States shall also require applications for authorization to be accompanied by a programme of operations setting out inter alia the types of business envisaged and the structural organization of the institution.

    5. The Advisory Committee shall examine the content given by the competent authorities to requirements listed in paragraph 2, any other requirements which the Member States apply and the information which must be included in the programme of operations, and shall, where appropriate, make suggestions to the Commission with a view to a more detailed coordination.

    6. Reasons shall be given whenever an authorization is refused and the applicant shall be notified thereof within six months of receipt of the application or, should the latter be incomplete, within six months of the applicant’s sending the information required for the decision. A decision shall, in any case, be taken within 12 months of the receipt of the application.

    7. Every authorization shall be notified to the Commission. Each credit institution shall be entered in a list which the Commission shall publish in the Official Journal of the European Communities and shall keep up to date.

    Article 4

    1. Member States may make the commencement of business in their territory by branches of credit institutions covered by this Directive which have their head office in another Member State subject to authorization according to the law and procedure applicable to credit institutions established on their territory.

    2. However, authorization may not be refused to a branch of a credit institution on the sole ground that it is established in another Member State in a legal form which is not allowed in the case of a credit institution carrying out similar activities in the host country. This provision shall not apply, however, to credit institutions which possess no separate own funds.

    3. The competent authorities shall inform the Commission of any authorizations which they grant to the branches referred to in paragraph 1.

    4. This Article shall not affect the rules applied by Member States to branches set up on their territory by credit institutions which have their head office there. Notwithstanding the second part of the third indent of Article 1, the laws of Member States requiring a separate authorization for each branch of a credit institution having its head office in their territory shall apply equally to the branches of credit institutions the head offices of which are in other Member States.

    Article 5

    For the purpose of exercising their activities, credit institutions to which this Directive applies may, notwithstanding any provisions concerning the use of the words ‘bank’, ‘saving bank’ or other banking names which may exist in the host Member State, use throughout the territory of the Community the same name as they use in the Member State in which their head office is situated. In the event of there being any danger of confusion, the host Member State may, for the purposes of clarification, require that the name be accompanied by certain explanatory particulars.

    Article 6

    1. Pending subsequent coordination, the competent authorities shall, for the purposes of observation and, if necessary, in addition to such coefficients as may be applied by them, establish ratios between the various assets and/or liabilities of credit institutions with a view to monitoring their solvency and liquidity and the other measures which may serve to ensure that savings are protected.

    To this end, the Advisory Committee shall decide on the content of the various factors of the observation ratios referred to in the first subparagraph and lay down the method to be applied in calculating them.

    Where appropriate, the Advisory Committee shall be guided by technical consultations between the supervisory authorities of the categories of institutions concerned.

    2. The observation ratios established in pursuance of paragraph 1 shall be calculated at least every six months.

    3. The Advisory Committee shall examine the results of analyses carried out by the supervisory authorities referred to in the third subparagraph of paragraph 1 on the basis of the calculations referred to in paragraph 2.

    4. The Advisory Committee may make suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States.

    Article 7

    1. The competent authorities of the Member States concerned shall collaborate closely in order to supervise the activities of credit institutions operating, in particular by having established branches there, in one or more Member States other than that in which their head offices are situated. They shall supply one another with all information concerning the management and ownership of such credit institutions that is likely to facilitate their supervision and the examination of the conditions for their authorization and all information likely to facilitate the monitoring of their liquidity and solvency.

    2. The competent authorities may also, for the purposes and within the meaning of Article 6, lay down ratios applicable to the branches referred to in this Article by reference to the factors laid down in Article 6.

    3. The Advisory Committee shall take account of the adjustments necessitated by the specific situation of the branches in relation to national regulations.

    Article 8

    1. The competent authorities may withdraw the authorization issued to a credit institution subject to this Directive or to a branch authorized under Article 4 only where such an institution or branch:

    • (a) does not make use of the authorization within 12 months, expressly renounces the authorization or has ceased to engage in business for more than six months, if the Member State concerned has made no provision for the authorization to lapse in such cases;

    • (b) has obtained the authorization through false statements or any other irregular means;

    • (c) no longer fulfills the conditions under which authorization was granted, with the exception of those in respect of own funds;

    • (d) no longer possesses sufficient own funds or can no longer be relied upon to fulfill its obligations towards its creditors, and in particular no longer provides security for the assets entrusted to it;

    • (e) falls within one of the other cases where national law provides for withdrawal of authorization.

    2. In addition, the authorization issued to a branch under Article 4 shall be withdrawn if the competent authority of the country in which the credit institution which established the branch has its head office has withdrawn authorization from the institution.

    3. Member States which grant the authorizations referred to in Articles 3(1) and 4(1) only if, economically, the market situation requires it may not invoke the disappearance of such a need as grounds for withdrawing such authorizations.

    4. Before withdrawal from a branch of an authorization granted under Article 4, the competent authority of the Member State in which its head office is situated shall be consulted. Where immediate action is called for, notification may take the place of such consultation. The same procedure shall be followed, by analogy, in cases of withdrawal of authorization from a credit institution which has branches in other Member States.

    5. Reasons must be given for any withdrawal of authorization and those concerned informed thereof; such withdrawal shall be notified to the Commission.

    Title III. Branches of credit institutions having their head offices outside the Community

    Article 9

    1. Member States shall not apply to branches of credit institutions having their head office outside the Community, when commencing or carrying on their business, provisions which result in more favourable treatment than that accorded to branches of credit institutions having their head office in the Community.

    2. The competent authorities shall notify the Commission and the Advisory Committee of all authorizations for branches granted to credit institutions having their head office outside the Community.

    3. Without prejudice to paragraph 1, the Community may, through agreements concluded in accordance with the Treaty with one or more third countries, agree to apply provisions which, on the basis of the principle of reciprocity, accord to branches of a credit institution having its head office outside the Community identical treatment throughout the territory of the Community.

    Title IV. General and transitional provisions

    Article 10

    1. Credit institutions subject to this Directive, which took up their business in accordance with the provisions of the Member States in which they have their head offices before the entry into force of the provisions implementing this Directive shall be deemed to be authorized. They shall be subject to the provisions of this Directive concerning the carrying on of the business of credit institutions and to the requirements set out in the first and third indents of the first subparagraph and in the second subparagraph of Article 3(2).

    Member States may allow credit institutions which at the time of notification of this Directive do not comply with the requirement laid down in the third indent of the first subparagraph of Article 3(2), no more than five years in which to do so.

    Member States may decide that undertakings which do not fulfill the requirements set out in the first indent of the first subparagraph of Article 3(2) and which are in existence at the time this Directive enters into force may continue to carry on their business. They may exempt such undertakings from complying with the requirement contained in the third indent of the first subparagraph of Article 3(2).

    2. All the credit institutions referred to in paragraph 1 shall be given in the list referred to in Article 3(7).

    3. If a credit institution deemed to be authorized under paragraph 1 has not undergone any authorization procedure prior to commencing business, a prohibition on the carrying on of its business shall take the place of withdrawal of authorization.

    Subject to the first subparagraph, Article 8 shall apply by analogy.

    4. By way of derogation from paragraph 1, credit institutions established in a Member State without having undergone an authorization procedure in that Member State prior to commencing business may be required to obtain authorization from the competent authorities of the Member State concerned in accordance with the provisions implementing this Directive. Such institutions may be required to comply with the requirement in the second indent of Article 3(2) and with such other conditions of general application as may be laid down by the Member State concerned.

    Article 11

    1. An ‘Advisory Committee of the Competent Authorities of the Member States of the European Economic Community’ shall be set up alongside the Commission.

    2. The tasks of the Advisory Committee shall be to assist the Commission in ensuring the proper implementation of both this Directive and Council Directive 73/183/EEC of 28 June 1973 on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of self-employed activities of banks and other financial institutions in so far as it relates to credit institutions. Further it shall carry out the other tasks prescribed by this Directive and shall assist the Commission in the preparation of new proposals to the Council concerning further coordination in the sphere of credit institutions.

    3. The Advisory Committee shall not concern itself with concrete problems relating to individual credit institutions.

    4. The Advisory Committee shall be composed of not more than three representatives from each Member State and from the Commission. These representatives may be accompanied by advisers from time to time and subject to the prior agreement of the Committee. The Committee may also invite qualified persons and experts to participate in its meetings. The secretariat shall be provided by the Commission.

    5. The first meeting of the Advisory Committee shall be convened by the Commission under the chairmanship of one of its representatives. The Advisory Committee shall then adopt its rules of procedure and shall elect a chairman from among the representatives of Member States. Thereafter it shall meet at regular intervals and whenever the situation demands. The Commission may ask the Committee to hold an emergency meeting if it considers that the situation so requires.

    6. The Advisory Committee’s discussions and the outcome thereof shall be confidential except when the Committee decides otherwise.

    Article 12

    1. Member States shall ensure that all persons now or in the past employed by the competent authorities are bound by the obligation of professional secrecy. This means that any confidential information which they may receive in the course of their duties may not be divulged to any person or authority except by virtue of provisions laid down by law.

    2. Paragraph 1 shall not, however, preclude communications between the competent authorities of the various Member States, as provided for in this Directive. Information thus exchanged shall be covered by the obligation of professional secrecy applying to the persons now or in the past employed by the competent authorities receiving the information.

    3. Without prejudice to cases covered by criminal law, the authorities receiving such information shall use it only to examine the conditions for the taking up and pursuit of the business of credit institutions, to facilitate monitoring of the liquidity and solvency of these institutions or when the decisions of the competent authority are the subject of an administrative appeal or in court proceedings initiated pursuant to Article 13.

    Article 13

    Member States shall ensure that decisions taken in respect of a credit institution in pursuance of laws, regulations and administrative provisions adopted in accordance with this Directive may be subject to the right to apply to the courts. The same shall apply where no decision is taken within six months of its submission in respect of an application for authorization which contains all the information required under the provisions in force.

    Title V. Final provisions

    Article 14

    1. Member States shall bring into force the measures necessary to comply with this Directive within 24 months of its notification and shall forthwith inform the Commission thereof.

    2. As from the notification of this Directive, Member States shall communicate to the Commission the texts of the main laws, regulations and administrative provisions which they adopt in the field covered by this Directive.

    Article 15

    This Directive is addressed to the Member States.

    Done at Brussels, 12 December 1977.

    For the Council

    The President

    A. Humblet

    As of December 1989, this Directive had been amended by Directive 85/345/EEC, Directive 86/524/EEC, and Directive 89/646/EEC (Second Banking Directive, reprinted herein as Appendix 1-2). This text includes only the amendment of Directive 86/524/EEC. See also Directive 86/137/EEC authorizing certain member states to defer further the application of Directive 77/780/EEC as regards certain credit institutions.

    As amended by Council Directive 86/S24/EEC.

    Appendix I 2 European Community Second Banking Directive

    Second Council Directive

    of 15 December 1989

    on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC

    (89/646/EEC)

    as corrected

    The Council of the European Communities,

    Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57(2) thereof,

    Having regard to the proposal from the Commission,

    In cooperation with the European Parliament,

    Having regard to the opinion of the Economic and Social Committee,

    Whereas this Directive is to constitute the essential instrument for the achievement of the internal market, a course determined by the Single European Act and set out in timetable form in the Commission’s White Paper, from the point of view of both the freedom of establishment and the freedom to provide financial services, in the field of credit institutions;

    Whereas this Directive will join the body of Community legislation already enacted, in particular the first Council Directive 77/780/EEC of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions, as last amended by Directive 86/524/EEC, Council Directive 83/350/EEC of 13 June 1983 on the supervision of credit institutions on a consolidated basis, Council Directive 86/635/EEC of 8 December 1986 on the annual and consolidated accounts of banks and other financial institutions and Council Directive 89/299/EEC of 17 April 1989 on the own funds of credit institutions;

    Whereas the Commission has adopted recommendations 87/62/EEC on large exposures of credit institutions and 87/63/EEC concerning the introduction of deposit-guarantee schemes;

    Whereas the approach which has been adopted is to achieve only the essential harmonization necessary and sufficient to secure the mutual recognition of authorization and of prudential supervision systems, making possible the granting of a single license recognized throughout the Community and the application of the principle of home Member State prudential supervision;

    Whereas, in this context, this Directive can be implemented only simultaneously with specific Community legislation dealing with the additional harmonization of technical matters relating to own funds and solvency ratios;

    Whereas, moreover, the harmonization of the conditions relating to the reorganization and winding-up of credit institutions is also proceeding;

    Whereas the arrangements necessary for the supervision of the liquidity, market, interest-rate and foreign-exchange risks run by credit institutions will also have to be harmonized;

    Whereas the principles of mutual recognition and of home Member State control require the competent authorities of each Member State not to grant authorization or to withdraw it where factors such as the activities programme, the geographical distribution or the activities actually carried on make it quite clear that a credit institution has opted for the legal system of one Member State for the purpose of evading the stricter standards in force in another Member State in which it intends to carry on or carries on the greater part of its activities; whereas, for the purposes of this Directive, a credit institution shall be deemed to be situated in the Member State in which it has its registered office; whereas the Member States must require that the head office be situated in the same Member State as the registered office;

    Whereas the home Member State may also establish rules stricter than those laid down in Articles 4, 5, 11, 12 and 16 for institutions authorized by its competent authorities;

    Whereas responsibility for supervising the financial soundness of a credit institution, and in particular its solvency, will rest with the competent authorities of its home Member State; whereas the host Member State’s competent authorities will retain responsibility for the supervision of liquidity and monetary policy; whereas the supervision of market risk must be the subject of close cooperation between the competent authorities of the home and host Member States;

    Whereas the harmonization of certain financial and investment services will be effected, where the need exists, by specific Community instruments, with the intention, in particular, of protecting consumers and investors; whereas the Commission has proposed measures for the harmonization of mortgage credit in order, inter alia, to allow mutual recognition of the financial techniques peculiar to that sphere;

    Whereas, by virtue of mutual recognition, the approach chosen permits credit institutions authorized in their home Member States to carry on, throughout the Community, any or all of the activities listed in the Annex by establishing branches or by providing services;

    Whereas the carrying-on of activities not listed in the Annex shall enjoy the right of establishment and the freedom to provide services under the general provisions of the Treaty;

    Whereas it is appropriate, however, to extend mutual recognition to the activities listed in the Annex when they are carried on by financial institutions which are subsidiaries of credit institutions, provided that such subsidiaries are covered by the consolidated supervision of their parent undertakings and meet certain strict conditions;

    Whereas the host Member State may, in connection with the exercise of the right of establishment and the freedom to provide services, require compliance with specific provisions of its own national laws or regulations on the part of institutions not authorized as credit institutions in their home Member States and with regard to activities not listed in the Annex provided that, on the one hand, such provisions are compatible with Community law and are intended to protect the general good and that, on the other hand, such institutions or such activities are not subject to equivalent rules under the legislation or regulations of their home Member States;

    Whereas the Member States must ensure that there are no obstacles to carrying on activities receiving mutual recognition in the same manner as in the home Member State, as long as the latter do not conflict with legal provisions protecting the general good in the host Member State;

    Whereas the abolition of the authorization requirement with respect to the branches of Community credit institutions once the harmonization in progress has been completed necessitates the abolition of endowment capital; whereas Article 6(2) constitutes a first transitional step in this direction, but does not, however, affect the Kingdom of Spain or the Portuguese Republic, as provided for in the Act concerning the conditions of those States’ accession to the Community;

    Whereas there is a necessary link between the objective of this Directive and the liberalization of capital movements being brought about by the other Community legislation; whereas in any case the measures regarding the liberalization of banking services must be in harmony with the measures liberalizing capital movements; whereas where the Member States may, by virtue of Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty, invoke safeguard clauses in respect of capital movements, they may suspend the provision of banking services to the extent necessary for the implementation of the abovementioned safeguard clauses;

    Whereas the procedures established in Directive 77/780/EEC, in particular with regard to the authorization of branches of credit institutions authorized in third countries, will continue to apply to such institutions; whereas those branches will not enjoy the freedom to provide services under the second paragraph of Article 59 of the Treaty or the freedom of establishment in Member States other than those in which they are established; whereas, however, requests for the authorization of subsidiaries or of the acquisition of holdings made by undertakings governed by the laws of third countries are subject to a procedure intended to ensure that Community credit institutions receive reciprocal treatment in the third countries in question;

    Whereas the authorizations granted to credit institutions by the competent national authorities pursuant to this Directive will have Community-wide, and no longer merely nationwide, application, and whereas existing reciprocity clauses will henceforth have no effect; whereas a flexible procedure is therefore needed to make it possible to assess reciprocity on a Community basis; whereas the aim of this procedure is not to close the Community’s financial markets but rather, as the Community intends to keep its financial markets open to the rest of the world, to improve the liberalization of the global financial markets in other third countries; whereas, to that end, this Directive provides for procedures for negotiating with third countries and, as a last resort, for the possibility of taking measures involving the suspension of new applications for authorization or the restriction of new authorizations;

    Whereas the smooth operation of the internal banking market will require not only legal rules but also close and regular cooperation between the competent authorities of the Member States; whereas for the consideration of problems concerning individual credit institutions the Contact Committee set up between the banking supervisory authorities, referred to in the final recital of Directive 77/780/EEC, remains the most appropriate forum; whereas that Committee is a suitable body for the mutual exchange of information provided for in Article 7 of that Directive;

    Whereas that mutual information procedure will not in any case replace the bilateral collaboration established by Article 7 of Directive 77/780/ EEC; whereas the competent host Member State authorities can, without prejudice to their powers of control proper, continue either, in an emergency, on their own initiative or following the initiative of the competent home Member State authorities to verify that the activities of a credit institution established within their territories comply with the relevant laws and with the principles of sound administrative and accounting procedures and adequate internal control;

    Whereas technical modifications to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the banking sector; whereas the Commission shall accordingly make such modifications as are necessary, after consulting the Banking Advisory Committee, within the limits of the implementing powers conferred on the Commission by the Treaty; whereas that Committee shall act as a ‘Regulatory’ Committee, according to the rules of procedure laid down in Article 2, procedure III, variant (b), of Council Decision 87/373/EEC of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission,

    Has Adopted This Directive:

    Title I. Definitions and scope

    Article 1

    For the purpose of this Directive:

    • 1. ‘credit institution’ shall mean a credit institution as defined in the first indent of Article 1 of Directive 77/780/EEC;

    • 2. ‘authorization’ shall mean authorization as defined in the second indent of Article 1 of Directive 77/780/EEC;

    • 3. ‘branch’ shall mean a place of business which forms a legally dependent part of a credit institution and which carries out directly all or some of the transactions inherent in the business of credit institutions; any number of places of business set up in the same Member State by a credit institution with headquarters in another Member State shall be regarded as a single branch;

    • 4. ‘own funds’ shall mean own funds as defined in Directive 89/299/ EEC;

    • 5. ‘competent authorities’ shall mean competent authorities as defined in Article 1 of Directive 83/350/EEC;

    • 6. ‘financial institution’ shall mean an undertaking other than a credit institution the principal activity of which is to acquire holdings or to carry on one or more of the activities listed in points 2 to 12 in the Annex;

    • 7. ‘home Member State’ shall mean the Member State in which a credit institution has been authorized in accordance with Article 3 of Directive 77/780/EEC;

    • 8. ‘host Member State’ shall mean the Member State in which a credit institution has a branch or in which it provides services;

    • 9. ‘control’ shall mean the relationship between a parent undertaking and a subsidiary, as defined in Article 1 of Directive 83/349/EEC, or a similar relationship between any natural or legal person and an undertaking;

    • 10. ‘qualifying holding’ shall mean a direct or indirect holding in an undertaking which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of the undertaking in which a holding subsists.

    For the purposes of this definition, in the context of Articles 5 and 11 and of the other levels of holding referred to in Article 11, the voting rights referred to in Article 7 of Directive 88/627/EEC shall be taken into consideration;

    • 11. ‘initial capital’ shall mean capital as defined in Article 2(1)(1) and (2) of Directive 89/299/EEC;

    • 12. ‘parent undertaking’ shall mean a parent undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC;

    • 13. ‘subsidiary’ shall mean a subsidiary undertaking as defined in Articles 1 and 2 of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall also be regarded as a subsidiary of the parent undertaking which is at the head of those undertakings;

    • 14. ‘solvency ratio’ shall mean the solvency coefficient of credit institutions calculated in accordance with Directive 89/647/EEC.

    Article 2

    1. This Directive shall apply to all credit institutions.

    2. It shall not apply to the institutions referred to in Article 2(2) of Directive 77/780/EEC.

    3. A credit institution which, as defined in Article 2(4)(a) of Directive 77/780/EEC, is affiliated to a central body in the same Member State may be exempted from the provisions of Articles 4, 10 and 12 of this Directive provided that, without prejudice to the application of those provisions to the central body, the whole as constituted by the central body together with its affiliated institutions is subject to the abovementioned provisions on a consolidated basis.

    In cases of exemption, Articles 6 and 18 to 21 shall apply to the whole as constituted by the central body together with its affiliated institutions.

    Article 3

    The Member States shall prohibit persons or undertakings that are not credit institutions from carrying on the business of taking deposits or other repayable funds from the public. This prohibition shall not apply to the taking of deposits or other funds repayable by a Member State or by a Member State’s regional or local authorities or by public international bodies of which one or more Member States are members or to cases expressly covered by national or Community legislation, provided that those activities are subject to regulations and controls intended to protect depositors and investors and applicable to those cases.

    Title II. Harmonization of authorization conditions

    Article 4

    1. The competent authorities shall not grant authorization in cases where initial capital is less than ECU 5 million.

    2. The Member States shall, however, have the option of granting authorization to particular categories of credit institutions the initial capital of which is less than that prescribed in paragraph 1. In such cases:

    • (a) the initial capital shall not be less than ECU 1 million;

    • (b) the Member States concerned must notify the Commission of their reasons for making use of the option provided for in this paragraph;

    • (c) when the list referred to in Article 3(7) of Directive 77/780/EEC is published, the name of each credit institution that does not have the minimum capital prescribed in paragraph 1 shall be annotated to that effect;

    • (d) within five years of the date referred to in Article 24(1), the Commission shall draw up a report on the application of this paragraph in the Member States, for the attention of the Banking Advisory Committee referred to in Article 11 of Directive 77/780/EEC.

    Article 5

    The competent authorities shall not grant authorization for the taking-up of the business of credit institutions before they have been informed of the identities of the shareholders or members, whether direct or indirect, natural or legal persons, that have qualifying holdings, and of the amounts of those holdings.

    The competent authorities shall refuse authorization if, taking into account the need to ensure the sound and prudent management of a credit institution, they are not satisfied as to the suitability of the abovementioned shareholders or members.

    Article 6

    1. Host Member States may no longer require authorization, as provided for in Article 4 of Directive 77/780/EEC, or endowment capital for branches of credit institutions authorized in other Member States. The establishment and supervision of such branches shall be effected as prescribed in Articles 13, 19 and 21 of this Directive.

    2. Until the entry into force of the provisions implementing paragraph 1, host Member States may not, as a condition of the authorization of branches of credit institutions authorized in other Member States, require initial endowment capital exceeding 50% of the initial capital required by national rules for the authorization of credit institutions of the same nature.

    3. Credit institutions shall be entitled to the free use of the funds no longer required pursuant to paragraphs 1 and 2.

    Article 7

    There must be prior consultation with the competent authorities of the other Member State involved on the authorization of a credit institution which is:

    • a subsidiary of a credit institution authorized in another Member State, or

    • a subsidiary of the parent undertaking of a credit institution authorized in another Member State, or

    • controlled by the same persons, whether natural or legal, as control a credit institution authorized in another Member State.

    Title III. Relations with third countries

    Article 8

    The competent authorities of the Member States shall inform the Commission:

    • (a) of any authorization of a direct or indirect subsidiary one or more parent undertakings of which are governed by the laws of a third country. The Commission shall inform the Banking Advisory Committee accordingly;

    • (b) whenever such a parent undertaking acquires a holding in a Community credit institution such that the latter would become its subsidiary. The Commission shall inform the Banking Advisory Committee accordingly.

    When authorization is granted to the direct or indirect subsidiary of one or more parent undertakings governed by the law of third countries, the structure of the group shall be specified in the notification which the competent authorities shall address to the Commission in accordance with Article 3(7) of Directive 77/780/EEC.

    Article 9

    1. The Member States shall inform the Commission of any general difficulties encountered by their credit institutions in establishing themselves or carrying on banking activities in a third country.

    2. Initially no later than six months before the application of this Directive and thereafter periodically, the Commission shall draw up a report examining the treatment accorded to Community credit institutions in third countries, in the terms referred to in paragraphs 3 and 4, as regards establishment and the carrying-on of banking activities, and the acquisition of holdings in third-country credit institutions. The Commission shall submit those reports to the Council, together with any appropriate proposals.

    3. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 2 or on the basis of other information, that a third country is not granting Community credit institutions effective market access comparable to that granted by the Community to credit institutions from that third country, the Commission may submit proposals to the Council for the appropriate mandate for negotiation with a view to obtaining comparable competitive opportunities for Community credit institutions. The Council shall decide by a qualified majority.

    4. Whenever it appears to the Commission, either on the basis of the reports referred to in paragraph 2 or on the basis of other information that Community credit institutions in a third country do not receive national treatment offering the same competitive opportunities as are available to domestic credit institutions and the conditions of effective market access are not fulfilled, the Commission may initiate negotiations in order to remedy the situation.

    In the circumstances described in the first subparagraph, it may also be decided at any time, and in addition to initiating negotiations, in accordance with the procedure laid down in Article 22(2), that the competent authorities of the Member States must limit or suspend their decisions regarding requests pending at the moment of the decision or future requests for authorizations and the acquisition of holdings by direct or indirect parent undertakings governed by the laws of the third country in question. The duration of the measures referred to may not exceed three months.

    Before the end of that three-month period, and in the light of the results of the negotiations, the Council may, acting on a proposal from the Commission, decide by a qualified majority whether the measures shall be continued.

    Such limitations or suspension may not apply to the setting up of subsidiaries by credit institutions or their subsidiaries duly authorized in the Community, or to the acquisition of holdings in Community credit institutions by such institutions or subsidiaries.

    5. Whenever it appears to the Commission that one of the situations described in paragraphs 3 and 4 obtains, the Member States shall inform it at its request:

    • (a) of any request for the authorization of a direct or indirect subsidiary one or more parent undertakings of which are governed by laws of the third country in question;

    • (b) whenever they are informed in accordance with Article 11 that such an undertaking proposes to acquire a holding in a Community credit institution such that the latter would become its subsidiary.

    This obligation to provide information shall lapse whenever an agreement is reached with the third country referred to in paragraphs 3 or 4 or when the measures referred to in the second and third subparagraphs of paragraph 4 cease to apply.

    6. Measures taken pursuant to this Article shall comply with the Community’s obligations under any international agreements, bilateral or multilateral, governing the taking-up and pursuit of the business of credit institutions.

    Title IV. Harmonization of the conditions governing pursuit of the business of credit institutions

    Article 10

    1. A credit institution’s own funds may not fall below the amount of initial capital required pursuant to Article 4 at the time of its authorization.

    2. The Member States may decide that credit institutions already in existence when the Directive is implemented, the own funds of which do not attain the levels prescribed for initial capital in Article 4, may continue to carry on their activities. In that event, their own funds may not fall below the highest level reached after the date of the notification of this Directive.

    3. If control of a credit institution falling within the category referred to in paragraph 2 is taken by a natural or legal person other than the person who controlled the institution previously, the own funds of that institution must attain at least the level prescribed for initial capital in Article 4.

    4. However, in certain specific circumstances and with the consent of the competent authorities, where there is a merger of two or more credit institutions falling within the category referred to in paragraph 2, the own funds of the institution resulting from the merger may not fall below the total own funds of the merged institutions at the time of the merger, as long as the appropriate levels pursuant to Article 4 have not been attained.

    5. However, if, in the cases referred to in paragraphs 1, 2 and 4, the own funds should be reduced, the competent authorities may, where the circumstances justify it, allow an institution a limited period in which to rectify its situation or cease its activities.

    Article 11

    1. The Member States shall require any natural or legal person who proposes to acquire, directly or indirectly, a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of the intended holding. Such a person must likewise inform the competent authorities if he proposes to increase his qualifying holdings so that the proportion of the voting rights or of the capital held by him would reach or exceed 20%, 33% or 50% or so that the credit institution would become his subsidiary.

    Without prejudice to the provisions of paragraph 2 the competent authorities shall have a maximum of three months from the date of the notification provided for in the first subparagraph to oppose such a plan if, in view of the need to ensure sound and prudent management of the credit institution, they are not satisfied as to the suitability of the person referred to in the first subparagraph. If they do not oppose the plan referred to in the first subparagraph, they may fix a maximum period for its implementation.

    2. If the acquirer of the holdings referred to in paragraph 1 is a credit institution authorized in another Member State or the parent undertaking of a credit institution authorized in another Member State or a natural or legal person controlling a credit institution authorized in another Member State and if, as a result of that acquisition, the institution in which the acquirer proposes to acquire a holding would become a subsidiary or subject to the control of the acquirer, the assessment of the acquisition must be the subject of the prior consultation referred to in Article 7.

    3. The Member States shall require any natural or legal person who proposes to dispose, directly or indirectly, of a qualifying holding in a credit institution first to inform the competent authorities, telling them of the size of his intended holding. Such a person must likewise inform the competent authorities if he proposes to reduce his qualifying holding so that the proportion of the voting rights or of the capital held by him would fall below 20%, 33% or 50% or so that the credit institution would cease to be his subsidiary.

    4. On becoming aware of them, credit institutions shall inform the competent authorities of any acquisitions or disposals of holdings in their capital that cause holdings to exceed or fall below one of the thresholds referred to in paragraphs 1 and 3.

    They shall also, at least once a year, inform them of the names of shareholders and members possessing qualifying holdings and the sizes of such holdings as shown, for example, by the information received at the annual general meetings of shareholders and members or as a result of compliance with the regulations relating to companies listed on stock exchanges.

    5. The Member States shall require that, where the influence exercised by the persons referred to in paragraph 1 is likely to operate to the detriment of the prudent and sound management of the institution, the competent authorities shall take appropriate measures to put an end to that situation. Such measures may consist for example in injunctions, sanctions against directors and managers, or the suspension of the exercise of the voting rights attaching to the shares held by the shareholders or members in question.

    Similar measures shall apply to natural or legal persons failing to comply with the obligation to provide prior information, as laid down in paragraph 1. If a holding is acquired despite the opposition of the competent authorities, the Member States shall, regardless of any other sanctions to be adopted, provide either for exercise of the corresponding voting rights to be suspended, or for the nullity of votes cast or for the possibility of their annulment.

    Article 12

    1. No credit institution may have a qualifying holding the amount of which exceeds 15% of its own funds in an undertaking which is neither a credit institution, nor a financial institution, nor an undertaking carrying on an activity referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC.

    2. The total amount of a credit institution’s qualifying holdings in undertakings other than credit institutions, financial institutions or undertakings carrying on activities referred to in the second subparagraph of Article 43(2)(f) of Directive 86/635/EEC may not exceed 60% of its own funds.

    3. The Member States need not apply the limits laid down in paragraphs 1 and 2 to holdings in insurance companies as defined in Directive 73/239/ EEC, as last amended by Directive 88/357/EEC, and Directive 79/267/ EEC, as last amended by the Act of Accession of 1985.

    4. Shares held temporarily during a financial reconstruction or rescue operation or during the normal course of underwriting or in an institution’s own name on behalf of others shall not be counted as qualifying holdings for the purpose of calculating the limits laid down in paragraphs 1 and 2. Shares which are not financial fixed assets as defined in Article 35(2) of Directive 86/635/EEC shall not be included.

    5. The limits laid down in paragraphs 1 and 2 may be exceeded only in exceptional circumstances. In such cases, however, the competent authorities shall require a credit institution either to increase its own funds or to take other equivalent measures.

    6. Compliance with the limits laid down in paragraphs 1 and 2 shall be ensured by means of supervision and monitoring on a consolidated basis in accordance with Directive 83/350/EEC.

    7. Credit institutions which, on the date of entry into force of the provisions implementing this Directive, exceed the limits laid down in paragraphs 1 and 2 shall have a period of 10 years from that date in which to comply with them.

    8. The Member States may provide that the competent authorities shall not apply the limits laid down in paragraphs 1 and 2 if they provide that 100% of the amounts by which a credit institution’s qualifying holdings exceed those limits must be covered by own funds and that the latter shall not be included in the calculation of the solvency ratio. If both the limits laid down in paragraphs 1 and 2 are exceeded, the amount to be covered by own funds shall be the greater of the excess amounts.

    Article 13

    1. The prudential supervision of a credit institution, including that of the activities it carries on in accordance with Article 18, shall be the responsibility of the competent authorities of the home Member State, without prejudice to those provisions of this Directive which give responsibility to the authorities of the host Member State.

    2. Home Member State competent authorities shall require that every credit institution have sound administrative and accounting procedures and adequate internal control mechanisms.

    3. Paragraphs 1 and 2 shall not prevent supervision on a consolidated basis pursuant to Directive 83/350/EEC.

    Article 14

    1. In Article 7(1) of Directive 77/780/EEC, the end of the second sentence is hereby replaced by the following: ‘and all information likely to facilitate the monitoring of such institutions, in particular with regard to liquidity, solvency, deposit guarantees, the limiting of large exposures, administrative and accounting procedures and internal control mechanisms’.

    2. Host Member States shall retain responsibility in cooperation with the competent authorities of the home Member State for the supervision of the liquidity of the branches of credit institutions pending further coordination. Without prejudice to the measures necessary for the reinforcement of the European Monetary System, host Member States shall retain complete responsibility for the measures resulting from the implementation of their monetary policies. Such measures may not provide for the discriminatory or restrictive treatment based on the fact that a credit institution is authorized in another Member State.

    3. Without prejudice to further coordination of the measures designed to supervise the risks arising out of open positions on markets, where such risks result from transactions carried out on the financial markets of other Member States, the competent authorities of the latter shall collaborate with the competent authorities of the home Member State to ensure that the institutions concerned take steps to cover those risks.

    Article 15

    1. Host Member States shall provide that, where a credit institution authorized in another Member State carries on its activities through a branch, the competent authorities of the home Member State may, after having first informed the competent authorities of the host Member State, carry out themselves or through the intermediary of persons they appoint for that purpose on-the-spot verification of the information referred to in Article 7(1) of Directive 77/780/EEC.

    2. The competent authorities of the home Member State may also, for purposes of the verification of branches, have recourse to one of the other procedures laid down in Article 5(4) of Directive 83/350/EEC.

    3. This Article shall not affect the right of the competent authorities of the host Member State to carry out, in the discharge of their responsibilities under this Directive, on-the-spot verifications of branches established within their territory.

    Article 16

    Article 12 of Directive 77/780/EEC is hereby replaced by the following:

    Article 12

    • 1. The Member States shall provide that all persons working or who have worked for the competent authorities, as well as auditors or experts acting on behalf of the competent authorities, shall be bound by the obligation of professional secrecy. This means that no confidential information which they may receive in the course of their duties may be divulged to any person or authority whatsoever, except in summary or collective form, such that individual institutions cannot be identified, without prejudice to cases covered by criminal law.

      Nevertheless, where a credit institution has been declared bankrupt or is being compulsorily wound up, confidential information which does not concern third parties involved in attempts to rescue that credit institution may be divulged in civil or commercial proceedings.

    • 2. Paragraph 1 shall not prevent the competent authorities of the various Member States from exchanging information in accordance with the Directives applicable to credit institutions. That information shall be subject to the conditions of professional secrecy indicated in paragraph 1.

    • 3. Member States may conclude cooperation agreements, providing for exchanges of information, with the competent authorities of third countries only if the information disclosed is subject to guarantees of professional secrecy at least equivalent to those referred to in this Article.

    • 4. Competent authorities receiving confidential information under paragraphs 1 or 2 may use it only in the course of their duties:

    • to check that the conditions governing the taking-up of the business of credit institutions are met and to facilitate monitoring, on a non-consolidated or consolidated basis, of the conduct of such business, especially with regard to the monitoring of liquidity, solvency, large exposures, and administrative and accounting procedures and internal control mechanisms, or

    • to impose sanctions, or

    • in an administrative appeal against a decision of the competent authority, or

    • in court proceedings initiated pursuant to Article 15 or to special provisions provided for in the Directives adopted in the field of credit institutions.

    • 5. Paragraphs 1 and 4 shall not preclude the exchange of information within a Member State, where there are two or more competent authorities in the same Member State, or between Member States, between competent authorities and:

    • authorities entrusted with the public duty of supervising other financial organizations and insurance companies and the authorities responsible for the supervision of financial markets,

    • bodies involved in the liquidation and bankruptcy of credit institutions and in other similar procedures,

    • persons responsible for carrying out statutory audits of the accounts of credit institutions and other financial institutions, in the discharge of their supervisory functions, and the disclosure to bodies which administer deposit-guarantee schemes of information necessary to the exercise of their functions. The information received shall be subject to the conditions of professional secrecy indicated in paragraph 1.

    • 6. Nor shall the provisions of this Article preclude a competent authority from disclosing to those central banks which do not supervise credit institutions individually such information as they may need to act as monetary authorities. Information received in this context shall be subject to the conditions of professional secrecy indicated in paragraph 1.

    • 7. In addition, notwithstanding the provisions referred to in paragraphs 1 and 4, the Member States may, by virtue of provisions laid down by law, authorize the disclosure of certain information to other departments of their central government administrations responsible for legislation on the supervision of credit institutions, financial institutions, investment services and insurance companies and to inspectors acting on behalf of those departments.

      However, such disclosures may be made only where necessary for reasons of prudential control.

      However, the Member States shall provide that information received under paragraphs 2 and 5 and that obtained by means of the on-the-spot verification referred to in Article 15(1) and (2) of Directive 89/646/EEC may never be disclosed in the cases referred to in this paragraph except with the express consent of the competent authorities which disclosed the information or of the competent authorities of the Member State in which on-the-spot verification was carried out.

    Article 17

    Without prejudice to the procedures for the withdrawal of authorizations and the provisions of criminal law, the Member States shall provide that their respective competent authorities may, as against credit institutions or those who effectively control the business of credit institutions which breach laws, regulations or administrative provisions concerning the supervision or pursuit of their activities, adopt or impose in respect of them penalties or measures aimed specifically at ending observed breaches or the causes of such breaches.

    Title V. Provisions relating to the freedom of establishment and the freedom to provide services

    Article 18

    1. The Member States shall provide that the activities listed in the Annex may be carried on within their territories, in accordance with Articles 19 to 21, either by the establishment of a branch or by way of the provision of services, by any credit institution authorized and supervised by the competent authorities of another Member State, in accordance with this Directive, provided that such activities are covered by the authorization.

    2. The Member States shall also provide that the activities listed in the Annex may be carried on within their territories, in accordance with Articles 19 to 21, either by the establishment of a branch or by way of the provision of services, by any financial institution from another Member State, whether a subsidiary of a credit institution or the jointly-owned subsidiary of two or more credit institutions, the memorandum and articles of association of which permit the carrying-on of those activities and which fulfills each of the following conditions:

    • the parent undertaking or undertakings must be authorized as credit institutions in the Member State by the law of which the subsidiary is governed,

    • the activities in question must actually be carried on within the territory of the same Member State,

    • the parent undertaking or undertakings must hold 90% or more of the voting rights attaching to shares in the capital of the subsidiary,

    • the parent undertaking or undertakings must satisfy the competent authorities regarding the prudent management of the subsidiary and must have declared, with the consent of the relevant home Member State competent authorities, that they jointly and severally guarantee the commitments entered into by the subsidiary,

    • the subsidiary must be effectively included, for the activities in question in particular, in the consolidated supervision of the parent undertaking, or of each of the parent undertakings, in accordance with Directive 83/350/EEC, in particular for the calculation of the solvency ratio, for the control of large exposures and for purposes of the limitation of holdings provided for in Article 12 of this Directive.

    Compliance with these conditions must be verified by the competent authorities of the home Member State and the latter must supply the subsidiary with a certificate of compliance which must form part of the notification referred to in Articles 19 and 20.

    The competent authorities of the home Member State shall ensure the supervision of the subsidiary in accordance with Articles 10(1), 11, 13, 14(1), 15 and 17 of this Directive and Articles 7(1) and 12 of Directive 77/780/EEC.

    The provisions mentioned in this paragraph shall be applicable to subsidiaries, subject to the necessary modifications. In particular, the words ‘credit institution’ should be read as ‘financial institution fulfilling the conditions laid down in Article 18(2)’ and the word ‘authorization’ as ‘memorandum and articles of association’.

    The second paragraph of Article 19(3) shall read:

    ‘The home Member State competent authorities shall also communicate the amount of own funds of the subsidiary financial institution and the consolidated solvency ratio of the credit institution which is its parent undertaking.’

    If a financial institution eligible under this paragraph should cease to fulfill any of the conditions imposed, the home Member State shall notify the competent authorities of the host Member State and the activities carried on by that institution in the host Member State shall become subject to the legislation of the host Member State.

    Article 19

    1. A credit institution wishing to establish a branch within the territory of another Member State shall notify the competent authorities of its home Member State.

    2. The Member State shall require every credit institution wishing to establish a branch in another Member State to provide the following information when effecting the notification referred to in paragraph 1:

    • (a) the Member State within the territory of which it plans to establish a branch;

    • (b) a programme of operations setting out inter alia the types of business envisaged and the structural organization of the branch;

    • (c) the address in the host Member State from which documents may be

    • obtained; (d) the names of those responsible for the management of the branch.

    3. Unless the competent authorities of the home Member State have reason to doubt the adequacy of the administrative structure or the financial situation of the credit institution, taking into account the activities envisaged, they shall within three months of receipt of the information referred to in paragraph 2 communicate that information to the competent authorities of the host Member State and shall inform the institution concerned accordingly.

    The home Member State competent authorities shall also communicate the amount of own funds and the solvency ratio of the credit institution and, pending subsequent coordination, details of any deposit-guarantee scheme which is intended to ensure the protection of depositors in the branch.

    Where the competent authorities of the home Member State refuse to communicate the information referred to in paragraph 2 to the competent authorities of the host Member State, they shall give reasons for their refusal to the institution concerned within three months of receipt of all the information. That refusal or failure to reply shall be subject to a right to apply to the courts in the home Member State.

    4. Before the branch of a credit institution commences its activities the competent authorities of the host Member State shall, within two months of receiving the information mentioned in paragraph 3, prepare for the supervision of the credit institution in accordance with Article 21 and if necessary indicate the conditions under which, in the interest of the general good, those activities must be carried on in the host Member State.

    5. On receipt of a communication from the competent authorities of the host Member State, or in the event of the expiry of the period provided for in paragraph 4 without receipt of any communication from the latter, the branch may be established and commence its activities.

    6. In the event of a change in any of the particulars communicated pursuant to paragraph 2 (b), (c) or (d) or in the deposit-guarantee scheme referred to in paragraph 3 a credit institution shall give written notice of the change in question to the competent authorities of the home and host Member States at least one month before making the change so as to enable the competent authorities of the home Member State to take a decision pursuant to paragraph 3 and the competent authorities of the host Member State to take a decision on the change pursuant to paragraph 4.

    Article 20

    1. Any credit institution wishing to exercise the freedom to provide services by carrying on its activities within the territory of another Member State for the first time shall notify the competent authorities of the home Member State of the activities on the list in the Annex which it intends to carry on.

    2. The competent authorities of the home Member State shall, within one month of receipt of the notification mentioned in paragraph 1, send that notification to the competent authorities of the host Member State.

    Article 21

    1. Host Member States may, for statistical purposes, require that all credit institutions having branches within their territories shall report periodically on their activities in those host Member States to the competent authorities of those host Member States.

    In discharging the responsibilities imposed on them in Article 14(2) and (3), host Member States may require that branches of credit institutions from other Member States provide the same information as they require from national credit institutions for that purpose.

    2. Where the competent authorities of a host Member State ascertain that an institution having a branch or providing services within its territory is not complying with the legal provisions adopted in that State pursuant to the provisions of this Directive involving powers of the host Member State competent authorities, those authorities shall require the institution concerned to put an end to that irregular situation.

    3. If the institution concerned fails to take the necessary steps, the competent authorities of the host Member State shall inform the competent authorities of the home Member State accordingly. The competent authorities of the home Member State shall, at the earliest opportunity, take all appropriate measures to ensure that the institution concerned puts an end to that irregular situation. The nature of those measures shall be communicated to the competent authorities of the host Member State.

    4. If, despite the measures taken by the home Member State or because such measures prove inadequate or are not available in the Member State in question, the institution persists in violating the legal rules referred to in paragraph 2 in force in the host Member State, the latter State may, after informing the competent authorities of the home Member State, take appropriate measures to prevent or to punish further irregularities and, insofar as is necessary, to prevent that institution from initiating further transactions within its territory. The Member States shall ensure that within their territories it is possible to serve the legal documents necessary for these measures on credit institutions.

    5. The foregoing provisions shall not affect the power of host Member States to take appropriate measures to prevent or to punish irregularities committed within their territories which are contrary to the legal rules they have adopted in the interest of the general good. This shall include the possibility of preventing offending institutions from initiating any further transactions within their territories.

    6. Any measure adopted pursuant to paragraphs 3, 4 and 5 involving penalties or restrictions on the exercise of the freedom to provide services must be properly justified and communicated to the institution concerned. Every such measure shall be subject to a right of appeal to the courts in the Member State the authorities of which adopted it.

    7. Before following the procedure provided for in paragraphs 2 to 4, the competent authorities of the host Member State may, in emergencies, take any precautionary measures necessary to protect the interests of depositors, investors and others to whom services are provided. The Commission and the competent authorities of the other Member States concerned must be informed of such measures at the earliest opportunity.

    The Commission may, after consulting the competent authorities of the Member States concerned, decide that the Member State in question must amend or abolish those measures.

    8. Host Member States may exercise the powers conferred on them under this Directive by taking appropriate measures to prevent or punish irregularities committed within their territories. This shall include the possibility of preventing institutions from initiating further transactions within their territories.

    9. In the event of the withdrawal of authorization the competent authorities of the host Member State shall be informed and shall take appropriate measures to prevent the institution concerned from initiating further transactions within its territory and to safeguard the interests of depositors. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee.

    10. The Member States shall inform the Commission of the number and type of cases in which there has been a refusal pursuant to Article 19 or in which measures have been taken in accordance with paragraph 4. Every two years the Commission shall submit a report on such cases to the Banking Advisory Committee.

    11. Nothing in this Article shall prevent credit institutions with head offices in other Member States from advertising their services through all available means of communication in the host Member State, subject to any rules governing the form and the content of such advertising adopted in the interest of the general good.

    Title VI. Final provisions

    Article 22

    1. The technical adaptations to be made to this Directive in the following areas shall be adopted in accordance with the procedure laid down in paragraph 2:

    • expansion of the content of the list referred to in Article 18 and set out in the Annex or adaptation of the terminology used in that list to take account of developments on financial markets,

    • alteration of the amount of initial capital prescribed in Article 4 to take account of developments in the economic and monetary field,

    • the areas in which the competent authorities must exchange information as listed in Article 7(1) Directive 77/780/EEC,

    • clarification of the definitions in order to ensure uniform application of this Directive throughout the Community,

    • clarification of the definitions in order to take account in the implementation of this Directive of developments on financial markets,

    • the alignment of terminology on and the framing of definitions in accordance with subsequent acts on credit institutions and related matters.

    2. The Commission shall be assisted by a committee composed of representatives of the Member States and chaired by a representative of the Commission.

    The Commission representative shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148(2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States in the committee shall be weighted in the manner set out in that Article. The chairman shall not vote.

    The Commission shall adopt the measures envisaged if they are in accordance with the opinion of the committee.

    If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal concerning the measures to be taken. The Council shall act by a qualified majority.

    If the Council does not act within three months of the referral to it the Commission shall adopt the measures proposed, unless the Council has decided against those measures by a simple majority.

    Article 23

    1. Branches which have commenced their activities, in accordance with the provisions in force in their host Member States, before the entry into force of the provisions adopted in implementation of this Directive shall be presumed to have been subject to the procedure laid down in Article 19(1) to (5). They shall be governed, from the date of that entry into force, by Articles 15, 18, 19(6) and 21. They shall benefit pursuant to Article 6(3).

    2. Article 20 shall not affect rights acquired by credit institutions providing services before the entry into force of the provisions adopted in implementation of this Directive.

    Article 24

    1. Subject to paragraph 2, the Member States shall bring into force the laws, regulations and administrative provisions necessary for them to comply with this Directive by the later of the two dates laid down for the adoption of measures to comply with Directives 89/299/EEC and 89/647/EEC and at the latest by 1 January 1993. They shall forthwith inform the Commission thereof.

    2. The Member States shall adopt the measures necessary for them to comply with Article 6(2) by 1 January 1990.

    3. The Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field covered by this Directive.

    Article 25

    This Directive is addressed to the Member States.

    Done at Brussels, 15 December 1989.

    For the Council

    The President

    P. Bérégovoy

    Annex List of Activities Subject to Mutual Recognition

    • Acceptance of deposits and other repayable funds from the public

    • Lending1

    • Financial leasing

    • Money transmission services

    • Issuing and administering means of payment (e.g. credit cards, travellers’ cheques and bankers’ drafts)

    • Guarantees and commitments

    • Trading for own account or for account of customers in:

      • (a) money market instruments (cheques, bills, CDs, etc.);

      • (b) foreign exchange;

      • (c) financial futures and options;

      • (d) exchange and interest rate instruments;

      • (e) transferable securities.

    • Participation in securities issues and the provision of services related to such issues

    • Advice to undertakings on capital structure, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings

    • Money broking

    • Portfolio management and advice

    • Safekeeping and administration of securities

    • Credit reference services

    • Safe custody services

    Including the following: consumer credit, mortgage credit, factoring, with or without recourse, and financing of commercial transactions (including forfaiting).

    Appendix I 3 European Community Directive on Own Funds of Credit Institutions, as Amended

    Council Directive1

    17 April 1989

    on the own funds of credit institutions

    (89/299/EEC)

    The Council of the European Communities,

    Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57(2) thereof,

    Having regard to the proposal from the Commission,

    In co-operation with the European Parliament,

    Having regard to the opinion of the Economic and Social Committee,

    Whereas common basic standards for the own funds of credit institutions are a key factor in the creation of an internal market in the banking sector since own funds serve to ensure the continuity of credit institutions and to protect savings; whereas such harmonization will strengthen the supervision of credit institutions and contribute to further coordination in the banking sector, in particular the supervision of major risks and solvency ratios;

    Whereas such standards must apply to all credit institutions authorized in the Community;

    Whereas the own funds of a credit institution can serve to absorb losses which are not matched by a sufficient volume of profits; whereas the own funds also serve as an important yardstick for the competent authorities, in particular for the assessment of the solvency of credit institutions and for other prudential purposes;

    Whereas credit institutions in a common banking market engage in direct competition with each other, and the definitions and standards pertaining to own funds must therefore be equivalent; whereas, to that end, the criteria for determining the composition of own funds must not be left solely to Member States; whereas the adoption of common basic standards will be in the best interests of the Community in that it will prevent distortions of competition and will strengthen the Community banking system;

    Whereas the definition laid down in this Directive provides for a maximum of items and qualifying amounts, leaving it to the discretion of each Member State to use all or some of such items or to adopt lower ceilings for the qualifying amounts;

    Whereas this Directive specifies the qualifying criteria for certain own funds items, and the Member States remain free to apply more stringent provisions;

    Whereas at the initial stage common basic standards are defined in broad terms in order to encompass all the items making up own funds in the different Member States;

    Whereas, according to the nature of the items making up own funds, this Directive distinguishes between on the one hand, items constituting original own funds and, on the other, those constituting additional own funds;

    Whereas it is recognized that due to the special nature of the fund for general banking risks, this item is to be included provisionally in own funds without limit; whereas, however, a decision on its final treatment will have to be taken as soon as possible after the implementation of the Directive; whereas that decision will have to take into account the results of discussions in international fora;

    Whereas, to reflect the fact that items constituting additional own funds are not of the same nature as those constituting original own funds, the amount of the former included in own funds must not exceed the original own funds, whereas, moreover, the amount of certain items of additional own funds included must not exceed one-half of the original own funds;

    Whereas, in order to avoid distortions of competition, public credit institutions must not include in their own funds guarantees granted them by the Member States or local authorities; whereas, however, the Kingdom of Belgium should be granted a transitional period up to 31 December 1994 in order to permit the institutions concerned to adjust to the new conditions by reforming their statutes;

    Whereas whenever in the course of supervision it is necessary to determine the amount of the consolidated own funds of a group of credit institutions, that calculation shall be effected in accordance with Council Directive 83/350/EEC of 13 June 1983 on the supervision of credit institutions on a consolidated basis; whereas that Directive leaves the Member States scope to interpret the technical details of its application, and that scope should be in keeping with the spirit of this Directive; whereas the former Directive is currently being revised to achieve greater harmonization;

    Whereas the precise accounting technique to be used for the calculation of own funds must take account of the provisions of Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions, which incorporates certain adaptations of the provisions of Council Directive 83/349/ EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts, whereas pending transposition of the provisions of the abovementioned Directives into the national laws of the Member States, the use of a specific accounting technique for the calculation of own funds should be left to the discretion of the Member States;

    Whereas this Directive forms part of the wider international effort to bring about approximation of the rules in force in major countries regarding the adequacy of own funds;

    Whereas measures to comply with the definitions in this Directive must be adopted no later than the date of entry into force of the measures implementing the future directive harmonizing solvency ratios;

    Whereas the Commission will draw up a report and periodically examine this Directive with the aim of tightening its provisions and thus achieving greater convergence on a common definition of own funds; whereas such convergence will allow the alignment of Community credit institution’s own funds;

    Whereas it will probably be necessary to make certain technical and terminological adjustments to the directive to take account of the rapid development of financial markets; whereas pending submission by the Commission of a proposal which takes account of the special characteristics of the banking sector and which permits the introduction of a more suitable procedure for the implementation of this Directive, the Council reserves the right to take such measures.

    Has Adopted this Directive:

    Article 1. Scope

    1. Wherever a Member State lays down by law, regulation or administrative action a provision in implementation of Community legislation concerning the prudential supervision of an operative credit institution which uses the term or refers to the concept of own funds, it shall bring this term or concept into line with the definition given in the following Articles.

    2. For the purposes of this Directive, ‘credit institutions’ shall mean the institutions to which Directive 77/780/EEC, as last amended by Directive 86/524/EEC, applies.

    Article 2. General principles

    1. Subject to the limits imposed in Article 6, the unconsolidated own funds of credit institutions shall consist of the following items:

    • (1) capital within the meaning of Article 22 of Directive 86/635/ EEC, in so far as it has been paid up, plus share premium accounts but excluding cumulative preferential shares;

    • (2) reserves within the meaning of Article 23 of Directive 86/635/ EEC and profits and losses brought forward as a result of the application of the final profit or loss. The Member States may permit inclusion of interim profits before a formal decision has been taken only if these profits have been verified by persons responsible for the auditing of the accounts and if it is proved to the satisfaction of the competent authorities that the amount thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any foreseeable charge or dividend;

    • (3) revaluation reserves within the meaning of Article 33 of Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies, as last amended by Directive 84/569/EEC;

    • (4) funds for general banking risks within the meaning of Article 38 of Directive 86/635/EEC;

    • (5) value adjustments within the meaning of Article 37(2) of Directive 86/635/EEC;

    • (6) other items within the meaning of Article 3;

    • (7) the commitments of the members of credit institutions set up as cooperative societies and the joint and several commitments of the borrowers of certain institutions organized as funds, as referred to in Article 4(1);

    • (8) fixed-term cumulative preferential shares and subordinated loan capital as referred to in Article 4(3).

      The following items shall be deducted in accordance with Article 6:

    • (9) own shares at book value held by a credit institution;

    • (10) intangible assets within the meaning of Article 4(9) (’assets’) of Directive 86/635/EEC;

    • (11) material losses of the current financial year;

    • (12) holdings in other credit and financial institutions amounting to more than 10% of their capital, subordinated claims and the instruments referred to in Article 3 which a credit institution holds in respect of credit and financial institutions in which it has holdings exceeding 10% of the capital in each case.

      Where shares in another credit or financial institution are held temporarily for the purposes of a financial assistance operation designed to reorganize and save that institution, the supervisory authority may waive this provision;

    • (13) holdings in other credit and financial institutions of up to 10% of their capital, the subordinated claims and the instruments referred to in Article 3 which a credit institution holds in respect of credit and financial institutions other than those referred to in point 12 in respect of the amount of the total of such holdings, subordinated claims and instruments which exceed 10% of that credit institution’s own funds calculated before the deduction of items 12 and 13.

    Pending subsequent coordination of the provisions on consolidation, Member States may provide that, for the calculation of unconsolidated own funds, parent companies subject to supervision on a consolidated basis need not deduct their holdings in other credit institutions or financial institutions which are included in the consolidation. This provision shall apply to all the prudential rules harmonized by Community acts.

    2. The concept of own funds as defined in points 1 to 8 of paragraph 1 embodies a maximum number of items and amounts. The use of those items and the fixing of lower ceilings, and the deduction of items other than those listed in items 9 to 13 of paragraph 1 shall be left to the discretion of the Member States. Member States shall nevertheless be obliged to consider increased convergence with a view to a common definition of own funds.

    To that end, the Commission shall, not more than three years after the date referred to in Article 9(1), submit a report to the European Parliament and to the Council on the application of this Directive, accompanied, where appropriate, by such proposals for amendment as it shall deem necessary. Within five years of the date referred to in Article 9(1), the Council shall, acting by qualified majority on a proposal from the Commission, in cooperation with the European Parliament and after consultation of the Economic and Social Committee, examine the definition of own funds with a view to the uniform application of the common definition.

    3. The items listed in points 1 to 5 must be available to a credit institution for unrestricted and immediate use to cover risks or losses as soon as these occur. The amount must be net of any foreseeable tax charge at the moment of its calculation or be suitably adjusted in so far as such tax charges reduce the amount up to which these items may be applied to cover risks or losses.

    Article 3. Other items referred to in Article 2(1)(6)

    1. The concept of own funds used by a Member State may include other items provided that, whatever their legal or accounting designations might be, they have the following characteristics:

    • (a) they are freely available to the credit institution to cover normal banking risks where revenue or capital losses have not yet been identified;

    • (b) their existence is disclosed in internal accounting records;

    • (c) their amount is determined by the management of the credit institution, verified by independent auditors, made known to the competent authorities and placed under the supervision of the latter. With regard to verification, internal auditing may be considered as provisionally meeting the aforementioned requirements until such time as the community provisions making external auditing mandatory have been implemented.

    2. Securities of indeterminate duration and other instruments that fulfill the following conditions may also be accepted as other items:

    • (a) they may not be reimbursed on the bearer’s initiative or without the prior agreement of the supervisory authority;

    • (b) the debt agreement must provide for the credit institution to have the option of deferring the payment of interest on the debt;

    • (c) the lender’s claims on the credit institution must be wholly subordinated to those of all non-subordinated creditors;

    • (d) the documents governing the issue of the securities must provide for debt and unpaid interest to be such as to absorb losses, whilst leaving the credit institution in a position to continue trading;

    • (e) only fully paid-up amounts shall be taken into account.

    To these may be added cumulative preferential shares other than those referred to in Article 2(1)(8).

    Article 4

    1. The commitments of the members of credit institutions set up as cooperative societies referred to in Article 2(1)(7), shall comprise those societies’ uncalled capital, together with the legal commitments of the members of those cooperative societies to make additional non-refundable payments should the credit institution incur a loss, in which case it must be possible to demand those payments without delay.

    The joint and several commitments of borrowers in the case of credit institutions organized as funds shall be treated in the same way as the preceding items.

    All such items may be included in own funds in so far as they are counted as the own funds of institutions of this category under national law.

    2. Member States shall not include in the own funds of public credit institutions guarantees which they or their local authorities extend to such entities.

    However, the Kingdom of Belgium shall be exempt from this obligation until 31 December 1994.

    3. Member States or the competent authorities may include fixed-term cumulative preferential shares referred to in Article 2(1)(8) and subordinated loan capital referred to in that provision in own funds, if binding agreements exist under which, in the event of the bankruptcy or liquidation of the credit institution, they rank after the claims of all other creditors and are not to be repaid until all other debts outstanding at the time have been settled.

    Subordinated loan capital must also fulfill the following criteria:

    • (a) only fully paid-up funds may be taken into account;

    • (b) the loans involved must have an original maturity of at least five years, after which they may be repaid; if the maturity of the debt is not fixed, they shall be repayable only subject to five years’ notice unless the loans are no longer considered as own funds or unless the prior consent of the competent authorities is specifically required for early repayment. The competent authorities may grant permission for the early repayment of such loans provided the request is made at the initiative of the issuer and the solvency of the credit institution in question is not affected;

    • (c) the extent to which they may rank as own funds must be gradually reduced during at least the last five years before the repayment date;

    • (d) the loan agreement must not include any clause providing that in specified circumstances, other than the winding up of the credit institution, the debt will become repayable before the agreed repayment date.

    Article 4a2

    Denmark may allow its mortgage credit institutions organized as cooperative societies or funds before 1 January 1990 and converted into public limited liability companies to continue to include joint and several commitments of members, or of borrowers as referred to in Article 4(1) claims on whom are treated in the same way as such joint and several commitments, in their own funds, subject to the following limits:

    • (a) the basis for calculation of the part of joint and several commitments of borrowers shall be the total of the items referred to in Article 2(1), points 1 and 2, minus those referred to in Article 2(1), points 9, 10 and 11;

    • (b) the basis for calculation on 1 January 1991 or, if converted at a later date, on the date of conversion, shall be the maximum basis for calculation. The basis for calculation may never exceed the maximum basis for calculation;

    • (c) the maximum basis for calculation shall, from 1 January 1997, be reduced by half of the proceeds from any issue of new capital, as defined in Article 2(1), point 1, made after that date; and

    • (d) the maximum amount of joint and several commitments of borrowers to be included as own funds must never exceed:

      50% in 1991 and 1992,

      45% in 1993 and 1994,

      40% in 1995 and 1996,

      35% in 1997,

      30% in 1998,

      20% in 1999,

      10% in 2000, and

      0% after 1 January 2001,

      of the basis for calculation.

    Article 5

    Until further coordination of the provisions on consolidation, the following rules shall apply.

    1. Where the calculation is to be made on a consolidated basis, the consolidated amounts relating to the items listed under Article 2(1) shall be used in accordance with the rules laid down in Directive 83/350/EEC. Moreover, the following may, when they are credit (’negative’) items, be regarded as consolidated reserves for the calculation of own funds:

    • any minority interests within the meaning of Article 21 of Directive 83/349/EEC, where the global integration method is used,

    • the first consolidation difference within the meaning of Articles 19, 30 and 31 of Directive 83/349/EEC,

    • the translation differences included in consolidated reserves in accordance with Article 39(6) of Directive 86/635/EEC,

    • any difference resulting from the inclusion of certain participating interests in accordance with the method prescribed in Article 33 of Directive 83/349/EEC.

    2. Where the above are debit (’positive’) items, they must be deducted in the calculation of consolidated own funds.

    Article 6. Deductions and limits3

    1. The items referred to in Article 2(1), points 3 and 5 to 8 shall be subject to the following limits:

    • (a) the total items 3 and 5 to 8 may not exceed a maximum of 100% of items 1 plus 2 and 4 minus 9, 10 and 11;

    • (b) the total of items 7 and 8 may not exceed a maximum of 50% of items 1 plus 2 and 4 minus 9, 10 and 11;

    • (c) the total of items 12 and 13 shall be deducted from the total of the items.

    2. The limits referred to in paragraph 1 must be complied with as from the date of the entry into force of the implementing measures for the Council Directive on a solvency ratio for credit institutions and by 1 January 1993 at the latest.

    Credit institutions exceeding those limits must gradually reduce the extent to which the items referred to in Article 2(1), points 3 and 5 to 8, are taken into account so that they comply with those limits before the aforementioned date.

    3. The competent authorities may authorize credit institutions to exceed the limit laid down in paragraph 1 in temporary and exceptional circumstances.

    Article 7

    Compliance with the conditions laid down in Articles 2 to 6 must be proved to the satisfaction of the competent authorities.

    Article 84

    1. Without prejudice to the report referred to in the second subparagraph of Article 2(2), technical adaptations to be made to this Directive in the following areas shall be adopted in accordance with the procedure laid down in paragraph 2:

    • clarification of the definitions to ensure uniform application of this Directive throughout the Community,

    • clarification of the definitions in order to take account in the implementation of this Directive of developments on financial markets, and

    • the alignment of terminology on, and the framing of definitions in accordance with, subsequent acts on credit institutions and related matters.

    2. The Commission shall be assisted by a committee composed of representatives of the Member States and chaired by a representative of the Commission.

    The Commission representative shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148(2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States in the committee shall be weighted in the manner set out in that Article. The chairman shall not vote.

    The Commission shall adopt the measures envisaged if they are in accordance with the opinion of the committee.

    If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal concerning the measures to be taken. The Council shall act by a qualified majority.

    If, on the expiry of a period of three months from the date of referral to the Council, the Council has not acted, the proposed measures shall be adopted by the Commission, save where the Council has decided against the said measures by a simple majority.

    Article 9

    1. Member States shall bring into force the laws, regulations and administrative provisions necessary for them to comply with this Directive no later than the date laid down for the entry into force of the implementing measures of the Council Directive on a solvency ratio for credit institutions, and by 1 January 1993 at the latest. They shall forthwith inform the Commission thereof.

    2. Member States shall communicate to the Commission the texts of the main provisions of national law which they adopt in the field governed by this Directive.

    3. The communication referred to in paragraph 2 must also include a statement, accompanied by an explanatory text, notifying the Commission of the specific provisions adopted and the items selected by the Member States’ respective competent authorities as comprising own funds.

    Article 10

    This Directive is addressed to the Member States.

    Done at Luxembourg, 17 April 1989.

    For the Council

    The President

    C. Solchaga Catalan

    As amended by Directive 91/633/EEC (Dec. 3, 1991) and Directive 92/16/EEC (March 16, 1992).

    Added as per Council Directive 92/16/EEC.

    As amended by Council Directive 91/633/EEC.

    As amended by Council Directive 92/16/EEC.

    Appendix I 4 European Community Directive on Solvency Ratios, as Amended

    Council Directive1

    of 18 December 1989

    on a solvency ratio for credit institutions

    (89/647/EEC)

    The Council of the European Communities,

    Having regard to the Treaty establishing the European Economic Community, and in particular the first and third sentences of Article 57(2) thereof, Having regard to the proposal from the Commission, In cooperation with the European Parliament, Having regard to the opinion of the Economic and Social Committee,

    Whereas this Directive is the outcome of work carried out by the Banking Advisory Committee, which, pursuant to Article 6(4) of Council Directive 77/780/EEC of 12 December 1977 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions, as last amended by Directive 89/646/EEC, is responsible for making suggestions to the Commission with a view to coordinating the coefficients applicable in the Member States;

    Whereas the establishment of an appropriate solvency ratio plays a central role in supervision of credit institutions;

    Whereas a ratio which weights assets and off-balance-sheet items according to the degree of credit risk is a particularly useful measure of solvency;

    Whereas the development of common standards for own funds in relation to assets and off-balance-sheet items exposed to credit risk is, accordingly, an essential aspect of the harmonization necessary for the achievement of the mutual recognition of supervision techniques and thus the completion of the internal banking market;

    Whereas, in that respect, this Directive must be considered in conjunction with other specific instruments also harmonizing the fundamental techniques of the supervision of credit institutions;

    Whereas this Directive must also be seen as complementary to Directive 89/646/EEC, which lays out the broader framework of which this Directive is an integral part;

    Whereas, in a common banking market, institutions are required to enter into direct competition with one another and whereas the adoption of common solvency standards in the form of a minimum ratio will prevent distortions of competition and strengthen the Community banking system;

    Whereas this Directive provides for different weightings to be given to guarantees issued by different financial institutions; whereas the Commission accordingly undertakes to examine whether the Directive taken as a whole significantly distorts competition between credit institutions and insurance companies and, in the light of that examination, to consider whether any remedial measures are justified;

    Whereas the minimum ratio provided for in this Directive reinforces the capital of credit institutions in the Community; whereas a level of 8% has been adopted following a statistical survey of capital requirements in force at the beginning of 1988;

    Whereas measurement of and allowance for interest-rate, foreign-exchange and other market risks are also of great importance in the supervision of credit institutions; whereas the Commission will accordingly, in cooperation with the competent authorities of the Member States and all other bodies working towards similar ends, continue to study the techniques available; whereas it will then make appropriate proposals for the further harmonization of supervision rules relating to those risks; whereas in so doing it will keep a special watch on the possible interaction between the various banking risks and consequently pay particular attention to the consistency of the various proposals;

    Whereas, in making proposals for rules for the supervision of investment services and the adequacy of the capital of entities operating in that area, the Commission will ensure that equivalent requirements are applied in respect of the level of own funds, if the same type of business is transacted and identical risks are assumed;

    Whereas the specific accounting technique to be used for the calculation of solvency ratios must take account of the provisions of Council Directive 86/635/EEC of 8 December 1986 on the annual accounts and consolidated accounts of banks and other financial institutions, which incorporates certain adaptations of the provisions of Council Directive 83/349/ EEC, as amended by the Act of Accession of Spain and Portugal; whereas, pending transposition of the provisions of those Directives into the national laws of the Member States, the use of specific accounting technique for the calculation of solvency ratios should be left to the discretion of the Member States;

    Whereas the application of a 20% weighting to credit institutions’ holdings of mortgage bonds may unsettle a national financial market on which such instruments play a preponderant role; whereas, in this case, provisional measures are taken to apply a 10% risk weighting;

    Whereas technical modifications to the detailed rules laid down in this Directive may from time to time be necessary to take account of new developments in the banking sector; whereas the Commission will accordingly make such modifications as are necessary, after consulting the Banking Advisory Committee, within the limits of the implementing powers conferred on the Commission by the provisions of the Treaty; whereas that Committee will act as a ‘Regulatory’ Committee, according to the rules of procedure laid down in Article 2, procedure III, variant (b), of Council Decision 87/373/EEC of 13 July 1987 laying down the procedures for the exercise of implementing powers conferred on the Commission,

    Has Adoitkd this Dikkctive:

    Scope and definitions

    Article 1

    1. This Directive shall apply to credit institutions as defined in the first indent of Article 1 of Directive 77/780/EEC.

    2. Notwithstanding paragraph 1, the Member States need not apply this Directive to credit institutions listed in Article 2(2) of Directive 77/780/ EEC.

    3. A credit institution which, as defined in Article 2(4)(a) of Directive 77/780/EEC, is affiliated to a central body in the same Member State, may be exempted from the provisions of this Directive, provided that all such affiliated credit institutions and their central bodies are included in consolidated solvency ratios in accordance with this Directive.

    4. Exceptionally, and pending further harmonization of the prudential rules relating to credit, interest-rate and market risks, the Member States may exclude from the scope of this Directive any credit institution specializing in the inter-bank and public-debt markets and fulfilling, together with the central bank, the institutional function of banking-system liquidity regulator, provided that:

    • the sum of its asset and off-balance-sheet items included in the 50% and 100% weightings, calculated in accordance with Article 6, must not normally exceed 10% of total assets and off-balance-sheet items and shall not in any event exceed 15% before application of the weightings,

    • its main activity consists of acting as intermediary between the central bank of its Member State and the banking system,

    • the competent authority applies adequate systems of supervision and control of its credit, interest-rate and market risks.

    The Member States shall inform the Commission of the exemptions granted, in order to ensure that they do not result in distortions of competition. Within three years of the adoption of this Directive, the Commission shall submit to the Council a report together, where necessary, with any proposals it may consider appropriate.

    Article 22

    1. For the purposes of this Directive:

    • ‘competent authorities’ shall mean the authorities defined in the fifth indent of Article 1 of Council Directive 83/350/EEC,

    • ‘Zone A’ shall comprise all the Member States and all other countries which are full members of the Organization for Economic Cooperation and Development (OECD) and those countries which have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the Fund’s General Arrangements to Borrow (GAB),

    • ‘Zone B’ shall comprise all countries not in Zone A,

    • ‘Zone A credit institutions’ shall mean all credit institutions authorized in the Member States, in accordance with Article 3 of Directive 77/780/ EEC, including their branches in third countries, and all private and public undertakings covered by the definition in the first indent of Article 1 of Directive 77/780/EEC and authorized in other Zone A countries, including their branches,

    • ‘Zone B credit institutions’ shall mean all private and public undertakings authorized outside Zone A covered by the definition in the first indent of Article 1 of Directive 77/780/EEC, including their branches within the Community,

    • ‘non-bank sector’ shall mean all borrowers other than credit institutions as defined in the fourth and fifth indents, central governments and central banks, regional governments and local authorities, the European Communities, the European Investment Bank and multilateral development banks as defined in the seventh indent,

    • ‘multilateral development banks’ shall mean the International Bank for Reconstruction and Development, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the Council of Europe Resettlement Fund, the Nordic Investment Bank, the Caribbean Development Bank and the European Bank for Reconstruction and Development,

    • ‘full-risk”, ‘medium-risks’, ‘medium/low-risk’ and ‘low-risk’ off-balance-sheet items shall mean the items described in Article 6(2) and listed in Annex I.

    2. For the purposes of Article 6(l)(b), the competent authorities may include within the concept of regional governments and local authorities non-commercial administrative bodies responsible to regional governments or local authorities, and those non-commercial undertakings owned by central governments, regional governments, local authorities or authorities which, in the view of the competent authorities, exercise the same responsibilities as regional and local authorities.

    Article 3

    General principles

    1. The solvency ratio referred to in paragraphs 2 to 7 expresses own funds, as defined in Article 4, as a proportion of total assets and off-balance-sheet items, risk-adjusted in accordance with Article 5.

    2. The solvency ratios of credit institutions which are neither parent undertakings as defined in Article 1 of Directive 83/349/EEC nor subsidiaries of such undertakings shall be calculated on an individual basis.

    3. The solvency ratios of credit institutions which are parent undertakings shall be calculated on a consolidated basis in accordance with the methods laid down in this Directive and in Directives 83/350/EEC and 86/635/EEC.

    4. The competent authorities responsible for authorizing and supervising a parent undertaking which is a credit institution may also require the calculation of a subconsolidated or unconsolidated ratio in respect of that parent undertaking and of any of its subsidiaries which are subject to authorization and supervision by them. Where such monitoring of the satisfactory allocation of capital within a banking group is not carried out, other measures must be taken to attain that end.

    5. Where the subsidiary of a parent undertaking has been authorized and is situated in another Member State, the competent authorities which granted that authorization shall require the calculation of a subconsolidated or unconsolidated ratio.

    6. Notwithstanding paragraph 5, the competent authorities responsible for authorizing the subsidiary of a parent undertaking situated in another Member State may, by way of a bilateral agreement, delegate their responsibility for supervising solvency to the competent authorities which have authorized and which supervise the parent undertaking so that they assume responsibility for supervising the subsidiary in accordance with this Directive. The Commission shall be kept informed of the existence and content of such agreements. It shall forward such information to the other authorities and to the Banking Advisory Committee.

    7. Without prejudice to credit institutions’ compliance with the requirements of paragraphs 2 to 6, the competent authorities shall ensure that ratios are calculated not less than twice each year, either by credit institutions themselves, which shall communicate the results and any component data required to the competent authorities, or by the competent authorities, using data supplied by the credit institutions.

    8. The valuation of assets and off-balance-sheet items shall be effected in accordance with Directive 86/635/EEC. Pending implementation of the provisions of that Directive, valuation shall be left to the discretion of the Member States.

    Article 4

    The numerator: own funds

    Own funds as defined in Directive 89/299/EEC shall form the numerator of the solvency ratio.

    Article 5

    The denominator: risk-adjusted assets and off-balance-sheet items

    1. Degrees of credit risk, expressed as percentage weightings, shall be assigned to asset items in accordance with Articles 6 and 7, and exceptionally Articles 8 and 11. The balance-sheet value of each asset shall then be multiplied by the relevant weighting to produce a risk-adjusted value.

    2. In the case of the off-balance-sheet items listed in Annex I, a two-stage calculation as prescribed in Article 6(2) shall be used.

    3. In the case of the interest-rate- and foreign-exchange-related off-balance-sheet items referred to in Article 6(3), the potential costs of replacing contracts in the event of counterparty default shall be calculated by means of one of the two methods set out in Annex II. Those costs shall be multiplied by the relevant counterparty weightings in Article 6(1), except that the 100% weightings as provided for there shall be replaced by 50% weightings to produce risk-adjusted values.

    4. The total of the risk-adjusted values of the assets and off-balance-sheet items mentioned in paragraphs 2 and 3 shall be the denominator of the solvency ratio.

    Article 6

    Risk weightings

    1. The following weightings shall be applied to the various categories of asset items, although the competent authorities may fix higher weightings as they see fit:

    • (a) Zero weighting

      • cash in hand and equivalent items;

      • asset items constituting claims on Zone A central governments and central banks;

      • asset items constituting claims on the European Communities;

      • asset items constituting claims carrying the explicit guarantees of Zone A central governments and central banks;

      • asset items constituting claims on Zone B central governments and central banks, denominated and funded in the national currencies of the borrowers;

      • asset items constituting claims carrying the explicit guarantees of Zone B central governments and central banks, denominated and funded in the national currency common to the guarantor and the borrower;

      • asset items secured, to the satisfaction of the competent authorities, by collateral in the form of Zone A central government or central bank securities, or securities issued by the European Communities, or by cash deposits placed with the lending institution or by certificates of deposit or similar instruments issued by and lodged with the latter;

    • (b) 20% weighting

      • asset items constituting claims on the European Investment Bank (EIB);

      • asset items constituting claims on multilateral development banks;

      • asset items constituting claims carrying the explicit guarantee of the European Investment Bank (EIB);

      • asset items constituting claims carrying the explicit guarantees of multilateral development banks;

      • asset items constituting claims on Zone A regional governments or local authorities, subject to Article 7;

      • asset items constituting claims carrying the explicit guarantees of Zone A regional governments or local authorities, subject to Article 7;

      • asset items constituting claims on Zone A credit institutions but not constituting such institutions’ own funds as defined in Directive 89/299/EEC;

      • asset items constituting claims, with a maturity of one year or less, on Zone B credit institutions, other than securities issued by such institutions which are recognized as components of their own funds;

      • asset items carrying the explicit guarantees of Zone A credit institutions;

      • asset items constituting claims with a maturity of one year or less, carrying the explicit guarantees of Zone B credit institutions;

      • asset items secured, to the satisfaction of the competent authorities, by collateral in the form of securities issued by the EIB or by multilateral development banks;

      • cash items in the process of collection;

    • (c) 50% weighting

      • loans fully and completely secured, to the satisfaction of the competent authorities, by mortgages on residential property which is or will be occupied or let by borrower;

      • prepayments and accrued income: these assets shall be subject to the weighting corresponding to the counterparty where a credit institution is able to determine it in accordance with Directive 86/635/EEC. Otherwise, where it is unable to determine the contraparty, it shall apply a flat-rate weighting of 50%;

    • (d) 100% weighting

      • asset items constituting claims on Zone B central governments and central banks except where denominated and funded in the national currency of the borrower;

      • asset items constituting claims on Zone B regional governments or local authorities;

      • asset items constituting claims with a maturity of more than one year on Zone B credit institutions;

      • asset items constituting claims on the Zone A or Zone B non-bank sectors;

      • tangible assets within the meaning of assets as listed in Article 4(10) of Directive 86/635/EEC;

      • holdings of shares, participations and other components of the own funds of other credit institutions which are not deducted from the own funds of the lending institutions;

      • all other assets except where deducted from own funds.

    2. The following treatment shall apply to off-balance-sheet items other than those covered in paragraph 3. They shall first be grouped according to the risk groupings set out in Annex I. The full value of the full-risk items shall be taken into account, 50% of the value of the medium-risk items and 20% of the medium/low-risk items, while the value of the low-risk items shall be set at zero. The second stage shall be to multiply the off-balance-sheet values, adjusted as described above, by the weightings attributable to the relevant counterparties, in accordance with the treatment of asset items prescribed in paragraph 1 and Article 7. In the case of asset sale and repurchase agreements and outright forward purchases, the weightings shall be those attaching to the assets in question and not to the counterparties to the transactions.

    3. The methods set out in Annex II shall be applied to the interest-rate and foreign-exchange risks listed in Annex III.

    4. Where off-balance-sheet items carry explicit guarantees, they shall be weighted as if they had been incurred on behalf of the guarantor rather than the counterparty. Where the potential exposure arising from off-balance-sheet transactions is fully and completely secured, to the satisfaction of the competent authorities, by any of the asset items recognized as collateral in paragraph 1(a)(7) or (b)(11), weightings of 0% or 20% shall apply, depending on the collateral in question.

    5. Where asset and off-balance-sheet items are given a lower weighting because of the existence of explicit guarantees or collateral acceptable to the competent authorities, the lower weighting shall apply only to that part which is guaranteed or which is fully covered by the collateral.

    Article 7

    1. Notwithstanding the requirements of Article 6(1)(b), the Member States may fix a weighting of 0% for their own regional governments and local authorities if there is no difference in risk between claims on the latter and claims on their central governments because of the revenue-raising powers of the regional governments and local authorities and the existence of specific institutional arrangements the effect of which is to reduce the chances of default by the latter. A zero weighting fixed in accordance with these criteria shall apply to claims on and off-balance-sheet items incurred on behalf of the regional governments and local authorities in question and claims on others and off-balance-sheet items incurred on behalf of others and guaranteed by those regional governments and local authorities.

    2. The Member States shall notify the Commission if they believe a zero weighting to be justified according to the criteria laid down in paragraph 1. The Commission shall circulate that information. Other Member States may offer the credit institutions under the supervision of their competent authorities the possibility of applying a zero weighting where they undertake business with the regional governments or local authorities in question or where they hold claims guaranteed by the latter.

    Article 8

    1. The Member States may apply a weighting of 20% to asset items which are secured, to the satisfaction of the competent authorities concerned, by collateral in the form of securities issued by Zone A regional governments or local authorities, by deposits placed with Zone A credit institutions other than the lending institution, or by certificates of deposit of similar instruments issued by those credit institutions.

    2. The Member States may apply a weighting of 10% to claims on institutions specializing in the inter-bank and public-debt markets in their home Member States and subject to close supervision by the competent authorities where those asset items are fully and completely secured, to the satisfaction of the competent authorities of the home Member States, by a combination of asset items mentioned in Article 6(1)(a) and (b) recognized by the latter as constituting adequate collateral.

    3. The Member States shall notify the Commission of any provisions adopted pursuant to paragraphs 1 and 2 and of the grounds for such provisions. The Commission shall forward that information to the Member States. The Commission shall periodically examine the implications of those provisions in order to ensure that they do not result in any distortions of competition. Within three years of the adoption of this Directive, the Commission shall submit to the Council a report together, where necessary, with any proposals it may consider appropriate.

    Article 9

    1. The technical adaptions to be made to this Directive in the following areas shall be adopted in accordance with the procedure laid down in paragraph 2:

    • a temporary reduction in the minimum ratio prescribed in Article 10 or the weightings prescribed in Article 6 in order to take account of specific circumstances,

    • the definition of ‘Zone A’ in Article 2,

    • the definition of ‘multilateral development banks’ in Article 2,

    • amendment of the definitions of the assets listed in Article 6 in order to take account of developments on financial markets,

    • the lists and classification of off-balance-sheet items in Annexes I and III and their treatment in the calculation of the ratio as described in Articles 5, 6 and 7 and Annex II,

    • clarification of the definitions in order to ensure uniform application of this Directive throughout the Community,

    • clarification of the definitions in order to take account in the implementation of this Directive of developments on financial markets,

    • the alignment of terminology on and the framing of definitions in accordance with subsequent acts on credit institutions and related matters.

    2. The Commission shall be assisted by a committee composed of representatives of the Member States and chaired by a representative of the Commission.

    The Commission representative shall submit to the committee a draft of the measures to be taken. The committee shall deliver its opinion on the draft within a time limit which the chairman may lay down according to the urgency of the matter. The opinion shall be delivered by the majority laid down in Article 148(2) of the Treaty in the case of decisions which the Council is required to adopt on a proposal from the Commission. The votes of the representatives of the Member States in the committee shall be weighted in the manner set out in that Article. The chairman shall not vote.

    The Commission shall adopt the measures envisaged if they are in accordance with the opinion of the committee.

    If the measures envisaged are not in accordance with the opinion of the committee, or if no opinion is delivered, the Commission shall, without delay, submit to the Council a proposal concerning the measures to be taken. The Council shall act by a qualified majority.

    If the Council does not act within three months of the referral to it the Commission shall adopt the measures proposed, unless the Council has decided against those measures by a simple majority.

    Article 10

    1. With effect from 1 January 1993 credit institutions shall be required permanently to maintain the ratio defined in Article 3 at a level of at least 8%.

    2. Notwithstanding paragraph 1, the competent authorities may prescribe higher minimum ratios as they consider appropriate.

    3. If the ratio falls below 8% the competent authorities shall ensure that the credit institution in question takes appropriate measures to restore the ratio to the agreed minimum as quickly as possible.

    Article 11

    1. A credit institution the minimum ratio of which has not reached the 8% prescribed in Article 10(1) by the date prescribed in Article 12(1) must gradually approach that level by successive stages. It may not allow the ratio to fall below the level reached before that objective has been attained. Any fluctuation should be temporary and the competent authorities should be apprised of the reasons for it.

    2. For not more than five years after the date prescribed in Article 10(1) the Member States may fix a weighting of 10% for the bonds defined in Article 22(4) of Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended by Directive 88/220/EEC, and maintain it for credit institutions when and if they consider it necessary, to avoid grave disturbances in the operation of their markets. Such exceptions shall be reported to the Commission.

    3. For not more than seven years after 1 January 1993, Article 10(1) shall not apply to the Agricultural Bank of Greece. However, the latter must approach the level prescribed in Article 10(1) by successive stages according to the method described in paragraph 1.

    4. By derogation from Article 6(1)(c)(1), until 1 January 1996 Germany, Denmark and Greece may apply a weighting of 50% to assets which are entirely and completely secured to the satisfaction of the competent authorities concerned, by mortgages on completed residential property, on offices or on multi-purpose commercial premises, situated within the territories of those three Member States provided that the sum borrowed does not exceed 60% of the value of the property in question, calculated on the basis of rigorous assessment criteria laid down in statutory or regulatory provisions.

    5. Member States may apply a 50% weighting to property leasing transactions concluded within ten years of the date laid down in Article 12(1) and concerning assets for business use situated in the country of the head office and governed by statutory provisions whereby the lessor retains full ownership of the rented asset until the tenant exercises his option to purchase.

    Article 12

    1. The Member States shall adopt the measures necessary for them to comply with the provisions of this Directive by 1 January 1991 at the latest.

    2. The Member States shall communicate to the Commission the texts of the main laws, regulations and administrative provisions which they adopt in the field covered by this Directive.

    Article 13

    This Directive is addressed to the Member States.

    Done at Brussels, 18 December 1989.

    For the Council

    The President

    P. Bérégovoy

    Annex I Classification of Off-Balance-Sheet Items

    Full risk

    • Guarantees having the character of credit substitutes,

    • Acceptances,

    • Endorsements on bills not bearing the name of another credit institution,

    • Transactions with recourse,

    • Irrevocable standby letters of credit having the character of credit substitutes,

    • Asset sale and repurchase agreements as defined in Articles 12(1) and (2) of Directive 86/635/EEC, if these agreements are treated as off-balance-sheet items pending application of Directive 86/635/EEC,

    • Assets purchased under outright forward purchase agreements,

    • Forward deposits,

    • The unpaid portion of partly-paid shares and securities,

    • Other items also carrying full risk.

    Medium risk

    • Documentary credits issued and confirmed (see also medium/low risk),

    • Warranties and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the character of credit substitutes,

    • Asset sale and repurchase agreements as defined in Article 12(3) and (5) of Directive 86/635/EEC,

    • Irrevocable standby letters of credit not having the character of credit substitutes,

    • Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of more than one year,

    • Note issuance facilities (NIFs) and revolving underwriting facilities (RUFs),

    • Other items also carrying medium risk.

    Medium/low risk

    • Documentary credits in which underlying shipment acts as collateral and other self-liquidating transactions,

    • Other items also carrying medium/low risk.

    Low risk

    • Undrawn credit facilities (agreements to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of up to and including one year or which may be cancelled unconditionally at any time without notice,

    • Other items also carrying low risk.

    The Member States undertake to inform the Commission as soon as they have agreed to include a new off-balance-sheet item in any of the last indents under each category of risk. Such items will be definitively classified at Community level once the procedure laid down in Article 9 has been completed.

    Annex II The Treatment of Off-Balance-Sheet Items Concerning Interest and Foreign-Exchange Rates

    Subject to the consent of their supervisory authorities, credit institutions may choose one of the methods set out below to measure the risks associated with the transactions listed in Annex III. Interest-rate and foreign-exchange contracts traded on recognized exchanges where they are subject to daily margin requirements and foreign-exchange contracts with an original maturity of 14 calendar days or less are excluded.

    Where there is a separate bilateral contract for novation, recognized by the national supervisory authorities, between a credit institution and its counterparty under which any obligation to each other to deliver payments in their common currency on a given date are automatically amalgamated with other similar obligations due on the same date, the single net amount fixed by such novation is weighted, rather than the gross amounts involved.

    Method 1: the ‘marking to market’ approach

    Step (a): by attaching current market values to contracts (marking to market) the current replacement cost of all contracts with positive values is obtained.

    Step (b): to obtain a figure for potential future credit exposure, the notional principal amounts or values underlying an institution’s aggregate books are multiplied by the following percentages:

    Residual maturityInterest-rate contractsForeign-exchange contracts
    One year or less0%1%
    More than one year0.5%5%

    Step (c): the sum of current replacement cost and potential future credit exposure is multiplied by the risk weightings allocated to the relevant counterparties in Article 6.

    Method 2: the ‘original exposure’ approach

    Step (a): the notional principal amount of each instrument is multiplied by the percentages given below:

    Original maturity(1)Interest-rate contractsForeign-exchange contracts
    One year or less0.5%2%
    More than one year but not exceeding two years1%5%
    Additional allowance for each additional year1%3%

    In the case of interest-rate contracts, credit institutions may, subject to the consent of their supervisory authorities, choose either original or residual maturity.

    Step (b): the original exposure thus obtained is multiplied by the risk weightings allocated to the relevant counterparties in Article 6.

    Annex III Types of Off-Balance-Sheet Items Concerning Interest Rates and Foreign Exchange

    Interest-rate contracts

    • Single-currency interest rate swaps

    • Basis swaps

    • Forward-rate agreements

    • Interest-rate futures

    • Interest-rate options purchased

    • Other contracts of a similar nature

    Foreign-exchange contracts

    • Cross-currency interest-rate swaps

    • Forward foreign-exchange contracts

    • Currency futures

    • Currency options purchased

    • Other contracts of a similar nature

    As amended by Directive 91/31/EEC (Dec. 19, 1990).

    As amended bv Council Directive 91/31/EHC.

    Appendix I 5 UNCITRAL Model Law on International Credit Transfers

    [November 25, 1992]

    CHAPTER I. GENERAL PROVISIONS*

    Article 1

    Sphere of application **

    (1) This law applies to credit transfers where any sending bank and its receiving bank are in different States.

    (2) This law applies to other entities that as an ordinary part of their business engage in executing payment orders in the same manner as it applies to banks.

    (3) For the purpose of determining the sphere of application of this law, branches and separate offices of a bank in different States are separate banks.

    Article 2

    Definitions

    For the purposes of this law:

    (a) “Credit transfer” means the series of operations, beginning with the originator’s payment order, made for the purpose of placing funds at the disposal of a beneficiary. The term includes any payment order issued by the originator’s bank or any intermediary bank intended to carry out the originator’s payment order. A payment order issued for the purpose of effecting payment for such an order is considered to be part of a different credit transfer;

    (b) “Payment order” means an unconditional instruction, in any form, by a sender to a receiving bank to place at the disposal of a beneficiary a fixed or determinable amount of money if

    • (i) the receiving bank is to be reimbursed by debiting an account of, or otherwise receiving payment from, the sender, and

    • (ii) the instruction does not provide that payment is to be made at the request of the beneficiary.

    Nothing in this paragraph prevents an instruction from being a payment order merely because it directs the beneficiary’s bank to hold, until the beneficiary requests payment, funds for a beneficiary that does not maintain an account with it;

    (c) “Originator” means the issuer of the first payment order in a credit transfer;

    (d) “Beneficiary” means the person designated in the originator’s payment order to receive funds as a result of the credit transfer;

    (e) “Sender” means the person who issues a payment order, including the originator and any sending bank;

    (f) “Receiving bank” means a bank that receives a payment order;

    (g) “Intermediary bank” means any receiving bank other than the originator’s bank and the beneficiary’s bank;

    (h) “Funds” or “money” includes credit in an account kept by a bank and includes credit denominated in a monetary unit of account that is established by an intergovernmental institution or by agreement of two or more States, provided that this law shall apply without prejudice to the rules of the intergovernmental institution or the stipulations of the agreement;

    (i) “Authentication” means a procedure established by agreement to determine whether a payment order or an amendment or revocation of a payment order was issued by the person indicated as the sender;

    (j) “Banking day” means that part of a day during which the bank performs the type of action in question;

    (k) “Execution period” means the period of one or two days beginning on the first day that a payment order may be executed under article 11(1) and ending on the last day on which it may be executed under that article;

    (l) “Execution”, in so far as it applies to a receiving bank other than the beneficiary’s bank, means the issue of a payment order intended to carry out the payment order received by the receiving bank;

    (m) “Interest” means the time value of the funds or money involved, which, unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds or money involved.

    Article 3

    Conditional instructions

    (1) When an instruction is not a payment order because it is subject to a condition but a bank that has received the instruction executes it by issuing an unconditional payment order, thereafter the sender of the instruction has the same rights and obligations under this law as the sender of a payment order and the beneficiary designated in the instruction shall be treated as the beneficiary of a payment order.

    (2) This law does not govern the time of execution of a conditional instruction received by a bank, nor does it affect any right or obligation of the sender of a conditional instruction that depends on whether the condition has been satisfied.

    Article 4

    Variation by agreement

    Except as otherwise provided in this law, the rights and obligations of parties to a credit transfer may be varied by their agreement.

    Chapter II. Obligations of the Parties

    Article 5

    Obligations of sender

    (1) A sender is bound by a payment order or an amendment or revocation of a payment order if it was issued by the sender or by another person who had the authority to bind the sender.

    (2) When a payment order or an amendment or revocation of a payment order is subject to authentication other than by means of a mere comparison of signature, a purported sender who is not bound under paragraph (1) is nevertheless bound if

    (a) the authentication is in the circumstances a commercially reasonable method of security against unauthorized payment orders, and

    (b) the receiving bank complied with the authentication.

    (3) The parties are not permitted to agree that a purported sender is bound under paragraph (2) if the authentication is not commercially reasonable in the circumstances.

    (4) A purported sender is, however, not bound under paragraph (2) if it proves that the payment order as received by the receiving bank resulted from the actions of a person other than

    (a) a present or former employee of the purported sender, or

    (b) a person whose relationship with the purported sender enabled that person to gain access to the authentication procedure.

    The preceding sentence does not apply if the receiving bank proves that the payment order resulted from the actions of a person who had gained access to the authentication procedure through the fault of the purported sender.

    (5) A sender who is bound by a payment order is bound by the terms of the order as received by the receiving bank. However, the sender is not bound by an erroneous duplicate of, or an error or discrepancy in, a payment order if

    (a) the sender and the receiving bank have agreed upon a procedure for detecting erroneous duplicates, errors or discrepancies in a payment order, and

    (b) use of the procedure by the receiving bank revealed or would have revealed the erroneous duplicate, error or discrepancy.

    If the error or discrepancy that the bank would have detected was that the sender instructed payment of an amount greater than the amount intended by the sender, the sender is bound only to the extent of the amount that was intended. Paragraph (5) applies to an error or discrepancy in an amendment or a revocation order as it applies to an error or discrepancy in a payment order.

    (6) A sender becomes obligated to pay the receiving bank for the payment order when the receiving bank accepts it, but payment is not due until the beginning of the execution period.

    Article 6

    Payment to receiving bank

    For the purposes of this law, payment of the sender’s obligation under article 5(6) to pay the receiving bank occurs

    (a) if the receiving bank debits an account of the sender with the receiving bank, when the debit is made; or

    (b) if the sender is a bank and subparagraph (a) does not apply,

    • (i) when a credit that the sender causes to be entered to an account of the receiving bank with the sender is used or, if not used, on the banking day following the day on which the credit is available for use and the receiving bank learns of that fact, or

    • (ii) when a credit that the sender causes to be entered to an account of the receiving bank in another bank is used or, if not used, on the banking day following the day on which the credit is available for use and the receiving bank learns of that fact, or

    • (iii) when final settlement is made in favour of the receiving bank at a central bank at which the receiving bank maintains an account, or

    • (iv) when final settlement is made in favour of the receiving bank in accordance with

      • a. the rules of a funds transfer system that provides for the settlement of obligations among participants either bilaterally or multilaterally, or

      • b. a bilateral netting agreement with the sender; or

    (c) if neither subparagraph (a) nor (b) applies, as otherwise provided by law.

    Article 7

    Acceptance or rejection of a payment order by receiving bank other than the beneficiary’s bank

    (1) The provisions of this article apply to a receiving bank other than the beneficiary’s bank.

    (2) A receiving bank accepts the sender’s payment order at the earliest of the following times:

    • (a) when the bank receives the payment order, provided that the sender and the bank have agreed that the bank will execute payment orders from the sender upon receipt;

    • (b) when the bank gives notice to the sender of acceptance;

    • (c) when the bank issues a payment order intended to carry out the payment order received;

    • (d) when the bank debits an account of the sender with the bank as payment for the payment order; or

    • (e) when the time for giving notice of rejection under paragraph (3) has elapsed without notice having been given.

    (3) A receiving bank that does not accept a payment order is required to give notice of rejection no later than on the banking day following the end of the execution period, unless:

    • (a) where payment is to be made by debiting an account of the sender with the receiving bank, there are insufficient funds available in the account to pay for the payment order;

    • (b) where payment is to be made by other means, payment has not been made; or

    • (c) there is insufficient information to identify the sender.

    (4) A payment order ceases to have effect if it is neither accepted nor rejected under this article before the close of business on the fifth banking day following the end of the execution period.

    Article 8

    Obligations of receiving bank other than the beneficiary’s bank

    (1) The provisions of this article apply to a receiving bank other than the beneficiary’s bank.

    (2) A receiving bank that accepts a payment order is obligated under that payment order to issue a payment order, within the time required by article 11, either to the beneficiary’s bank or to an intermediary bank, that is consistent with the contents of the payment order received by the receiving bank and that contains the instructions necessary to implement the credit transfer in an appropriate manner.

    (3) A receiving bank that determines that it is not feasible to follow an instruction of the sender specifying an intermediary bank or funds transfer system to be used in carrying out the credit transfer, or that following such an instruction would cause excessive costs or delay in completing the credit transfer, shall be taken to have complied with paragraph (2) if, before the end of the execution period, it inquires of the sender what further actions it should take.

    (4) When an instruction is received that appears to be intended to be a payment order but does not contain sufficient data to be a payment order, or being a payment order it cannot be executed because of insufficient data, but the sender can be identified, the receiving bank shall give notice to the sender of the insufficiency, within the time required by article 11.

    (5) When a receiving bank detects that there is an inconsistency in the information relating to the amount of money to be transferred, it shall, within the time required by article 11, give notice to the sender of the inconsistency, if the sender can be identified. Any interest payable under article 17(4) for failing to give the notice required by this paragraph shall be deducted from any interest payable under article 17(1) for failing to comply with paragraph (2) of this article.

    (6) For the purposes of this article, branches and separate offices of a bank, even if located in the same State, are separate banks.

    Article 9

    Acceptance or rejection of a payment order by beneficiary’s bank

    (1) The beneficiary’s bank accepts a payment order at the earliest of the following times:

    (a) when the bank receives the payment order, provided that the sender and the bank have agreed that the bank will execute payment orders from the sender upon receipt;

    (b) when the bank gives notice to the sender of acceptance;

    (c) when the bank debits an account of the sender with the bank as payment for the payment order;

    (d) when the bank credits the beneficiary’s account or otherwise places the funds at the disposal of the beneficiary;

    (e) when the bank gives notice to the beneficiary that it has the right to withdraw the funds or use the credit;

    (f) when the bank otherwise applies the credit as instructed in the payment order;

    (g) when the bank applies the credit to a debt of the beneficiary owed to it or applies it in conformity with an order of a court or other competent authority; or

    (h) when the time for giving notice of rejection under paragraph (2) has elapsed without notice having been given.

    (2) A beneficiary’s bank that does not accept a payment order is required to give notice of rejection no later than on the banking day following the end of the execution period, unless:

    (a) where payment is to be made by debiting an account of the sender with the beneficiary’s bank, there are insufficient funds available in the account to pay for the payment order;

    (b) where payment is to be made by other means, payment has not been made; or

    (c) there is insufficient information to identify the sender.

    (3) A payment order ceases to have effect if it is neither accepted nor rejected under this article before the close of business on the fifth banking day following the end of the execution period.

    Article 10

    Obligations of beneficiary’s bank

    (1) The beneficiary’s bank is, upon acceptance of a payment order, obligated to place the funds at the disposal of the beneficiary, or otherwise to apply the credit, in accordance with the payment order and the law governing the relationship between the bank and the beneficiary.

    (2) When an instruction is received that appears to be intended to be a payment order but does not contain sufficient data to be a payment order, or being a payment order it cannot be executed because of insufficient data, but the sender can be identified, the beneficiary’s bank shall give notice to the sender of the insufficiency, within the time required by article 11.

    (3) When the beneficiary’s bank detects that there is an inconsistency in the information relating to the amount of money to be transferred, it shall, within the time required by article 11, give notice to the sender of the inconsistency if the sender can be identified.

    (4) When the beneficiary’s bank detects that there is an inconsistency in the information intended to identify the beneficiary, it shall, within the time required by article 11, give notice to the sender of the inconsistency if the sender can be identified.

    (5) Unless the payment order states otherwise, the beneficiary’s bank shall, within the time required for execution under article 11, give notice to a beneficiary who does not maintain an account at the bank that it is holding funds for its benefit, if the bank has sufficient information to give such notice.

    Article 11

    Time for receiving bank to execute payment order and give notices

    (1) In principle, a receiving bank that is obligated to execute a payment order is obligated to do so on the banking day it is received. If it does not, it shall do so on the banking day after the order is received. Nevertheless, if

    (a) a later date is specified in the payment order, the payment order shall be executed on that date, or

    (b) the payment order specifies a date when the funds are to be placed at the disposal of the beneficiary and that date indicates that later execution is appropriate in order for the beneficiary’s bank to accept a payment order and execute it on that date, the order shall be executed on that date.

    (2) If the receiving bank executes the payment order on the banking day after it is received, except when complying with subparagraph (a) or (b) of paragraph (1), the receiving bank must execute for value as of the day of receipt.

    (3) A receiving bank that becomes obligated to execute a payment order by virtue of accepting a payment order under article 7(2)(e) must execute for value as of the later of the day on which the payment order is received and the day on which

    (a) where payment is to be made by debiting an account of the sender with the receiving bank, there are sufficient funds available in the account to pay for the payment order, or

    (b) where payment is to be made by other means, payment has been made.

    (4) A notice required to be given under article 8(4) or (5) or article 10(2), (3) or (4) shall be given on or before the banking day following the end of the execution period.

    (5) A receiving bank that receives a payment order after the receiving bank’s cut-off time for that type of payment order is entitled to treat the order as having been received on the next day the bank executes that type of payment order.

    (6) If a receiving bank is required to perform an action on a day when it does not perform that type of action, it must perform the required action on the next day it performs that type of action.

    (7) For the purposes of this article, branches and separate offices of a bank, even if located in the same State, are separate banks.

    Article 12

    Revocation

    (1) A payment order may not be revoked by the sender unless the revocation order is received by a receiving bank other than the beneficiary’s bank at a time and in a manner sufficient to afford the receiving bank a reasonable opportunity to act before the later of the actual time of execution and the beginning of the day on which the payment order ought to have been executed under subparagraph (a) or (b) of article 11(1).

    (2) A payment order may not be revoked by the sender unless the revocation order is received by the beneficiary’s bank at a time and in a manner sufficient to afford the bank a reasonable opportunity to act before the later of the time the credit transfer is completed and the beginning of the day when the funds are to be placed at the disposal of the beneficiary.

    (3) Notwithstanding the provisions of paragraphs (1) and (2), the sender and the receiving bank may agree that payment orders issued by the sender to the receiving bank are to be irrevocable or that a revocation order is effective only if it is received earlier than the time specified in paragraph (1) or (2).

    (4) A revocation order must be authenticated.

    (5) A receiving bank other than the beneficiary’s bank that executes, or a beneficiary’s bank that accepts, a payment order in respect of which an effective revocation order has been or is subsequently received is not entitled to payment for that payment order. If the credit transfer is completed, the bank shall refund any payment received by it.

    (6) If the recipient of a refund is not the originator of the credit transfer, it shall pass on the refund to its sender.

    (7) A bank that is obligated to make a refund to its sender is discharged from that obligation to the extent that it makes the refund direct to a prior sender. Any bank subsequent to that prior sender is discharged to the same extent.

    (8) An originator entitled to a refund under this article may recover from any bank obligated to make a refund hereunder to the extent that the bank has not previously refunded. A bank that is obligated to make a refund is discharged from that obligation to the extent that it makes the refund direct to the originator. Any other bank that is obligated is discharged to the same extent.

    (9) Paragraphs (7) and (8) do not apply to a bank if they would affect the bank’s rights or obligations under any agreement or any rule of a funds transfer system.

    (10) If the credit transfer is completed but a receiving bank executes a payment order in respect of which an effective revocation order has been or is subsequently received, the receiving bank has such rights to recover from the beneficiary the amount of the credit transfer as may otherwise be provided by law.

    (11) The death, insolvency, bankruptcy or incapacity of either the sender or the originator does not of itself operate to revoke a payment order or terminate the authority of the sender.

    (12) The principles contained in this article apply to an amendment of a payment order.

    (13) For the purposes of this article, branches and separate offices of a bank, even if located in the same State, are separate banks.

    Chapter III. Consequences of Failed, Erroneous or Delayed Credit Transfers

    Article 13

    Assistance

    Until the credit transfer is completed, each receiving bank is requested to assist the originator and each subsequent sending bank, and to seek the assistance of the next receiving bank, in completing the banking procedures of the credit transfer.

    Article 14

    Refund

    (1) If the credit transfer is not completed, the originator’s bank is obligated to refund to the originator any payment received from it, with interest from the day of payment to the day of refund. The originator’s bank and each subsequent receiving bank is entitled to the return of any funds it has paid to its receiving bank, with interest from the day of payment to the day of refund.

    (2) The provisions of paragraph (1) may not be varied by agreement except when a prudent originator’s bank would not have otherwise accepted a particular payment order because of a significant risk involved in the credit transfer.

    (3) A receiving bank is not required to make a refund under paragraph (1) if it is unable to obtain a refund because an intermediary bank through which it was directed to effect the credit transfer has suspended payment or is prevented by law from making the refund. A receiving bank is not considered to have been directed to use the intermediary bank unless the receiving bank proves that it does not systematically seek such directions in similar cases. The sender that first specified the use of that intermediary bank has the right to obtain the refund from the intermediary bank.

    (4) A bank that is obligated to make a refund to its sender is discharged from that obligation to the extent that it makes the refund direct to a prior sender. Any bank subsequent to that prior sender is discharged to the same extent.

    (5) An originator entitled to a refund under this article may recover from any bank obligated to make a refund hereunder to the extent that the bank has not previously refunded. A bank that is obligated to make a refund is discharged from that obligation to the extent that it makes the refund direct to the originator. Any other bank that is obligated is discharged to the same extent.

    (6) Paragraphs (4) and (5) do not apply to a bank if they would affect the bank’s rights or obligations under any agreement or any rule of a funds transfer system.

    Article 15

    Correction of underpayment

    If the amount of the payment order executed by a receiving bank is less than the amount of the payment order it accepted, other than as a result of the deduction of its charges, it is obligated to issue a payment order for the difference.

    Article 16

    Restitution of overpayment

    If the credit transfer is completed, but the amount of the payment order executed by a receiving bank is greater than the amount of the payment order it accepted, it has such rights to recover the difference from the beneficiary as may otherwise be provided by law.

    Article 17

    Liability for interest

    (1) A receiving bank that does not comply with its obligations under article 8(2) is liable to the beneficiary if the credit transfer is completed. The liability of the receiving bank is to pay interest on the amount of the payment order for the period of delay caused by the receiving bank’s non-compliance. If the delay concerns only part of the amount of the payment order, the liability shall be to pay interest on the amount that has been delayed.

    (2) The liability of a receiving bank under paragraph (1) may be discharged by payment to its receiving bank or by direct payment to the beneficiary. If a receiving bank receives such payment but is not the beneficiary, the receiving bank shall pass on the benefit of the interest to the next receiving bank or, if it is the beneficiary’s bank, to the beneficiary.

    (3) An originator may recover the interest the beneficiary would have been entitled to, but did not, receive in accordance with paragraphs (1) and (2) to the extent the originator has paid interest to the beneficiary on account of a delay in the completion of the credit transfer. The originator’s bank and each subsequent receiving bank that is not the bank liable under paragraph (1) may recover interest paid to its sender from its receiving bank or from the bank liable under paragraph (1).

    (4) A receiving bank that does not give a notice required under article 8(4) or (5) shall pay interest to the sender on any payment that it has received from the sender under article 5(6) for the period during which it retains the payment.

    (5) A beneficiary’s bank that does not give a notice required under article 10(2), (3) or (4) shall pay interest to the sender on any payment that it has received from the sender under article 5(6), from the day of payment until the day that it provides the required notice.

    (6) The beneficiary’s bank is liable to the beneficiary to the extent provided by the law governing the relationship between the beneficiary and the bank for its failure to perform one of the obligations under article 10(1) or (5).

    (7) The provisions of this article may be varied by agreement to the extent that the liability of one bank to another bank is increased or reduced. Such an agreement to reduce liability may be contained in a bank’s standard terms of dealing. A bank may agree to increase its liability to an originator or beneficiary that is not a bank, but may not reduce its liability to such an originator or beneficiary. In particular, it may not reduce its liability by an agreement fixing the rate of interest.

    Article 18

    Exclusivity of remedies

    The remedies in article 17 shall be exclusive, and no other remedy arising out of other doctrines of law shall be available in respect of non-compliance with articles 8 or 10, except any remedy that may exist when a bank has improperly executed, or failed to execute, a payment order (a) with the specific intent to cause loss, or (b) recklessly and with actual knowledge that loss would be likely to result.

    Chapter IV. Completion of Credit Transfer

    Article 19

    Completion of credit transfer***

    (1) A credit transfer is completed when the beneficiary’s bank accepts a payment order for the benefit of the beneficiary. When the credit transfer is completed, the beneficiary’s bank becomes indebted to the beneficiary to the extent of the payment order accepted by it. Completion does not otherwise affect the relationship between the beneficiary and the beneficiary’s bank.

    (2) A credit transfer is completed notwithstanding that the amount of the payment order accepted by the beneficiary’s bank is less than the amount of the originator’s payment order because one or more receiving banks have deducted charges. The completion of the credit transfer shall not prejudice any right of the beneficiary under the applicable law governing the underlying obligation to recover the amount of those charges from the originator.

    The Commission suggests the following text for States that might wish to adopt it:

    Article ϒ, Conflict of laws: (1) The rights and obligations arising out of a payment order shall be governed by the law chosen by the parties. In the absence of agreement, the law of the State of the receiving bank shall apply. (2) The second sentence of paragraph (1) shall not affect the determination of which law governs the question whether the actual sender of the payment order had the authority to bind the purported sender. (3) For the purposes of this article: (a) where a State comprises several territorial units having different rules of law, each territorial unit shall be considered to be a separate State; (b) branches and separate offices of a bank in different States are separate banks.

    This law does not deal with issues related to the protection of consumers.

    The Commission suggests the following text for States that might wish to adopt it:

    If a credit transfer was for the purpose of discharging an obligation of the originator to the beneficiary that can be discharged by credit transfer to the account indicated by the originator, the obligation is discharged when the beneficiary’s bank accepts the payment order and to the extent that it would be discharged by payment of the same amount in cash.

    Appendix II Documents on Money Laundering

    Appendix II 1 Statement of Principles of Basle Committee on Banking Regulations and Supervisory Practices

    December 1988 Statement on Prevention of Criminal Use of the Banking System for the Purpose of Money-Laundering

    Preamble

    1. Banks and other financial institutions may be unwittingly used as intermediaries for the transfer or deposit of funds derived from criminal activity. Criminals and their associates use the financial system to make payments and transfers of funds from one account to another; to hide the source and beneficial ownership of money; and to provide storage for bank-notes through a safe-deposit facility. These activities are commonly referred to as money-laundering.

    2. Efforts undertaken hitherto with the objective of preventing the banking system from being used in this way have largely been undertaken by judicial and regulatory agencies at national level. However, the increasing international dimension of organised criminal activity, notably in relation to the narcotics trade, has prompted collaborative initiatives at the international level. One of the earliest such initiatives was undertaken by the Committee of Ministers of the Council of Europe in June 1980. In its report1 the Committee of Ministers concluded that “… the banking system can play a highly effective preventive role while the co-operation of the banks also assists in the repression of such criminal acts by the judicial authorities and the police.” In recent years the issue of how to prevent criminals laundering the proceeds of crime through the financial system has attracted increasing attention from legislative authorities, law enforcement agencies and banking supervisors in a number of countries.

    3. The various national banking supervisory authorities represented on the Basle Committee on Banking Regulations and Supervisory Practices do not have the same roles and responsibilities in relation to the suppression of money-laundering. In some countries supervisors have a specific responsibility in this field; in others they may have no direct responsibility. This reflects the role of banking supervision, the primary function of which is to maintain the overall financial stability and soundness of banks rather than to ensure that individual transactions conducted by bank customers are legitimate. Nevertheless, despite the limits in some countries on their specific responsibility, all members of the Committee firmly believe that supervisors cannot be indifferent to the use made of banks by criminals.

    4. Public confidence in banks, and hence their stability, can be undermined by adverse publicity as a result of inadvertent association by banks with criminals. In addition, banks may lay themselves open to direct losses from fraud, either through negligence in screening undesirable customers or where the integrity of their own officers has been undermined through association with criminals. For these reasons the members of the Basle Committee consider that banking supervisors have a general role to encourage ethical standards of professional conduct among banks and other financial institutions.

    5. The Committee believes that one way to promote this objective, consistent with differences in national supervisory practice, is to obtain international agreement to a Statement of Principles to which financial institutions should be expected to adhere.

    6. The attached Statement is a general statement of ethical principles which encourages banks’ management to put in place effective procedures to ensure that all persons conducting business with their institutions are properly identified; that transactions that do not appear legitimate are discouraged; and that co-operation with law enforcement agencies is achieved. The Statement is not a legal document and its implementation will depend on national practice and law. In particular, it should be noted that in some countries banks may be subject to additional more stringent legal regulations in this field and the Statement is not intended to replace or diminish those requirements. Whatever the legal position in different countries, the Committee considers that the first and most important safeguard against money-laundering is the integrity of banks’ own managements and their vigilant determination to prevent their institutions becoming associated with criminals or being used as a channel for money-laundering. The Statement is intended to reinforce those standards of conduct.

    7. The supervisory authorities represented on the Committee support the principles set out in the Statement. To the extent that these matters fall within the competence of supervisory authorities in different member countries, the authorities will recommend and encourage all banks to adopt policies and practices consistent with the Statement. With a view to its acceptance worldwide, the Committee would also commend the Statement to supervisory authorities in other countries.

    Basle, December 1988

    Statement of Principles

    I. Purpose

    Banks and other financial institutions may unwittingly be used as intermediaries for the transfer or deposit of money derived from criminal activity. The intention behind such transactions is often to hide the beneficial ownership of funds. The use of the financial system in this way is of direct concern to police and other law enforcement agencies; it is also a matter of concern to banking supervisors and banks’ managements, since public confidence in banks may be undermined through their association with criminals.

    This Statement of Principles is intended to outline some basic policies and procedures that banks’ management should ensure are in place within their institutions with a view to assisting in the suppression of money-laundering through the banking system, national and international. The Statement thus sets out to reinforce existing best practices among banks and, specifically, to encourage vigilance against criminal use of the payments system, implementation by banks of effective preventive safeguards, and co-operation with law enforcement agencies.

    II. Customer identification

    With a view to ensuring that the financial system is not used as a channel for criminal funds, banks should make reasonable efforts to determine the true identity of all customers requesting the institution’s services. Particular care should be taken to identify the ownership of all accounts and those using safe-custody facilities. All banks should institute effective procedures for obtaining identification from new customers. It should be an explicit policy that significant business transactions will not be conducted with customers who fail to provide evidence of their identity.

    III. Compliance with laws

    Banks’ management should ensure that business is conducted in conformity with high ethical standards and that laws and regulations pertaining to financial transactions are adhered to. As regards transactions executed on behalf of customers, it is accepted that banks may have no means of knowing whether the transaction stems from or forms part of criminal activity. Similarly, in an international context it may be difficult to ensure that cross-border transactions on behalf of customers are in compliance with the regulations of another country. Nevertheless, banks should not set out to offer services or provide active assistance in transactions which they have good reason to suppose are associated with money-laundering activities.

    IV. Cooperation with law enforcement authorities

    Banks should co-operate fully with national law enforcement authorities to the extent permitted by specific local regulations relating to customer confidentiality. Care should be taken to avoid providing support or assistance to customers seeking to deceive law enforcement agencies through the provision of altered, incomplete or misleading information. Where banks become aware of facts which lead to the reasonable presumption that money held on deposit derives from criminal activity or that transactions entered into are themselves criminal in purpose, appropriate measures, consistent with the law, should be taken, for example, to deny assistance, sever relations with the customer and close or freeze accounts.

    V. Adherence to the Statement

    All banks should formally adopt policies consistent with the principles set out in this Statement and should ensure that all members of their staff concerned, wherever located, are informed of the bank’s policy in this regard. Attention should be given to staff training in matters covered by the Statement. To promote adherence to these principles, banks should implement specific procedures for customer identification and for retaining internal records of transactions. Arrangements for internal audit may need to be extended in order to establish an effective means of testing for general compliance with the Statement.

    Measures Against the Transfer and Safeguarding of Funds of Criminal Origin, Recommendation No. R(80)10, adopted by the Committee of Ministers of the Council of Europe on June 27, 1980.

    Appendix II 2 Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime

    [Adopted September 8, 1990]

    Preamble

    The member States of the Council of Europe and the other States signatory hereto, Considering that the aim of the Council of Europe is to achieve a greater unity between its members;

    Convinced of the need to pursue a common criminal policy aimed at the protection of society;

    Considering that the fight against serious crime, which has become an increasingly international problem, calls for the use of modern and effective methods on an international scale;

    Believing that one of these methods consists in depriving criminals of the proceeds from crime;

    Considering that for the attainment of this aim a well-functioning system of international cooperation also must be established,

    Have agreed as follows:

    CHAPTER I USE OF TERMS

    Article 1 Use of terms

    For the purposes of this Convention:

    • a. “proceeds” means any economic advantage from criminal offences. It may consist of any property as defined in sub-paragraph b of the article;

    • b. “property” includes property of any description, whether corporeal or incorporeal, movable or immovable, and legal documents or instruments evidencing title to, or interest in such property;

    • c. “instrumentalities” means any property used or intended to be used, in any manner, wholly or in part, to commit a criminal offence or criminal offences;

    • d. “confiscation” means a penalty or a measure, ordered by a court following proceedings in relation to a criminal offence or criminal offences resulting in the final deprivation of property;

    • e. “predicate offence” means any criminal offence as a result of which proceeds were generated that may become the subject of an offence as defined in Article 6 of the Convention.

    CHAPTER II MEASURES TO BE TAKEN AT NATIONAL LEVEL

    Article 2 Confiscation measures

    1. Each Party shall adopt such legislative and other measures as may be necessary to enable it to confiscate instrumentalities and proceeds or property the value of which corresponds to such proceeds.

    2. Each Party may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, by a declaration addressed to the Secretary General of the Council of Europe, declare that paragraph 1 of this article applies only to offences or categories of offences specified in such declaration.

    Article 3 Investigative and provisional measures

    Each Party shall adopt such legislative and other measures as may be necessary to enable it to identify and trace property which is liable to confiscation pursuant to Article 2, paragraph 1, and to prevent any dealing in, transfer or disposal of such property.

    Article 4 Special investigative powers and techniques

    1. Each Party shall adopt such legislative and other measures as may be necessary to empower its courts or other competent authorities to order that bank, financial or commercial records be made available or be seized in order to carry out the actions referred to in Articles 2 and 3. A Party shall not decline to act under the provisions of the article on grounds of bank secrecy.

    2. Each Party shall consider adopting such legislative and other measures as may be necessary to enable it to use special investigative techniques facilitating the identification and tracing of proceeds and the gathering of evidence related thereto. Such techniques may include monitoring orders, observation, interception of telecommunications, access to computer systems and orders to produce specific documents.

    Article 5 Legal remedies

    Each Party shall adopt such legislative and other measures as may be necessary to ensure that interested Parties affected by measures under Articles 2 and 3 shall have effective legal remedies in order to preserve their rights.

    Article 6 Laundering offences

    1. Each Party shall adopt such legislative and other measures as may be necessary to establish as offences under its domestic law, when committed intentionally:

    • a. the conversion or transfer of property, knowing that such property is proceeds, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of the predicate offence to evade the legal consequences of his actions;

    • b. the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of, property, knowing that such property is proceeds; and, subject to its constitutional principles and the basic concepts of its legal system;

    • c. the acquisition, possession or use of property, knowing, at the time of receipt, that such property was proceeds;

    • d. participation in, association or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article.

    2. For the purposes of implementing or applying paragraph 1 of this article:

    • a. it shall not matter whether the predicate offence was subject to the criminal jurisdiction of the Party;

    • b. it may be provided that the offences set forth in that paragraph do not apply to the persons who committed the predicate offence;

    • c. knowledge, intent or purpose required as an element of an offence set forth in that paragraph may be inferred from objective, factual circumstances.

    3. Each Party may adopt such measures as it considers necessary to establish also as offences under its domestic law all or some of the acts referred to in paragraph 1 of this article, in any or all of the following cases where the offender:

    • a. ought to have assumed that the property was proceeds;

    • b. acted for the purpose of making profit;

    • c. acted for the purpose of promoting the carrying on of further criminal activity,

    4. Each Party may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, by declaration addressed to the Secretary General of the Council of Europe declare that paragraph 1 of this article applies only to predicate offences or categories of such offences specified in such declaration.

    CHAPTER III INTERNATIONAL CO-OPERATION

    Section 1 Principles of international co-operation

    Article 7 General principles and measures for international co-operation

    1. The Parties shall co-operate with each other to the widest extent possible for the purposes of investigations and proceedings aiming at the confiscation of instrumentalities and proceeds.

    2. Each Party shall adopt such legislative or other measures as may be necessary to enable it to comply, under the conditions provided for in this chapter, with requests:

    • a. for confiscation of specific items of property representing proceeds or instrumentalities, as well as for confiscation of proceeds consisting in a requirement to pay a sum of money corresponding to the value of proceeds;

    • b. for investigative assistance and provisional measures with a view to either form of confiscation referred to under a above.

    Section 2 Investigative assistance

    Article 8 Obligation to assist

    The Parties shall afford each other, upon request, the widest possible measure of assistance in the identification and tracing of instrumentalities, proceeds and other property liable to confiscation. Such assistance shall include any measure providing and securing evidence as to the existence, location or movement, nature, legal status or value of the aforementioned property.

    Article 9 Execution of assistance

    The assistance pursuant to Article 8 shall be carried out as permitted by and in accordance with the domestic law of the requested Party and, to the extent not incompatible with such law, in accordance with the procedures specified in the request.

    Article 10 Spontaneous information

    Without prejudice to its own investigations or proceedings, a Party may without prior request forward to another Party information on instrumentalities and proceeds, when it considers that the disclosure of such information might assist the receiving Party in initiating or carrying out investigations or proceedings or might lead to a request by that Party under this chapter.

    Section 3 Provisional measures

    Article 11 Obligation to take provisional measures

    1. At the request of another Party which has instituted criminal proceedings or proceedings for the purpose of confiscation, a Party shall take the necessary provisional measures, such as freezing or seizing, to prevent any dealing in, transfer or disposal of property which, at a later stage, may be the subject of a request for confiscation or which might be such as to satisfy the request.

    2. A Party which has received a request for confiscation pursuant to Article 13 shall, if so requested, take the measures mentioned in paragraph 1 of this article in respect of any property which is the subject of the request or which might be such as to satisfy the request.

    Article 12 Execution of provisional measures

    1. The provisional measures mentioned in Article 11 shall be carried out as permitted by and in accordance with the domestic law of the requested Party and, to the extent not incompatible with such law, in accordance with the procedures specified in the request.

    2. Before lifting any provisional measure taken pursuant to this article, the requested Party shall, wherever possible, give the requesting Party an opportunity to present its reasons in favor of continuing the measure.

    Section 4 Confiscation

    Article 13 Obligation to confiscate

    1. A Party, which has received a request made by another Party for confiscation concerning instrumentalities or proceeds, situated in its territory, shall:

    • a. enforce a confiscation order made by a court of a requesting Party in relation to such instrumentalities or proceeds; or

    • b. submit the request to its competent authorities for the purpose of obtaining an order of confiscation and, if such order is granted, enforce it.

    2. For the purposes of applying paragraph 1.b of this article, any Party shall whenever necessary have competence to institute confiscation proceedings under its own law.

    3. The provisions of paragraph 1 of this article shall also apply to confiscation consisting in a requirement to pay a sum of money corresponding to the value of proceeds, if property on which the confiscation can be enforced is located in the requested Party. In such cases, when enforcing confiscation pursuant to paragraph 1, the requested Party shall, if payment is not obtained, realize the claim on any property available for that purpose.

    4. If a request for confiscation concerns a specific item of property, the Parties may agree that the requested Party may enforce the confiscation in the form of a requirement to pay a sum of money corresponding to the value of the property.

    Article 14 Execution of confiscation

    1. The procedures for obtaining and enforcing the confiscation under Article 13 shall be governed by the law of the requested Party.

    2. The requested Party shall be bound by the findings as to the facts in so far as they are stated in a conviction or judicial decision of the requesting Party or in so far as such conviction or judicial decision is implicitly based on them.

    3. Each Party may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, by a declaration addressed to the Secretary General of the Council of Europe, declare that paragraph 2 of this article applies only subject to its constitutional principles and the basic concepts of its legal system.

    4. If the confiscation consists in the requirement to pay a sum of money, the competent authority of the requested Party shall convert the amount thereof into the currency of that Party at the rate of exchange ruling at the time when the decision to enforce the confiscation is taken.

    5. In the case of Article 13, paragraph 1.a, the requesting Party alone shall have the right to decide on any application for review of the confiscation order.

    Article 15 Confiscated property

    Any property confiscated by the requested Party shall be disposed of by the Party in accordance with its domestic law, unless otherwise agreed by the Parties concerned.

    Article 16 Right of enforcement and maximum amount of confiscation

    1. A request for confiscation made under Article 13 does not affect the right of the requesting Party to enforce itself the confiscation order.

    2. Nothing in this Convention shall be so interpreted as to permit the total value of the confiscation to exceed the amount of the sum of money specified in the confiscation order. If a Party finds that this might occur, the Parties concerned shall enter into consultations to avoid such an effect.

    Article 17 Imprisonment in default

    The requested Party shall not impose imprisonment in default or any other measure restricting the liberty of a person as a result of a request under Article 13, if the requesting Party has so specified in the request.

    Section 5 Refusal and postponement of co-operation

    Article 18 Grounds for refusal

    1. Co-operation under this chapter may be refused if:

    • a. the action sought would be contrary to the fundamental principles of the legal system of the requested Party; or

    • b. the execution of the request is likely to prejudice the sovereignty, security, ordre public or other essential interests of the requested Party; or

    • c. in the opinion of the requested Party, the importance of the case to which the request relates does not justify the taking of the action sought; or

    • d. the offence to which the request relates is a political or fiscal offence; or

    • e. the requested Party considers that compliance with the action sought would be contrary to the principle of ne bis in idem; or

    • f. the offence to which the request relates would not be an offence under the law of the requested Party if committed within its jurisdiction. However, this ground for refusal applies to co-operation under Section 2 only in so far as the assistance sought involves coercive action.

    2. Co-operation under Section 2, in so far as the assistance sought involves coercive action, and under Section 3 of this chapter, may also be refused if the measures sought could not be taken under the domestic law of the requested Party for the purposes of investigations or proceedings, had it been a similar domestic case.

    3. Where the law of the requested Party so requires, co-operation under Section 2, in so far as the assistance sought involves coercive action, and under Section 3 of this chapter may also be refused if the measures sought or any other measures having similar effects would not be permitted under the law of the requesting Party, or, as regards the competent authorities of the requesting Party, if the request is not authorized by either a judge or another judicial authority, including public prosecutors, any of these authorities acting in relation to criminal offences.

    4. Co-operation under Section 4 of this chapter may also be refused if:

    • a. under the law of the requested Party confiscation is not provided for in respect to the type of offence to which the request relates; or

    • b. without prejudice to the obligation pursuant to Article 13, paragraph 3, it would be contrary to the principles of the domestic laws of the requested Party concerning the limits of confiscation in respect of the relationship between an offence and:

      • i. an economic advantage that might be qualified as its proceeds;

        or

      • ii. property that might be qualified as its instrumentalities;

        or

    • c. under the law of the requested Party confiscation may no longer be imposed or enforced because of the lapse of time; or

    • d. the request does not relate to a previous conviction, or a decision of a judicial nature or a statement in such a decision that an offence or several offences have been committed, on the basis of which the confiscation has been ordered or is sought; or

    • e. confiscation is either not enforceable in the requesting Party, or it is still subject to ordinary means of appeal; or

    • f. the request relates to a confiscation order resulting from a decision rendered in absentia of the person against whom the order was issued and, in the opinion of the requested Party, the proceedings conducted by the requesting Party leading to such decision did not satisfy the minimum rights of defence recognized as due to everyone against whom a criminal charge is made.

    5. For the purposes of paragraph 4.f of this article a decision is not considered to have been rendered in absentia if:

    • a. it has been confirmed or pronounced after opposition by the person concerned; or

    • b. it has been rendered on appeal, provided that the appeal was lodged by the person concerned.

    6. When considering, for the purposes of paragraph 4.f of this article, if the minimum rights of defence have been satisfied, the requested Party shall take into account the fact that the person concerned has deliberately sought to evade justice or the fact that the person, having had the possibility of lodging a legal remedy against the decision made in absentia, elected not to do so. The same will apply when the person concerned, having been duly served with the summons to appear, elected not to do so nor to ask for adjournment.

    7. A Party shall not invoke bank secrecy as a ground to refuse any cooperation under this chapter. Where its domestic law so requires, a Party may require that a request for co-operation which would involve the lifting of bank secrecy be authorized by either a judge or another judicial authority, including public prosecutors, any of these authorities acting in relation to criminal offences.

    8. Without prejudice to the ground for refusal provided for in paragraph 1.a of this article:

    • a. the fact that the person under investigation or subjected to a confiscation order by the authorities of the requesting Party is a legal person shall not be invoked by the requested Party as an obstacle to affording any cooperation under this chapter;

    • b. the fact that the natural person against whom an order of confiscation of proceeds has been issued has subsequently died or the fact that a legal person against whom an order of confiscation of proceeds has been issued has subsequently been dissolved shall not be invoked as an obstacle to render assistance in accordance with Article 13, paragraph 1.a.

    Article 19 Postponement

    The requested Party may postpone action on a request if such action would prejudice investigations or proceedings by its authorities.

    Article 20 Partial or conditional granting of a request

    Before refusing or postponing co-operation under this chapter, the requested Party shall, where appropriate after having consulted the requesting Party, consider whether the request may be granted partially or subject to such conditions as it deems necessary.

    Section 6 Notification and protection of third parties’ rights

    Article 21 Notification of documents

    1. The Parties shall afford each other the widest measure of mutual assistance in the serving of judicial documents to persons affected by provisional measures and confiscation.

    2. Nothing in this article is intended to interfere with:

    • a. the possibility of sending judicial documents, by postal channels, directly to persons abroad;

    • b. the possibility for judicial officers, officials or other competent authorities of the Party of origin to effect service of judicial documents directly through the consular authorities of that Party or through judicial officers, officials or other competent authorities of the Party of destination,

    unless the Party of destination makes a declaration to the contrary to the Secretary General of the Council of Europe at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession.

    3. When serving judicial documents to persons abroad affected by provisional measures or confiscation orders issued in the sending Party, this Party shall indicate what legal remedies are available under its law to such persons.

    Article 22 Recognition of foreign decisions

    1. When dealing with a request for co-operation under Sections 3 and 4, the requested Party shall recognize any judicial decision taken in the requesting Party regarding rights claimed by third parties.

    2. Recognition may be refused if:

    • a. third Parties did not have adequate opportunity to assert their rights; or

    • b. the decision is incompatible with a decision already taken in the requested Party on the same matter; or

    • c. it is incompatible with the ordre public of the requested Party; or

    • d. the decision was taken contrary to provisions on exclusive jurisdiction provided for by the law of the requested Party.

    Section 7 Procedural and other general rules

    Article 23 Central authority

    1. The Parties shall designate a central authority or, if necessary, authorities, which shall be responsible for sending and answering requests made under this chapter, the execution of such requests or the transmission of them to the authorities competent for their execution.

    2. Each Party shall, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, communicate to the Secretary General of the Council of Europe the names and addresses of the authorities designated in pursuance of paragraph 1 of this article.

    Article 24 Direct communication

    1. The central authorities shall communicate directly with one another.

    2. In the event of urgency, requests or communications under this chapter may be sent directly by the judicial authorities, including public prosecutors, of the requesting Party to such authorities of the requested Party. In such cases a copy shall be sent at the same time to the central authority of the requested Party through the central authority of the requesting Party.

    3. Any request or communication under paragraphs 1 and 2 of this article may be made through the International Criminal Police Organisation (Interpol).

    4. Where a request is made pursuant to paragraph 2 of this article and the authority is not competent to deal with the request, it shall refer the request to the competent national authority and inform directly the requesting Party that it has done so.

    5. Requests or communications under Section 2 of this chapter, which do not involve coercive action, may be directly transmitted by the competent authorities of the requesting Party to the competent authorities of the requested Party.

    Article 25 Form of request and languages

    1. All requests under this chapter shall be made in writing. Modern means of telecommunications, such as telefax, may be used.

    2. Subject to the provisions of paragraph 3 of this article, translations of the requests or supporting documents shall not be required.

    3. At the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, any Party may communicate to the Secretary General of the Council of Europe a declaration that it reserves the right to require that requests made to it and documents supporting such requests be accompanied by a translation into its own language or into one of the official languages of the Council of Europe or into such one of these languages as it shall indicate. It may on that occasion declare its readiness to accept translations in any other language as it may specify. The other Parties may apply the reciprocity rule.

    Article 26 Legalisation

    Documents transmitted in application of this chapter shall be exempt from all legalisation formalities.

    Article 27 Defective requests

    1. Any request for co-operation under this chapter shall specify:

    • a. the authority making the request and the authority carrying out the investigations or proceedings;

    • b. the object of and the reason for the request;

    • c. the matters, including the relevant facts (such as the date, place and circumstances of the offence) to which the investigations or proceedings relate, except in the case of a request for notification;

    • d. in so far as the co-operation involves coercive action:

      • i. the text of the statutory provisions or, where this is not possible, a statement of the relevant law applicable; and

      • ii. an indication that the measure sought or any other measures having similar effects could be taken in the territory of the requesting Party under its own law;

    • e. where necessary and in so far as possible:

      • i. details of the person or persons concerned, including name, date and place of birth, nationality and location, and, in the case of a legal person, its seat; and

      • ii. the property in relation to which co-operation is sought, its location, its connection with the person or persons concerned, any connection with the offence, as well as any available information about other persons’ interests in the property; and

    • f. any particular procedure the requesting Party wishes to be followed.

    2. A request for provisional measures under Section 3 in relation to seizure of property on which a confiscation order consisting in the requirement to pay a sum of money may be realised shall also indicate a maximum amount for which recovery is sought in the property.

    3. In addition to the indications mentioned in paragraph 1, any request under Section 4 shall contain:

    • a. in the case of Article 13, paragraph 1.a:

      • i. a certified true copy of the confiscation order made by the court in the requesting Party and a statement of the grounds on the basis of which the order was made, if they are not indicated in the order itself;

      • ii. an attestation by the competent authority of the requesting Party that the confiscation order is enforceable and not subject to ordinary means of appeal;

      • iii. information as to the extent to which the enforcement of the order is requested; and

      • iv. information as to the necessity of taking any provisional measures;

    • b. in the case of Article 13, paragraph 1.b, a statement of the facts relied upon by the requesting Party sufficient to enable the requested Party to seek the order under its domestic law;

    • c. when third parties have had the opportunity to claim rights, documents demonstrating that this has been the case.

    Article 28 Defective requests

    1. If a request does not comply with the provisions of this chapter or the information supplied is not sufficient to enable the requested Party to deal with the request, that Party may ask the requesting Party to amend the request or to complete it with additional information.

    2. The requested Party may set a time-limit for the receipt of such amendments or information.

    3. Pending receipt of the requested amendments or information in relation to a request under Section 4 of this chapter, the requested Party may take any of the measures referred to in Sections 2 and 3 of this chapter.

    Article 29 Plurality of requests

    1. Where the requested Party receives more than one request under Section 3 and 4 of this chapter in respect of the same person or property, the plurality of requests shall not prevent that Party from dealing with the requests involving the taking of provisional measures.

    2. In the case of plurality of requests under Section 4 of this chapter, the requested Party shall consider consulting the requesting Parties.

    Article 30 Obligation to give reasons

    The requested Party shall give reasons for any decision to refuse, postpone or make conditional any co-operation under this chapter.

    Article 31 Information

    1. The requested Party shall promptly inform the requesting Party of:

    • a. the action initiated on a request under this chapter;

    • b. the final result of the action carried out on the basis of the request;

    • c. a decision to refuse, postpone or make conditional, in whole or in part, any co-operation under this chapter;

    • d. any circumstances which render impossible the carrying out of the action sought or are likely to delay it significantly; and

    • e. in the event of provisional measures taken pursuant to a request under Sections 2 or 3 of this chapter, such provisions of its domestic law as would automatically lead to the lifting of the provisional measure.

    2. The requesting Party shall promptly inform the requested Party of:

    • a. any review, decision or any other fact by reason of which the confiscation order ceases to be wholly or partially enforceable; and

    • b. any development, factual or legal, by reason of which any action under this chapter is no longer justified.

    3. Where a Party, on the basis of the same confiscation order, requests confiscation in more than one Party, it shall inform all Parties which are affected by an enforcement of the order about the request.

    Article 32 Restriction of use

    1. The requested Party may make the execution of a request dependent on the condition that the information or evidence obtained will not, without its prior consent, be used or transmitted by the authorities of the requesting Party for investigations or proceedings other than those specified in the request.

    2. Each Party may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, by declaration addressed to the Secretary General of the Council of Europe, declare that, without its prior consent, information or evidence provided by it under this chapter may not be used or transmitted by the authorities of the requesting Party in investigations or proceedings other than those specified in the request.

    Article 33 Confidentiality

    1. The requesting Party may require that the requested Party keep confidential the facts and substance of the request, except to the extent necessary to execute the request. If the requested Party cannot comply with the requirement of confidentiality, it shall promptly inform the requesting Party.

    2. The requesting Party shall, if not contrary to basic principles of its national law and if so requested, keep confidential any evidence and information provided by the requested Party, except to the extent that its disclosure is necessary for the investigations or proceedings described in the request.

    3. Subject to the provisions of its domestic law, a Party which has received spontaneous information under Article 10 shall comply with any requirement of confidentiality as required by the Party which supplies the information. If the other Party cannot comply with such requirement, it shall promptly inform the transmitting Party.

    Article 34 Costs

    The ordinary costs of complying with a request shall be borne by the requested Party. Where costs of a substantial or extraordinary nature are necessary to comply with a request, the Parties shall consult in order to agree the conditions on which the request is to be executed and how the costs shall be borne.

    Article 35 Damages

    1. When legal action on liability for damages resulting from an act or omission in relation to co-operation under this chapter has been initiated by a person, the Parties concerned shall consider consulting each other, where appropriate, to determine how to apportion any sum of damages due.

    2. A Party which has become subject of a litigation for damages shall endeavor to inform the other Party of such litigation if that Party might have an interest in the case.

    Chapter IV Final Provisions

    Article 36 Signature and entry into force

    1. This Convention shall be open for signature by the member States of the Council of Europe and non-member States which have participated in its elaboration. Such States may express their consent to be bound by:

    • a. signature without reservation as to ratification, acceptance or approval; or

    • b. signature subject to ratification, acceptance or approval, followed by ratification, acceptance or approval.

    2. Instruments of ratification, acceptance or approval shall be deposited with the Secretary General of the Council of Europe.

    3. This Convention shall enter into force on the first day of the month following the expiration of a period of three months after the date on which three States, of which at least two are member States of the Council of Europe, have expressed their consent to be bound by the Convention in accordance with the provisions of paragraph 1.

    4. In respect of any signatory State which subsequently expresses its consent to be bound by it, the Convention shall enter into force on the first day of the month following the expiration of a period of three months after the date of the expression of its consent to be bound by the Convention in accordance with the provisions of paragraph 1.

    Article 37 Accession to the Convention

    1. After the entry into force of this Convention, the Committee of Ministers of the Council of Europe, after consulting the Contracting States to the Convention, may invite any State not a member of the Council and not having participated in its elaboration to accede to this Convention, by a decision taken by the majority provided for in Article 20.d of the Statute of the Council of Europe and by the unanimous vote of the representatives of the Contracting States entitled to sit on the Committee.

    2. In respect of any acceding State the Convention shall enter into force on the first day of the month following the expiration of a period of three months after the date of deposit of the instrument of accession with the Secretary General of the Council of Europe.

    Article 38 Territorial application

    1. Any State may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, specify the territory or territories to which this Convention shall apply.

    2. Any State may, at any later date, by a declaration addressed to the Secretary General of the Council of Europe, extend the application of this Convention to any other territory specified in the declaration. In respect of such territory the Convention shall enter into force on the first day of the month following the expiration of a period of three months after the date of receipt of such declaration by the Secretary General.

    3. Any declaration made under the two preceding paragraphs may, in respect of any territory specified in such declaration, be withdrawn by a notification addressed to the Secretary General. The withdrawal shall become effective on the first day of the month following the expiration of a period of three months after the date of receipt of such notification by the Secretary General.

    Article 39 Relationship to other conventions and agreements

    1. This Convention does not affect the rights and undertakings derived from international multilateral conventions concerning special matters.

    2. The Parties to the Convention may conclude bilateral or multilateral agreements with one another on the matters dealt with in this Convention, for purposes of supplementing or strengthening its provisions or facilitating the application of the principles embodied in it.

    3. If two or more Parties have already concluded an agreement or treaty in respect of a subject which is dealt with in this Convention or otherwise have established their relations in respect of that subject, they shall be entitled to apply that agreement or treaty or to regulate those relations accordingly, in lieu of the present Convention, if it facilitates international co-operation.

    Article 40 Reservations

    1. Any State may, at the time of signature or when depositing its instrument of ratification, acceptance, approval or accession, declare that it avails itself of one or more of the reservations provided for in Article 2, paragraph 2, Article 6, paragraph 4, Article 14, paragraph 3, Article 21, paragraph 2, Article 25, paragraph 3, and Article 32, paragraph 2. No other reservation may be made.

    2. Any State which has made a reservation under the preceding paragraph may wholly or partly withdraw it by means of a notification addressed to the Secretary General of the Council of Europe. The withdrawal shall take effect on the date of receipt of such notification by the Secretary General.

    3. A Party which has made a reservation in respect of a provision of this Convention may not claim the application of that provision by any other Party; it may, however, if its reservation is partial or conditional, claim the application of that provision in so far as it has itself accepted it.

    Article 41 Amendments

    1. Amendments to this Convention may be proposed by any Party, and shall be communicated by the Secretary General of the Council of Europe to the member States of the Council of Europe and to every non-member State which has acceded to or has been invited to accede to this Convention in accordance with the provisions of Article 37.

    2. Any amendment proposed by a Party shall be communicated to the European Committee on Crime Problems which shall submit to the Committee of Ministers its opinion on that proposed amendment.

    3. The Committee of Ministers shall consider the proposed amendment and the opinion submitted by the European Committee on Crime Problems and may adopt the amendment.

    4. The text of any amendment adopted by the Committee of Ministers in accordance with paragraph 3 of this article shall be forwarded to the Parties for acceptance.

    5. Any amendment adopted in accordance with paragraph 3 of this article shall come into force on the thirtieth day after all Parties have informed the Secretary General of their acceptance thereof.

    Article 42 Settlement of Disputes

    1. The European Committee on Crime Problems of the Council of Europe shall be kept informed regarding the interpretation and application of this Convention.

    2. In case of a dispute between Parties as to the interpretation or application of this Convention, they shall seek a settlement of the dispute through negotiation or any other peaceful means of their choice, including submission of the dispute to the European Committee on Crime Problems, to an arbitral tribunal whose decisions shall be binding upon the Parties, or to the International Court of Justice, as agreed upon by the Parties concerned.

    Article 43 Denunciation

    1. Any Party may, at any time, denounce this Convention by means of a notification addressed to the Secretary General of the Council of Europe.

    2. Such denunciation shall become effective on the first day of the month following the expiration of a period of three months after the date of receipt of the notification by the Secretary General.

    3. The present Convention shall, however, continue to apply to the enforcement under Article 14 of confiscation for which a request has been made in conformity with the provisions of this Convention before the date on which such a denunciation takes effect.

    Article 44 Notifications

    The Secretary General of the Council of Europe shall notify the member States of the Council and any State which has acceded to this Convention of:

    • a. any signature;

    • b. the deposit of any instrument of ratification, acceptance, approval or accession;

    • c. any date of entry into force of this Convention in accordance with Articles 36 and 37;

    • d. any reservation made under Article 40, paragraph 1;

    • e. any other act, notification or communication relating to this Convention.

    In witness whereof the undersigned, being duly authorized thereto, have signed this Convention.

    Done at ___________, this_____day of_________, in English and in French, both texts being equally authentic, in a single copy which shall be deposited in the archives of the Council of Europe. The Secretary General of the Council of Europe shall transmit certified copies to each member State of the Council of Europe, to the non-member States which have participated in the elaboration of this Convention, and to any State invited to accede to it.

    Appendix II 3 Recommendations of the G-7 Financial Action Task Force on Money Laundering

    [Report of February 6, 1990; Introduction omitted]

    1. Extent and Nature of the Money Laundering Process

    A. Extent

    The financial flows arising from drug trafficking might theoretically be estimated directly or indirectly.

    A direct estimation would consist of measuring these flows from the international banking statistics and capital account statistics for the balance of payments. This could be done through an analysis of errors and omissions and other discrepancies. The Task Force asked the IMF and the BIS to conduct this work. Their conclusion was that although deposits covered by international banking statistics may include a substantial amount of drug money, there is no way in which this aspect can be singled out and it probably accounts for only a small percentage of the totals. The data for banks’ liabilities suffers from insufficient coverage of offshore financial centers.

    Indirect methods estimate the value of production or sales of narcotics, based on the fact that financial flows arising from drug trafficking are initially the counterparts of flows of drugs themselves. The parties involved in illegal narcotics transactions inevitably come to hold cash or balances in financial institutions whose connections with illicit activity they will wish to conceal. There is currently insufficient information to evaluate, on the basis of estimates of the value of drug sales, the level of these balances resulting from money laundering.

    Three indirect methods of estimation were used to assess the scale of financial flows arising from drug traffic. They are based on estimations of drug production or consumption, valued using the retail price of drugs. Only a part of the calculated amounts are profits available to be laundered: production estimates must be modified by estimates of local consumption and losses in the production and distribution chain.

    1. The first method is based on estimations of world drug production. The United Nations estimated drug trafficking proceeds1 worldwide at $300 billion in 1987. This estimation remains very uncertain.

    The role of each kind of drug in the generation of proceeds available for money laundering is also difficult to assess. Estimates of US street yield are in the range of $29 billion for cocaine, $10 billion for heroin, and $67 billion for cannabis. Some drugs generate huge profits for the organisations controlling the traffic, making money laundering of large amounts, through complicated financial channels, a necessity, while some others generate profits mainly for the retailers, who may facilitate the laundering of these profits through very simple financial operations, as for instance by bartering drugs for stolen goods, and selling these goods for cash.

    Opium and its derivatives (e.g. heroin) originate mainly from South-East Asia (Golden Triangle) and South-West Asia (Golden Crescent) and Mexico. Proceeds from the sale of this multi-source drug are partly laundered through a sophisticated network of underground financial channels. Retail distribution networks are nonetheless largely controlled by persons located within Task Force countries.

    Coca shrubs are cultivated in the Andean countries of South America (e.g. Bolivia, Colombia, Peru), and is converted into the most marketable form, cocaine hydrochloride, predominantly in Colombia. Several cartels are known to control the processing of cocaine hydrochloride in Colombia. Colombian nationals are also known to be involved in organising and controlling distribution networks in other countries. This means that there is a flow of funds destined to Colombia originating in Task Force countries.

    The total global crop of cannabis is extremely difficult to estimate, as it grows uncultivated in many of the producing areas. Nevertheless, in many countries, major cannabis import, wholesale, and retail distribution organisations provide a structure which may also be used for distribution of heroin and cocaine. Large cannabis seizures from offshore supply vessels, and bulk consignments of cannabis packed with heroin or cocaine are becoming more common in Europe. There is a rapid and troublesome growth in the size, power, and money laundering capability of some cannabis distribution organisations, raising the spectre of cartels developing in this area. Hence, in law enforcement and money laundering terms, cannabis trafficking constitutes a very serious problem requiring urgent attention.

    Although a large part of heroin, cocaine and cannabis production is consumed in industrialized countries, important quantities are also consumed in producing countries, especially heroin, where they also generate profits.

    Finally, psychotropic substances such as amphetamines/methamphetamines and LSD are produced in clandestine laboratories, including some within Task Force countries. Large amounts of cash are derived, although not on the same scale as for cocaine and heroin.

    However, the production-based method of estimation does not provide for an identification of financial flows within individual countries. Accordingly, all that can be said for certain is that the bulk of proceeds arises at the retail level within the Task Force area.

    2. A second method of estimating laundered drug proceeds is based on the consumption needs of drug abusers. But the information regarding drug use obtained through surveys is frequently of doubtful reliability since the activity is illegal: sample populations surveyed for example in homes or schools may miss a significant proportion of drug users.

    3. A third method of estimating uses data concerning actual seizures of illicit drugs, and projects the total amounts of drugs available for sale by the application of a multiplier to recorded seizures, which is estimated on the basis of a law enforcement seizure rate varying between 5% and 20% according to the type of drug considered, and which, on a weighted average, could be approximately of 10%. This approach, too, raises significant methodological problems.

    Using these methods, the group estimated that sales of cocaine, heroin and cannabis amount to approximately $122 billions per year in the United States and Europe, of which 50 to 70% or as much as $85 billion per year could be available for laundering and investment. One Task Force member estimated global profits at the main dealer level, which might be most subject to international laundering, to be about $30 billion per year.

    B. Methods

    It would be impossible to list the entire range of methods used to launder money. Nevertheless, the Task Force reviewed a number of practical cases of money laundering. It stated that all of them share common factors, regarding the role of cash domestically, of various kinds of financial institutions, of international cash transfers, and of corporate techniques. These common factors indicate clearly where the efforts of the fight against money laundering should focus.

    1. Cash intensiveness

    The form of the money obtained through drug trafficking must be changed in order to shrink the huge volumes of cash generated: unlike the proceeds of some other forms of criminal activity, drug cash usually comes in the form of large volumes of mixed denomination notes, and at least in the case of heroin and cocaine, the physical volume of notes received from street dealing is much larger than the volume of the drugs themselves.

    Drugs criminals are faced with major difficulties when in possession of large amounts of cash, and when large transactions cannot be performed in cash without arousing suspicion. A completely cashless economy where all transactions were registered would create enormous problems for the money launderers. Similarly, a rule that cash transactions were illegal above a certain amount for all but certain types of business regularly operating in cash would also create problems for launderers.

    This is not to say that the cash intensiveness in one country is by itself correlated with the importance of money laundering. The cash intensiveness of Task Force economies varies greatly between countries. In countries like Switzerland, Germany, the Netherlands, Japan, Belgium and Austria, the cash/GDP ratio lies in the range 6.9-8.9%, whereas at the other extreme are economies such as the UK and France with cash/GDP ratios at about 3-4%. Important cash transactions are increasingly monitored in some countries, such as the United-States and Australia, and were recently prohibited in France over 150,000 francs per operation.

    Another observation is that it is easier for the launderer if the cash in which he operates can be directly accepted abroad as a means of exchange. The US dollar in cash is acceptable as a means of exchange in large amounts in many parts of the world: Federal Reserve Board staff have estimated that adult residents of the US held only 11-12% of issued U.S. notes and coins in 1984. The remainder were held by legitimate and illegitimate business enterprises, residents of foreign countries, and persons less than 18 years old.

    2. Role of formal and informal financial institutions

    (a) Role of formal financial institutions

    Banks and other deposit-taking financial institutions are the main transmitters of money both within the Task Force area and internationally. Clearly the stage of depositing money in institutions is a key one for money launderers. Whether a currency reporting system is in place, or whether the laws in the country only allow or require the reporting of suspicious transactions, many of the Task Force countries have measures in place which would make large cash deposits likely to be brought to the attention of the authorities. Therefore, deposits have to be disguised. In countries where there is cash transaction reporting, deposits have to be broken up into sizes which are lower than the threshold for that reporting (“smurfing”), in order to escape this reporting.

    For criminals to avoid suspicion, the reduction of deposit size below reporting requirements is not enough. Deposits may be made in the name of a company whose beneficial owners do not have to be disclosed in the country in which it is headquartered. Those with signing authority for the company in a Task Force country—or receiving payments—do not necessarily know who the beneficial owners are. In some countries, bank accounts can also be opened in the name of trustees, and the beneficiaries under the trust may be kept secret. Deposits may be made by the legal profession in the name of clients to whom the rules of attorney confidentiality may apply.

    Even if identity requirements were comprehensive and uniform, it is possible that officials of banks may become corrupt and accept deposits from persons with false identities. Most reputable banks do not open accounts without knowing their customer. But they may be less careful about cash transactions in foreign exchange over the counter, or in providing cashier’s cheques or wiring money for non-depositors. It is not believed that automatic teller machines (ATMs) operated by banks at present cause any particular difficulty. But automatic foreign exchange changing machines—already in use in Europe—can provide anonymity during the laundering process. Similarly, any future ATMs which automatically and anonymously converted low value notes into high value ones would also facilitate money laundering.

    (b) Role of informal financial institutions

    It is of course not necessary for criminals to use licensed deposit-taking financial institutions or to establish companies to help deal with their problems. Informal and largely unregulated financial institutions, which cannot legally accept deposits, can also be used. The first category of these are Bureaux de Change, which accept money in one currency and convert it into another. This still leaves the cash problem open, but a first transformation has taken place which makes it more difficult to detect the origin of the funds. If informal financial institutions provide this service, they may not record the identity of transactors. Cheque cashers who provide a service mainly after bank hours, if unscrupulous, can work in reverse: selling cheques at a premium for cash.

    Informal bankers, including “Hawalla” bankers, exist mainly in countries with direct connections with Asia. They are often involved in the gold bullion, gold jewelry or currency exchange business, and may be a member of a family with similar businesses in several countries, or, at the other end of the scale, a street corner confectionery shop. Bona fide employees of foreign banks may operate such systems outside banking hours.

    3. Cash shipments abroad

    Drugs proceeds can be deposited abroad in jurisdictions where the banking system is insufficiently regulated and where the establishment of “letter box” companies is permitted. Such jurisdictions may include, for instance, small countries who wish to establish a financial services industry as a supplementary source of income—the sale of banking licenses can constitute a major source of revenue to the authorities—and employment for the population. Such jurisdictions are sometimes also tax havens.

    These jurisdictions are part of the world payments system without any restriction. So long as this is the case, cash exports will tend to go to these countries for integration into the financial system there and return by means of wire transfers. This means that detection of the outflow of cash becomes especially important when internal avenues have been blocked.

    4. Corporate techniques

    Drug dealers must conceal the true ownership and origin of the money while simultaneously controlling it. To this end, they can use various corporate techniques.

    Offshore companies can be used by launderers in ways other than simply as depositories for cash. Launderers can set up or buy corporations, perhaps in a tax haven using a local lawyer or other person as a nominee owner, with an account at a local bank. They can then finance the purchase of a similar business at home through a loan from their corporation abroad (or the bank), in effect borrowing their own money and paying it back as if it were a legitimate loan.

    The technique of “double invoicing” can be used whereby goods are purchased at inflated prices by domestic companies owned by money launderers from offshore corporations which they also own. The difference between the price and the true value is then deposited offshore and paid to the offshore company and repatriated at will. Variants of the “double invoicing” technique abound.

    All these techniques, however, involve going through stages where detection is possible. Either cash has to be exported over a territorial frontier and then deposited in a foreign financial institution, or it requires the knowing or unknowing complicity of someone at home not connected with the drug trade, or it requires convincing a domestic financial institution that a large cash deposit or purchase of a cashier’s cheque is legitimate. Once these hurdles have been cleared, the way is much easier inside the legitimate financial system.

    Hence, key stages for the detection of money laundering operations are those where cash enters into the domestic financial system, either formally or informally, where it is sent abroad to be integrated into the financial systems of regulatory havens, and where it is repatriated in the form of transfers of legitimate appearance.

    II. Programs Already in Place to Combat Money Laundering

    A. International Instruments

    Various international organisations or groups, including the Council of Europe and Interpol among EEC members, the Mutual Assistance Group between customs administrations and the TREVI group between ministers in charge of security, as well as the Customs Cooperation Council, have already devoted much attention to the money laundering problem. Besides, two international instruments currently address this issue from different viewpoints: the United Nations Vienna Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (hereinafter “Vienna Convention”), and the Statement of Principles of the Basel Committee on Banking Regulations and Supervisory Practices (hereinafter Basel Statement of Principles), concerning the “prevention of criminal use of the banking system for the purpose of money laundering”.

    (a) The Vienna Convention

    This Convention, which was adopted in Vienna on December 20, 1988, focuses on drug trafficking in general, including of course, but not exclusively, drug money laundering. On this last issue, it lays firm ground for further progress in the following directions:

    • it creates an obligation to criminalize the laundering of money derived from drug trafficking, thereby facilitating judicial cooperation and extradition in this field, which today are hampered, given the principle of dual criminality, by the fact that many countries do not presently criminalize money laundering;

    • several parts of the Vienna Convention deal with international cooperation. Its implementation would substantially facilitate international investigations;

    • it makes extradition between signatory States applicable in money laundering cases;

    • it sets out principles to facilitate cooperative administrative investigations;

    • it sets forth the principle that banking secrecy should not interfere with criminal investigations in the context of international cooperation.

    More than eighty countries have signed this Convention, including all Task Force countries. So far, only China, Senegal, the Bahamas and Nigeria have ratified it. Twenty ratifications are necessary for this Convention to be brought into force. Given the complexity of the ratification and implementation process, in some countries, its entry into force could take several years.

    (b) The Basel Statement of Principles

    This document, which was agreed to on December 12, 1988, and stated that public confidence in banks may be undermined through their association with criminals, outlines some basic principles with a view to combat money laundering operations through the banking system, in the following directions:

    • customer identification;

    • compliance with laws and regulations pertaining to financial transactions, and refusal to assist transactions which appear to be associated with money laundering;

    • cooperation with law enforcement authorities, to the extent permitted by regulations relating to customer confidentiality.

    All Task Force countries, except Australia, Austria, and Spain, were part of the group that agreed to the Basel Statement of Principles. The bank regulators and supervisors of these three countries however have expressed that they consider this Statement as also applicable to their supervised banking systems.

    Although it is not in itself a legally binding document, various formulas have been used to make its principles an obligation, notably a formal agreement among banks that commits them explicitly (Austria, Italy, Switzerland), a formal indication by bank regulators that failure to comply with these principles could lead to administrative sanctions (France, United Kingdom), or legally binding texts with a reference to these principles (Luxemburg).

    In spite of the fact that the Statement of Principles is a recent text, and furthermore that it was very recently established as an obligation for banks, practical measures have already been taken in many countries, such as the appointment of a compliance officer in each bank, in charge of the application of the internal programs against money laundering. Most Task Force countries have set detailed guidelines for banks, making the Principles precise and practical obligations.

    It should be noted that certain of these Principles have been applied in most countries for a long time, as for instance the principles of customer identification, and retaining of a record of transactions.

    B. National Programs

    Awareness of the problem of money laundering is recent. However, national programs to combat it are already in place in some Task Force countries, although much remains to be done in most of them.

    The group agreed to the following working definition to describe the process of money laundering conduct or behaviour:

    • the conversion or transfer of property, knowing that such property is derived from a criminal offense, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his action;

    • the concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from a criminal offense;

    • the acquisition, possession or use of property, knowing at the time of receipt that such property was derived from a criminal offense or from an act of participation in such offense.1

    1. Money laundering offense

    Money laundering is already a specific criminal offense in seven Task Force countries (Australia, Canada, France, Italy, Luxemburg, United Kingdom, United States), and there is a pending legislation to create this offense in four additional Task Force countries (Belgium, Germany, Sweden, Switzerland). In the other Task Force countries (Netherlands, Spain, Austria, Japan), there is currently no specific money laundering offense, although, for some of them the general legislation pertaining to the proceeds of crime covers money laundering offenses.

    Some differences appear in the scienter requirements, whereas most countries only criminalize intentional money laundering, other countries also criminalize negligence leading to money laundering.

    The criminal penalties for these offenses are heavy fines, imprisonment up to 20 years, and sometimes prohibitions against engaging in certain professions.

    2. Freezing, seizure and confiscation of assets

    Most Task Force countries have provisional measures concerning freezing, seizure, and/or procedures for asset confiscation relating to drug offenses. However, not all the countries that have established money laundering offenses permit these procedures in relation to money laundering.

    The definition of property subject to freezing, seizure and confiscation is generally similar from one country to another, because, in most countries, it also extends to all proceeds of crime, which would normally cover indirect as well as direct profits or proceeds of drug trafficking. In a few countries, it also extends to the property laundered, the instrumentalities used in the crime, or property of corresponding value.

    Most Task Force countries allow freezing, seizure or confiscation of assets related to drug trafficking in execution of a formal request of a foreign state, in the framework of their domestic laws, or provided a treaty exists, and subject to additional conditions. Nevertheless, the existing domestic laws and mutual legal assistance treaties do not provide for each Task Force country to obtain freezing, seizure or confiscation of drug related assets in all other member countries.

    3. Bank secrecy laws and reporting requirements

    (a) Customer identification

    None of the Task Force countries allows anonymous accounts, although Austria allows limited forms of anonymous bearer accounts. Most Task Force countries require the identification of customers using safe deposit facilities. Only in some Task Force members (Australia, Luxemburg, Sweden, Switzerland) does the obligation to identify extend to the beneficial owners.

    (b) Internal records of transactions

    All countries’ banks must keep account books and records of transactions, for the purpose of prudential supervision, statistics and tax control. In a few countries, banks must also retain internal records of transactions (either all transactions, and/or large cash transactions and/or international transactions), for the purpose of combatting money laundering and other crimes.

    The conditions of access of law enforcement authorities to these records are extremely varied among countries. In most cases, judicial proceedings are necessary to overcome bank secrecy rules.

    (c) Detection of suspicious transactions

    The detection of suspicious transactions occurring through the financial system, in Task Force countries having specific detection programs, is broadly based on different systems, which can be complementary.

    The responsibility for initially detecting suspicious financial flows falls mainly to financial institutions themselves. In some countries, such as Canada, banks have taken on this responsibility; in other countries, such as the UK, banks have been indirectly obliged to take on this responsibility in order to avoid possible prosecution for money laundering; while in other countries, such as the US and Australia, this responsibility has been imposed by regulation. The banker, to avoid the risk of being involved in money laundering operations, sets up internal programs to detect suspicious transactions, and declares his suspicions to the competent authorities. Under either system, when banks bring a questionable transaction to the attention of these authorities, they will be protected against judicial actions brought by their customers for failure to respect banking confidentiality. These systems also require confidential relations between bankers and these authorities. Although these systems are recent, the number of declarations—from several hundreds to several thousands each year—received by the competent authorities of countries which apply them, is an indication of their efficiency. In most other Task Force countries, bank secrecy rules do not allow bankers to make such declarations. In some other countries where the reporting of suspicious transactions is mandatory, such as the United States, failure to report suspicious transactions carries administrative penalties.

    In addition to mandatory suspicious transaction reporting, competent administrative authorities in two countries rely on the gathering and analysis of systematic information related to cash movements. This is the system in place in the United States and Australia. In this system, financial institutions report routinely all deposits, transfers and withdrawals of cash over $10,000. These reports, together with report of international important transfers of cash and similar instruments over $10,000, are fed into a computerized database, with an artificial intelligence system, enabling the detection of questionable transactions. In the United-States, about 6 million reports are made annually under this system, with a cost for the financial institutions estimated at US $17 for each report. In the US, currency reports serve a number of purposes beyond identifying suspicious transactions. The reports are used in many ways to support investigations, prosecution and confiscation.

    Although recent, there are signs that these programs against money laundering, in countries having such programs, have effective results, by creating increased risks for money launderers. For instance, in the United-States, money laundering “commissions” asked by launderers, which amounted to 2 to 4% per transaction in the early 1980’s, commonly reach 6 to 8% now.

    III. Recommendations

    A. General Framework of the Recommendations

    Many of the current difficulties in international cooperation in drug money laundering cases are directly or indirectly linked with a strict application of bank secrecy rules, with the fact that, in many countries, money laundering is not today an offense, and with insufficiencies in multilateral cooperation and mutual legal assistance.

    1 Some of these difficulties will be alleviated when the Vienna Convention is in effect in all the signatory countries, principally because this would open more widely the possibility of mutual legal assistance in money laundering cases. Accordingly, the group unanimously agreed as its first recommendation that each country should, without further delay, take steps to fully implement the Vienna Convention, and proceed to ratify it.

    2 Concerning bank secrecy, it was unanimously agreed that financial institutions’ secrecy laws should be conceived so as not to inhibit implementation of the recommendations of this group.

    3 Finally, an effective money laundering enforcement program should include increased multilateral cooperation and mutual legal assistance in money laundering investigations and prosecutions and extradition in money laundering cases, where possible.

    Nevertheless, this should not be the end point of our efforts to fight this phenomenon. Additional measures are necessary, for at least two reasons:

    • the need for rapid and tough actions

    As the purpose of the Vienna Convention is the fight against drug trafficking in general, including of course, but not exclusively, the fight against drug money laundering, some countries could have difficulties in ratifying and implementing it for reasons that are not related to the issue of money laundering. It remains crucial, whatever the difficulties may be on legal and technical grounds, to ratify and implement the Convention fully and without delay.

    Rapid progress on the issue of money laundering is necessary. Hence, the Task Force’s recommendations include important steps that are implied by this Convention. Furthermore, even on the topics mentioned by the Vienna Convention, it seemed to the group that the growing dimension and increasing awareness of the problem of money laundering, would justify a reinforcement of its provisions applicable to money laundering issues.

    • the need for practical measures

    Any discrepancy between national measures to fight money laundering can be used potentially by traffickers, who would move their laundering channels to the countries and financial systems where no or weak regulations exist on this matter, making more difficult the detection of funds of criminal origin. To avoid such a risk, these national measures, particularly those concerning the diligence of financial institutions, have to be conceived in a way that builds upon and enhances the Basel Statement of Principles, and to be harmonized in their most practical aspects, which is not provided for in the Statement.

    On these bases, we recommend action steps that, in our view, could constitute a minimal standard in the fight against money laundering, for the countries participating in this Task Force, as well as for other countries. Some of these recommendations reflect the view of a majority of delegates, rather than unanimity, so that they are not limited to the weakest existing solution in the participating countries on each topic. Cases where a minority held a significantly different view are also mentioned. Accordingly, the minimal standard we recommend can be viewed as rather ambitious. Nevertheless, it should in no way prevent individual countries from adopting or maintaining more stringent measures against money laundering. Furthermore, as money laundering techniques evolve, anti-money laundering measures must evolve too: our recommendations will probably need periodic reevaluation.

    These action steps against money laundering focus on improvements of national legal systems (B), enhancement of the role of the financial system (C), and the strengthening of international cooperation (D).

    B. Improvement of National Legal Systems to Combat Money Laundering

    1. Definition of the criminal offense of money laundering

    4 Each country should take such measures, as may be necessary, including legislative ones, to enable it to criminalize drug money laundering as set forth in the Vienna Convention.

    However, the laundering of drug money is frequently associated with the laundering of other criminal proceeds. Given the difficulty to bring evidence of drug money laundering specifically, an extension of the scope of this offense, for instance to the most serious offenses, such as arms trafficking, etc., might facilitate its prosecution.

    5 Accordingly, each country should consider extending the offense of drug money laundering to any other crimes for which there is a link to narcotics; an alternative approach is to criminalize money laundering based on all serious offenses, and/or on all offenses that generate a significant amount of proceeds, or on certain serious offenses.

    6 The group agreed that, as provided in the Vienna Convention, the offense of money laundering should apply at least to knowing [of] money laundering activity, including the concept that knowledge may be inferred from objective factual circumstances. Some delegates consider that the offense of money laundering should go beyond the Vienna Convention on this point to criminalize activity where a money launderer should have known the criminal origin of the laundered funds. As already mentioned, a few countries would impose criminal sanctions for negligent money laundering activity.

    7 In addition, the group recommends that, where possible, corporations themselves—not only their employees—should be subject to criminal liability.

    2. Provisional measures and confiscation

    The Vienna Convention provides for provisional measures and confiscation in case of drug trafficking and laundering of drug money. These measures are a necessary condition to an effective fight against drug money laundering, notably because they facilitate the execution of sentences and help reduce the financial attractiveness of money laundering.

    8 Accordingly, countries should adopt measures similar to those set forth in the Vienna Convention, as may be necessary, including legislative ones, to enable their competent authorities to confiscate property laundered, proceeds from, instrumentalities used in or intended for use in the commission of any money laundering offense, or property of corresponding value.

    Such measures should include the authority to: (1) identify, trace, and evaluate property which is subject to confiscation; (2) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer, or disposal of such property and (3) take any appropriate investigative measures.

    In addition to confiscation and criminal sanctions, countries also should consider monetary and civil penalties, and/or proceedings including civil proceedings, to void contracts entered by parties, where parties knew or should have known that as a result of the contract, the state would be prejudiced in its ability to recover financial claims, e.g., through confiscation or collection of fines and penalties.

    C. Enhancement of the Role of the Financial System

    In addressing the subject of money laundering, the group has kept in mind the necessity to weigh the impact of its recommendations on financial institutions, and to preserve the efficient operation of national and international financial systems.

    1. Scope of the following recommendations

    The entry of cash into the financial system is of crucial importance in the drug money laundering process. This may occur through the financial system (banks and other financial institutions), and also through certain other professions dealing with cash, which are unregulated or virtually unregulated in many countries.

    9 Accordingly, the recommendations 12 to 29 of this paper should apply not only to banks, but also to non-bank financial institutions.

    10 For maximum effectiveness, these recommendations need to cover as many organisations as possible that receive large value cash payments in the course of their business. Therefore, the appropriate national authorities should take steps to ensure that these recommendations are implemented on as broad a front as is practically possible.

    Nevertheless, excessive variation among the national lists for these non-bank financial institutions and other professions dealing with cash, subject to the following recommendations, could potentially facilitate the activity of money launderers. To avoid that, some delegates prefer that a common, minimum list of these financial institutions and professions be accepted by all the countries. As examples of non-bank financial institutions, savings societies, including postal savings societies, loan societies, building societies, security brokers and dealers, credit card companies, cheque cashers, transmitters of funds by wire, money changers / bureaux de change, sales finance companies, consumer loan companies, leasing companies, factoring companies, and gold dealers were mentioned.

    11 It was agreed that, a working group should further examine the possibility of establishing a common minimal list of non-bank financial institutions and other professions dealing with cash subject to these recommendations.

    2. Customer identification and record keeping rules

    Crucial in the fight against money laundering through the financial system, are the ability of financial institutions to screen undesirable customers, and the ability for law enforcement authorities to conduct their enquiries on the basis of reliable documents about the transactions and the identity of clients.

    12 Hence, financial institutions should not keep anonymous accounts or accounts in obviously fictitious names: they should be required (by law, by regulations, by agreements between supervisory authorities and financial institutions or by self-regulatory agreements among financial institutions) to identify, on the basis of an official or other reliable identifying document, and record the identity of their clients, either occasional or usual, when establishing business relations or conducting transactions (in particular opening of accounts or passbooks, entering into fiduciary transactions, renting of safedeposit boxes, performing large cash transactions).

    Furthermore, layering of funds of illicit origin is often facilitated by nominee accounts in financial institutions and shareholdings in companies, where beneficial ownership is disguised.

    13 Hence, financial institutions should take reasonable measures to obtain information about the true identity of the persons on whose behalf an account is opened or a transaction is conducted if there are any doubts as to whether these clients or customers are not acting on their own behalf, in particular, in the case of domiciliary companies (i.e. institutions, corporations, foundations, trusts, etc., that do not conduct any commercial or manufacturing business or any other form of commercial operation in the country where their registered office is located).

    14 Financial institutions should maintain, for at least five years, all necessary records on transactions, both domestic or international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal behaviour.

    Financial institutions should keep records on customer identification (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least five years after the account is closed.

    These documents should be available to domestic competent authorities, in the context of criminal prosecutions and investigations.

    3. Increaseddiligence of financial institutions

    Identification of customers is generally not sufficient to allow financial institutions and law enforcement authorities to detect suspicious transactions.

    15 Hence, financial institutions should pay special attention to all complex, unusual, large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful 15 purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.

    Where financial institutions suspect that funds stem from a criminal activity, bank secrecy rules or other privacy laws which are presently enforced in most countries prohibit them to report their suspicions to the competent authorities. Thus, to avoid any involvement in money laundering operations, they have no other choice, in that case, than denying assistance, severing relations and closing accounts in accordance with the Basel Statement of Principles. The consequence is that these funds can flow through other, undetected channels, which would frustrate the efforts of competent authorities in the fight against money laundering.

    16 To avoid this risk, the following principle should be established: if financial institutions suspect that funds stem from a criminal activity, they should be permitted or required to report promptly their suspicions to the competent authorities. Accordingly, there should be legal provisions to protect financial institutions and their employees from criminal or civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report in good faith, in disclosing suspected criminal activity to the competent authorities, even if they have not known precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

    There is a divergence of opinion within the Task Force on whether suspicious activity reporting should be mandatory or permissive. A few countries strongly believe that this reporting should be mandatory, possibly restricted to suspicions on serious criminal activities, and with administrative sanctions available for failure to report.

    If financial institutions, while making these reports, warned at the same time their customers, the effect might be similar to a refusal to handle the suspected funds: the suspected customers and their funds would flow through undetected channels.

    17 Hence, financial institutions, their directors and employees, should not, or, where appropriate, should not be allowed to, warn their customers when information relating to them is being reported to the competent authorities.

    18 In the case of a mandatory reporting system, or in the case of a voluntary reporting system where appropriate, financial institutions reporting their suspicions should comply with instructions from the competent authorities.

    19 In countries where no obligation of reporting these suspicions exists, when a financial institution develops suspicions about operations of a customer, and when the financial institution chooses to make no report to the competent authorities, it should deny assistance to this customer, sever relations with him and close his accounts.

    The group also discussed what actions financial institutions should take when they learn from competent authorities, even in an informal way, that criminal proceedings, including international mutual assistance requests and/or appropriate freezing orders, are pending or imminent. Further examination of the intricate legal and practical aspects of this question would be useful, to avoid a premature withdrawal of funds which would unduly impair the criminal proceedings.

    Staff in financial institutions are still only beginning, in most countries, to become aware of money laundering. This is of great help to money launderers. In some countries, complicity of staff may also be a problem.

    20 Hence, financial institutions should develop programs against money laundering. These programs should include, as a minimum:

    • (a) the development of internal policies, procedures and controls, including the designation of compliance officers at management level, and adequate screening procedures to ensure high standards when hiring employees;

    • (b) an ongoing employee training program;

    • (c) an audit function to test the system.

    4. Measures to cope with the problem of countries with no or insufficient antimoney laundering measures

    The strengthening of the fight against money laundering in some countries could lead to a simple move of the money laundering channels, to countries with insufficient money laundering measures, in a process akin to regulator shopping.

    Frequently, a money laundering operation would involve the following stages:

    • drugs cash proceeds would be exported from regulated countries to unregulated ones;

    • this cash would be laundered through the domestic formal or informal financial system of these havens;

    • the subsequent stage would be a return of these laundered funds to regulated countries with safe placement opportunities, particularly through wire transfers.

    While sovereignty principles make it difficult to prevent this type of displacement of money laundering channels, and other laundering operations using regulation havens, the following principles should be applied by financial institutions in regulated countries:

    21 • financial institutions should give special attention to business relations and transactions with persons, including companies and financial institutions, from countries which do not or insufficiently apply these recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose should, as far as possible, be examined, the findings established in writing, and be available to help supervisors, auditors and law enforcement agencies.

    22 • financial institutions should ensure that the principles mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply these recommendations, to the extent that local applicable laws and regulations permit. When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the mother institution should be informed by the financial institutions that they cannot apply these recommendations.

    Within the context of relations between regulated and unregulated countries, the study of a system to monitor cash movements at the border is of special importance (see point 5 hereunder).

    5. Other measures to avoid currency laundering

    It was recognised that the stage of drugs cash movements between countries is crucial in the detection of money laundering. A few delegates strongly support the proposal that a system of reporting of all large international transportations of currency or cash equivalent bearer instruments to a domestic central agency with a computerized data base available to domestic judicial or law enforcement authorities should be established for use in money laundering cases. But this opinion is not shared by the majority of the group.

    23 Nevertheless, the group acknowledged that the feasibility of measures to detect or monitor cash at the border should be studied, subject to strict safeguards to ensure proper use of information and without impeding in any way the freedom of capital movements.

    The detection of suspicious cash operations could potentially be also facilitated if law enforcement authorities were in a position to be informed and to analyze all large cash transactions occurring within their country.

    For that purpose, one suggested solution is that these transactions be routinely reported by financial institutions to competent authorities.

    However, the efficiency of such a system, which currently exists in two participating countries, is uncertain. The majority of the group was not convinced of the cost effectiveness of this system at this time, and expressed fears that it could lead financial institutions to feel less responsible for the fight against money laundering. On the other hand, it is the view of a few members that a comprehensive program to combat money laundering must include such a currency reporting system together with the reporting of international transportation of currency and currency equivalent instruments.

    24 Nevertheless, the group agreed that countries should consider the feasibility and utility of a system where banks and other financial institutions and intermediaries would report all domestic and international currency transactions above a fixed amount, to a national central agency with a computerized data base, available to competent authorities for use in money laundering cases, subject to strict safeguards to ensure proper use of the information.

    25 Furthermore, given the crucial importance of cash in drug trafficking and drug money laundering, and despite the fact that no clear correlation could be established between the cash intensiveness of a country’s economy, and the role of this economy in international money laundering, countries should further encourage in general the development of modern and secure techniques of money management, including increased use of cheques, payment cards, direct deposit of salary cheques, and book entry recording of securities, as a means to encourage the replacement of cash transfers.

    6. Implementation and role of regulatory and other administrative authorities

    Effective implementation of the above recommendations must be ensured.

    But the authorities supervising banks and other financial institutions have currently, in many countries, no competence to participate in the fight against criminal activities, because their mission is primarily a prudential one, and because of professional secrecy or other rules.

    26 Accordingly, in each member country, the competent authorities supervising banks or other financial institutions or intermediaries, or other competent authorities, should ensure that the supervised institutions have adequate programs to guard against money laundering. These authorities should cooperate and lend expertise spontaneously or on request with other domestic judicial or law enforcement authorities in money laundering investigations and prosecutions.

    27 The effective implementation of the above mentioned recommendations in other professions dealing with cash is hampered by the fact that, in many countries, these professions are virtually unregulated. Hence, competent authorities should be designated to ensure an effective implementation of all these recommendations, through administrative supervision and regulation, in other professions dealing with cash as defined by each country.

    28 The establishment of programs to combat money laundering in financial institutions and other professions dealing with cash, would require the support of these competent authorities, particularly to make these institutions and professions aware of facts that should normally lead to suspicions. Accordingly, the competent authorities should establish guidelines which will assist financial institutions in detecting suspicious patterns of behaviour by their customers. It is understood that such guidelines must develop over time, and will never be exhaustive. It is further understood that such guidelines will primarily serve as an educational tool for financial institutions’ personnel.

    29 Furthermore, the competent authorities regulating or supervising financial institutions should take the necessary legal or regulatory measures to guard against control of, or acquisition of a significant participation in financial institutions by criminals or their confederates.

    The group acknowledged the risk that, outside the financial sector, industrial or commercial companies also could be acquired by criminals with the aim to use them for money laundering purposes.

    D. Strengthening of International Cooperation

    The study of practical cases of money laundering clearly demonstrated that money launderers conduct their activities at an international level, thus exploiting differences between national jurisdictions and the existence of international boundaries. Therefore, enhanced international cooperation between enforcement agencies, financial institutions, and financial institution regulators and supervisors to facilitate the investigations, and prosecution of money launderers, is critical.

    1. Administrative cooperation

    (a) Exchange of general information

    A first step is to improve the knowledge of international flows of drug money, notably cash flows, and the knowledge of money laundering methods, to enable a better focus of international and national efforts to combat this phenomenon.

    30 Accordingly, national administrations should consider recording, at least in the aggregate, international flows of cash in whatever currency, so that estimates can be made of cash flows and reflows from various sources abroad, when this is combined with central bank information. Such information should be made available to the IMF and BIS to facilitate international studies.

    31 International competent authorities, perhaps Interpol and the Customs Cooperation Council, should be given responsibility for gathering and disseminating information to competent authorities about the latest development in money laundering and money laundering techniques. Central banks and bank regulators could do the same on their network. National authorities in various spheres, in consultation with trade associations, could then disseminate this to financial institutions in individual countries.

    (b) Exchange of information relating to suspicious transactions

    Present arrangements for international administrative cooperation and international exchange of information relating to identified transactions, are acknowledged to be insufficient. At the same time, this exchange of information must be consistent with national and international provisions on privacy and data protection. Furthermore, several countries consider that exchange of information relating to individual money laundering cases should take place only in the context of mutual legal assistance.

    32 It was agreed that each country should make efforts to improve a spontaneous or “upon request” international information exchange relating to suspicious transactions, persons and corporations involved in those transactions between competent authorities. Strict safeguards should be established to ensure that this exchange of information is consistent with national and international provisions on privacy and data protection.

    2. Cooperation between legal authorities

    (a) Basis and means for cooperation in confiscation, mutual assistance, and extradition

    A necessary condition to improve mutual legal assistance on money laundering cases, is that countries acknowledge the offense of money laundering in other countries as an acceptable basis for mutual legal assistance. The group agreed that countries should consider extending the scope of the offense of money laundering to reach any other crimes for which there is a link to narcotics, or to all serious offenses, and let the definition for this wider money laundering offense open between different options. Furthermore, it agreed that:

    • countries should adopt a definition covering the offense of drug money laundering compatible with the definition of the Vienna Convention.

    33 • countries should try to ensure, on a bilateral or multilateral basis, that different knowledge standards in national definitions—i.e., different standards concerning the intentional element of the infraction—do not affect the ability or willingness of countries to provide each other with mutual legal assistance.

    34 Furthermore, international cooperation should be supported by a network of bilateral and multilateral agreements and arrangements based on generally shared legal concepts with the aim of providing practical measures to affect the widest possible range of mutual assistance.

    35 The current works in the framework of the Council of Europe, concerning international cooperation as regards search, seizure and confiscation of the proceeds from crime, could constitute the basis of an important multilateral agreement on this matter. Accordingly, countries should encourage international conventions such as the draft convention of the Council of Europe on confiscation of the proceeds from offenses.

    (b) Focus of improved mutual assistance on money laundering issues

    Experience of international cooperation on money laundering issues shows that improvements are necessary on the following topics:

    • 36 • Cooperative investigations—Cooperative investigations among appropriate competent authorities of countries, should be encouraged.

    • 37 • Mutual assistance in criminal matters—There should be procedures for mutual assistance in criminal matters regarding the use of compulsory measures including the production of records by financial institutions and other persons, the search of persons and premises, seizure and obtaining of evidence for use in money laundering investigations and prosecutions and in related actions in foreign jurisdictions.

    • 38 • Seizure and confiscation—There should be authority to take expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate proceeds or other property of corresponding value to such proceeds, based on money laundering or the crimes underlying the laundering activity.

    • 39 • Coordination of prosecution actions—To avoid conflicts of jurisdiction, consideration should be given to devising and applying mechanisms for determining the best venue for prosecution of defendants in the interests of justice in cases that are subject to prosecution in more than one country. Similarly, there should be arrangements for coordinating seizure and confiscation proceedings which may include the sharing of confiscated assets.

    • 40 • Extradition—Countries should have procedures in place to extradite, where possible, individuals charged with a money laundering offense or related offenses. With respect to its national legal system, each country should recognize money laundering as an extraditable offense. Subject to their legal frameworks, countries may consider simplifying extradition by allowing direct transmission of extradition requests between appropriate ministries, extraditing persons based only on warrants of arrests or judgments, extraditing their nationals, and/or introducing a simplified extradition of consenting persons who waive formal extradition proceedings.

    Conclusion

    The delegates to the Financial Action Task Force agreed that the presidency of the Task Force would address this report to finance ministers of participating countries, which would submit it to their Heads of State or Government, and circulate it to other competent authorities.

    The group agreed that decisions from the Summit of the Heads of State or Government of seven major industrial nations, which convened the Financial Task Force, would be crucial for the implementation of the recommendations and further work and studies. Political impetus would also be particularly necessary to crystallize strong coordinated overall international action, and to define the best ways to associate other countries, including drug producing countries, to the fight against money laundering.

    While discussing the most adequate ways by which the follow-up to its works could be organized, the group emphasized that the wider the number of countries applying these recommendations (including countries which have weak or no regulations against money laundering) the greater their efficiency would be. It considered that a regular assessment of progress realized in enforcing money laundering measures would stimulate countries to give to these issues a high priority, and would contribute to a better mutual understanding and hence to an improvement of the national systems to combat money laundering.

    For purposes of” estimating the scale of money laundering as discussed above, “proceeds” means the value of the final sale of illegal drugs, without deduction of eosts and without respect to whether payment is made with money or things of value.

    For purposes of estimating the scale of money laundering as discussed above, “profits” means the value of drug sales less costs incurred by the traffickers (e.g., the cost of acquiring the drugs themselves, the cost of any precursor or essential chemicals, packaging materials, costs of transportation, costs of corruption, legal fees paid to defense lawyers, etc.).

    Most delegates consider that the final paragraph of the definition, drawn from the Vienna Convention, does not describe money laundering per se, but an economic aspect of crime which must be addressed in any comprehensive scheme against money laundering, whereas a few delegates understand this paragraph as being included in the concept of money laundering.

    Appendix II 4 UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

    United Nations Conference for the Adoption of a Convention Against Illicit Traffic in Narcotic Urugs and Psychotropic Substances, Vienna, Austria, 25 November-20 December 1988

    Adopted by the Conference at its 6th plenary meeting, on 19 December 1988

    The Parties to this Convention,

    Deeply concerned by the magnitude of and rising trend in the illicit production of, demand for and traffic in narcotic drugs and psychotropic substances, which pose a serious threat to the health and welfare of human beings and adversely affect the economic, cultural and political foundations of society,

    Deeply concerned also by the steadily increasing inroads into various social groups made by illicit traffic in narcotic drugs and psychotropic substances, and particularly by the fact that children are used in many parts of the world as an illicit drug consumers market and for purposes of illicit production, distribution and trade in narcotic drugs and psychotropic substances, which entails a danger of incalculable gravity,

    Recognizing the links between illicit traffic and other related organized criminal activities which undermine the legitimate economies and threaten the stability, security and sovereignty of States,

    Recogniziing also that illicit traffic is an international criminal activity, the suppression of which demands urgent attention and the highest priority,

    Aware that illicit traffic generates large financial profits and wealth enabling transnational criminal organizations to penetrate, contaminate and corrupt the structures of government, legitimate commercial and financial business, and society at all its levels,

    Determined to deprive persons engaged in illicit traffic of the proceeds of their criminal activities and thereby eliminate their main incentive for so doing,

    Desiring to eliminate the root causes of the problem of abuse of narcotic drugs and psychotropic substances, including the illicit demand for such drugs and substances and the enormous profits derived from illicit traffic,

    Considering that measures are necessary to monitor certain substances, including precursors, chemicals and solvents, which are used in the manufacture of narcotic drugs and psychotropic substances, the ready availability of which has led to an increase in the clandestine manufacture of such drugs and substances,

    Determined to improve international co-operation in the suppression of illicit traffic by sea,

    Recognizing that eradication of illicit traffic is a collective responsibility of all States and that, to that end, co-ordinated action within the framework of international co-operation is necessary,

    Acknowledging the competence of the United Nations in the field of control of narcotic drugs and psychotropic substances and desirous that the international organs concerned with such control should be within the framework of that Organization,

    Reaffirming the guiding principles of existing treaties in the field of narcotic drugs and psychotropic substances and the system of control which they embody,

    Recognizing the need to reinforce and supplement the measures provided in the Single Convention on Narcotic Drugs, 1961, that Convention as amended by the 1972 Protocol Amending the Single Convention on Narcotic Drugs, 1961, and the 1971 Convention on Psychotropic Substances, in order to counter the magnitude and extent of illicit traffic and its grave consequences,

    Recognizing also the importance of strengthening and enhancing effective legal means for international co-operation in criminal matters for suppressing the international criminal activities of illicit traffic,

    Desiring to conclude a comprehensive, effective and operative international convention that is directed specifically against illicit traffic and that considers the various aspects of the problem as a whole, in particular those aspects not envisaged in the existing treaties in the field of narcotic drugs and psychotropic substances,

    Hereby agree as follows:

    Article 1 DEFINITIONS

    Except where otherwise expressly indicated or where the context otherwise requires, the following definitions shall apply throughout this Convention:

    (a) “Board” means the International Narcotics Control Board established by the Single Convention on Narcotic Drugs, 1961, and that Convention as amended by the 1972 Protocol Amending the Single Convention on Narcotic Drugs, 1961;

    (b) “Cannabis plant” means any plant of the genus Cannabis;

    (c) “Coca bush” means the plant of any species of the genus Erythro-xylon;

    (d) “Commercial carrier” means any person or any public, private or other entity engaged in transporting persons, goods or mails for remuneration, hire or any other benefit;

    (e) “Commission” means the Commission on Narcotic Drugs of the Economic and Social Council of the United Nations;

    (f) “Confiscation”, which includes forfeiture where applicable, means the permanent deprivation of property by order of a court or other competent authority;

    (g) “Controlled delivery” means the technique of allowing illicit or suspect consignments of narcotic drugs, psychotropic substances, substances in Table I and Table II annexed to this Convention, or substances substituted for them, to pass out of, through or into the territory of one or more countries, with the knowledge and under the supervision of their competent authorities, with a view to identifying persons involved in the commission of offences established in accordance with article 3, paragraph 1 of the Convention;

    (h) “1961 Convention” means the Single Convention on Narcotic Drugs, 1961;

    (i) “1961 Convention as amended” means the Single Convention on Narcotic Drugs, 1961, as amended by the 1972 Protocol Amending the Single Convention on Narcotic Drugs, 1961;

    (j) “1971 Convention” means the Convention on Psychotropic Substances, 1971;

    (k) “Council” means the Economic and Social Council of the United Nations;

    (l) “Freezing” or “seizure” means temporarily prohibiting the transfer, conversion, disposition or movement of property or temporarily assuming custody or control of property on the basis of an order issued by a court or a competent authority;

    (m) “Illicit traffic” means the offences set forth in article 3, paragraphs 1 and 2, of this Convention;

    (n) “Narcotic drug” means any of the substances, natural or synthetic, in Schedules I and II of the Single Convention on Narcotic Drugs, 1961, and that Convention as amended by the 1972 Protocol Amending the Single Convention on Narcotic Drugs, 1961;

    (o) “Opium poppy” means the plant of the species Papaver somniferum L;

    (p) “Proceeds” means any property derived from or obtained, directly or indirectly, through the commission of an offence established in accordance with article 3, paragraph 1;

    (q) “Property” means assets of every kind, whether corporeal or incorporeal, movable or immovable, tangible or intangible, and legal documents or instruments evidencing title to, or interest in, such assets;

    (r) “Psychotropic substance” means any substance, natural or synthetic, or any natural material in Schedules I, II, III and IV of the Convention on Psychotropic Substances, 1971;

    (s) “Secretary-General” means the Secretary-General of the United Nations;

    (t) “Table I” and “Table II” mean the correspondingly numbered lists of substances annexed to this Convention, as amended from time to time in accordance with article 12;

    (u) “Transit State” means a State through the territory of which illicit narcotic drugs, psychotropic substances and substances in Table I and Table II are being moved, which is neither the place of origin nor the place of ultimate destination thereof.

    Article 2 SCOPE OF THE CONVENTION

    1. The purpose of this Convention is to promote co-operation among the Parties so that they may address more effectively the various aspects of illicit traffic in narcotic drugs and psychotropic substances having an international dimension. In carrying out their obligations under the Convention, the Parties shall take necessary measures, including legislative and administrative measures, in conformity with the fundamental provisions of their respective domestic legislative systems.

    2. The Parties shall carry out their obligations under this Convention in a manner consistent with the principles of sovereign equality and territorial integrity of States and that of non-intervention in the domestic affairs of other States.

    3. A Party shall not undertake in the territory of another Party the exercise of jurisdiction and performance of functions which are exclusively reserved for the authorities of that other Party by its domestic law.

    Article 3 OFFENCES AND SANCTIONS

    1. Each Party shall adopt such measures as may be necessary to establish as criminal offences under its domestic law, when committed intentionally:

    • (a) (i) The production, manufacture, extraction, preparation, offering, offering for sale, distribution, sale, delivery on any terms whatsoever, brokerage, dispatch, dispatch in transit, transport, importation or exportation of any narcotic drug or any psychotropic substance contrary to the provisions of the 1961 Convention, the 1961 Convention as amended or the 1971 Convention;

    • (ii) The cultivation of opium poppy, coca bush or cannabis plant for the purpose of the production of narcotic drugs contrary to the provisions of the 1961 Convention and the 1961 Convention as amended;

    • (iii) The possession or purchase of any narcotic drug or psychotropic substance for the purpose of any of the activities enumerated in (i) above;

    • (iv) The manufacture, transport or distribution of equipment, materials or of substances listed in Table I and Table II, knowing that they are to be used in or for the illicit cultivation, production or manufacture of narcotic drugs or psychotropic substances;

    • (v) The organization, management or financing of any of the offences enumerated in (i), (ii), (iii), or (iv) above;

    • (b) (i) The conversion or transfer of property, knowing that such property is derived from any offence or offences established in accordance with subparagraph (a) of this paragraph, or from an act of participation in such offence or offences, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offence or offences to evade the legal consequences of his actions;

    • (ii) The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such an offence or offences;

    (c) Subject to its constitutional principles and the basic concepts of its legal system:

    • (i) The acquisition, possession or use of property, knowing, at the time of receipt, that such property was derived from an offence or offences established in accordance with subparagraph (a) of this paragraph or from an act of participation in such offence or offences;

    • (ii) The possession of equipment or materials or substances listed in Table I and Table II, knowing that they are being or are to be used in or for the illicit cultivation, production or manufacture of narcotic drugs or psychotropic substances;

    • (iii) Publicly inciting or inducing others, by any means, to commit any of the offences established in accordance with this article or to use narcotic drugs or psychotropic substances illicitly;

    • (iv) Participation in, association or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article.

    2. Subject to its constitutional principles and the basic concepts of its legal system, each Party shall adopt such measures as may be necessary to establish as a criminal offence under its domestic law, when committed intentionally, the possession, purchase or cultivation of narcotic drugs or psychotropic substances for personal consumption contrary to the provisions of the 1961 Convention, the 1961 Convention as amended or the 1971 Convention.

    3. Knowledge, intent or purpose required as an element of an offence set forth in paragraph 1 of this article may be inferred from objective factual circumstances.

    4. (a) Each Party shall make the commission of the offences established in accordance with paragraph 1 of this article liable to sanctions which take into account the grave nature of these offences, such as imprisonment or other forms of deprivation of liberty, pecuniary sanctions and confiscation.

    (b) The Parties may provide, in addition to conviction or punishment, for an offence established in accordance with paragraph 1 of this article, that the offender shall undergo measures such as treatment, education, aftercare, rehabilitation or social reintegration.

    (c) Notwithstanding the preceding subparagraphs, in appropriate cases of a minor nature, the parties may provide, as alternatives to conviction or punishment, measures such as education, rehabilitation or social reintegration, as well as, when the offender is a drug abuser, treatment and aftercare.

    (d) The Parties may provide, either as an alternative to conviction or punishment, or in addition to conviction or punishment of an offence established in accordance with paragraph 2 of this article, measures for the treatment, education, aftercare, rehabilitation or social reintegration of the offender.

    5. The Parties shall ensure that their courts and other competent authorities having jurisdiction can take into account factual circumstances which make the commission of the offences established in accordance with paragraph 1 of this article particularly serious, such as:

    • (a) The involvement in the offence of an organized criminal group to which the offender belongs;

    • (b) The involvement of the offender in other international organized criminal activities;

    • (c) The involvement of the offender in other illegal activities facilitated by commission of the offence;

    • (d) The use of violence or arms by the offender;

    • (e) The fact that the offender holds a public office and that the offence is connected with the office in question;

    • (f) The victimization or use of minors;

    • (g) The fact that the offence is committed in a penal institution or in an educational institution or social service facility or in their immediate vicinity or in other places to which school children and students resort for educational, sports and social activities;

    • (h) Prior conviction, particularly for similar offences, whether foreign or domestic, to the extent permitted under the domestic law of a Party.

    6. The Parties shall endeavour to ensure that any discretionary legal powers under their domestic law relating to the prosecution of persons for offences established in accordance with this article are exercised to maximize the effectiveness of law enforcement measures in respect of those offences and with due regard to the need to deter the commission of such offences.

    7. The Parties shall ensure that their courts or other competent authorities bear in mind the serious nature of the offences enumerated in paragraph 1 of this article and the circumstances enumerated in paragraph 5 of this article when considering the eventuality of early release or parole of persons convicted of such offences.

    8. Each Party shall, where appropriate, establish under its domestic law a long statute of limitations period in which to commence proceedings for any offence established in accordance with paragraph 1 of this article, and a longer period where the alleged offender has evaded the administration of justice.

    9. Each Party shall take appropriate measures, consistent with its legal system, to ensure that a person charged with or convicted of an offence established in accordance with paragraph 1 of this article, who is found within its territory, is present at the necessary criminal proceedings.

    10. For the purpose of co-operation among the Parties under this Convention, including, in particular, co-operation under articles 5, 6, 7 and 9, offences established in accordance with this article shall not be considered as fiscal offences or as political offences or regarded as politically motivated, without prejudice to the constitutional limitations and the fundamental domestic law of the Parties.

    11. Nothing contained in this article shall affect the principle that the description of the offences to which it refers and of legal defences thereto is reserved to the domestic law of a Party and that such offences shall be prosecuted and punished in conformity with that law.

    Article 4 JURISDICTION

    1. Each Party:

    (a) Shall take such measures as may be necessary to establish its jurisdiction over the offences it has established in accordance with article 3, paragraph 1, when:

    • (i) The offence is committed in its territory;

    • (ii) The offence is committed on board a vessel flying its flag or an aircraft which is registered under its laws at the time the offence is committed;

    (b) May take such measures as may be necessary to establish its jurisdiction over the offences it has established in accordance with article 3, paragraph 1, when:

    • (i) The offence is committed by one of its nationals or by a person who has his habitual residence in its territory;

    • (ii) The offence is committed on board a vessel concerning which that Party has been authorized to take appropriate action pursuant to article 17, provided that such jurisdiction shall be exercised only on the basis of agreements or arrangements referred to in paragraphs 4 and 9 of that article;

    • (iii) The offence is one of those established in accordance with article 3, paragraph 1, subparagraph (c)(iv), and is committed outside its territory with a view to the commission, within its territory, of an offence established in accordance with article 3, paragraph 1.

    2. Each Party:

    (a) Shall also take such measures as may be necessary to establish its jurisdiction over the offences it has established in accordance with article 3, paragraph 1, when the alleged offender is present in its territory and it does not extradite him to another Party on the ground:

    • (i) That the offence has been committed in its territory or on board a vessel flying its flag or an aircraft which was registered under its law at the time the offence was committed; or

    • (ii) That the offence has been committed by one of its nationals;

    (b) May also take such measures as may be necessary to establish its jurisdiction over the offences it has established in accordance with article 3, paragraph 1, when the alleged offender is present in its territory and it does not extradite him to another Party.

    This Convention does not exclude the exercise of any criminal jurisdiction established by a Party in accordance with its domestic law.

    Article 5 CONFISCATION

    1. Each Party shall adopt such measures as may be necessary to enable confiscation of:

    (a) Proceeds derived from offences established in accordance with article 3, paragraph 1, or property the value of which corresponds to that of such proceeds;

    (b) Narcotic drugs and psychotropic substances, materials and equipment or other instrumentalities used in or intended for use in any manner in offences established in accordance with article 3, paragraph 1.

    2. Each Party shall also adopt such measures as may be necessary to enable its competent authorities to identify, trace, and freeze or seize proceeds, property, instrumentalities or any other things referred to in paragraph 1 of this article, for the purpose of eventual confiscation.

    3. In order to carry out the measures referred to in this article, each Party shall empower its courts or other competent authorities to order that bank, financial or commercial records be made available or be seized. A Party shall not decline to act under the provisions of this paragraph on the ground of bank secrecy.

    4. (a) Following a request made pursuant to this article by another Party having jurisdiction over an offence established in accordance with article 3, paragraph 1, the Party in whose territory proceeds, property, instrumentalities or any other things referred to in paragraph 1 of this article are situated shall:

    • (i) Submit the request to its competent authorities for the purpose of obtaining an order of confiscation and, if such order is granted, give effect to it; or

    • (ii) Submit to its competent authorities, with a view to giving effect to it to the extent requested, an order of confiscation issued by the requesting Party in accordance with paragraph 1 of this article, in so far as it relates to proceeds, property, instrumentalities or any other things referred to in paragraph 1 situated in the territory of the requested Party.

    (b) Following a request made pursuant to this article by another Party having jurisdiction over an offence established in accordance with article 3, paragraph 1, the requested Party shall take measures to identify, trace, and freeze or seize proceeds, property, instrumentalities or any other things referred to in paragraph 1 of this article for the purpose of eventual confiscation to be ordered either by the requesting Party or, pursuant to a request under subparagraph (a) of this paragraph, by the requested Party.

    (c) The decisions or actions provided for in subparagraphs (a) and (b) of this paragraph shall be taken by the requested Party, in accordance with and subject to the provisions of its domestic law and its procedural rules or any bilateral or multilateral treaty, agreement or arrangement to which it may be bound in relation to the requesting Party.

    (d) The provisions of article 7, paragraphs 6 to 19, are applicable mutatis mutandis. In addition to the information specified in article 7, paragraph 10, requests made pursuant to this article shall contain the following:

    • (i) In the case of a request pertaining to subparagraph (a)(i) of this paragraph, a description of the property to be confiscated and a statement of the facts relied upon by the requesting Party sufficient to enable the requested Party to seek the order under its domestic law;

    • (ii) In the case of a request pertaining to subparagraph (a)(ii), a legally admissible copy of an order of confiscation issued by the requesting Party upon which the request is based, a statement of the facts and information as to the extent to which the execution of the order is requested;

    • (iii) In the case of a request pertaining to subparagraph (b), a statement of the facts relied upon by the requesting Party and a description of the actions requested.

    (e) Each Party shall furnish to the Secretary-General the text of any of its laws and regulations which give effect to this paragraph and the text of any subsequent changes to such laws and regulations.

    (f) If a Party elects to make the taking of the measures referred to in subparagraphs (a) and (b) of this paragraph conditional on the existence of a relevant treaty, that Party shall consider this Convention as the necessary and sufficient treaty basis.

    (g) The Parties shall seek to conclude bilateral and multilateral treaties, agreements or arrangements to enhance the effectiveness of international co-operation pursuant to this article.

    5. (a) Proceeds or property confiscated by a Party pursuant to paragraph 1 or paragraph 4 of this article shall be disposed of by that Party according to its domestic law and administrative procedures.

    (b) When acting on the request of another Party in accordance with this article, a Party may give special consideration to concluding agreements on:

    • (i) Contributing the value of such proceeds and property, or funds derived from the sale of such proceeds or property, or a substantial part thereof, to intergovernmental bodies specializing in the fight against illicit traffic in and abuse of narcotic drugs and psychotropic substances;

    • (ii) Sharing with other Parties, on a regular or case-by-case basis, such proceeds or property, or funds derived from the sale of such proceeds or property, in accordance with its domestic law, administrative procedures or bilateral or multilateral agreements entered into for this purpose.

    6. (a) If proceeds have been transformed or converted into other property, such property shall be liable to the measures referred to in this article instead of the proceeds.

    (b) If proceeds have been intermingled with property acquired from legitimate sources, such property shall, without prejudice to any powers relating to seizure or freezing, be liable to confiscation up to the assessed value of the intermingled proceeds.

    (c) Income or other benefits derived from:

    • (i) Proceeds;

    • (ii) Property into which proceeds have been transformed or converted; or

    • (iii) Property with which proceeds have been intermingled

    shall also be liable to the measures referred to in this article, in the same manner and to the same extent as proceeds.

    7. Each Party may consider ensuring that the onus of proof be reversed regarding the lawful origin of alleged proceeds or other property liable to confiscation, to the extent that such action is consistent with the principles of its domestic law and with the nature of the judicial and other proceedings;

    8. The provisions of this article shall not be construed as prejudicing the rights of bona fide third parties.

    9. Nothing contained in this article shall affect the principle that the measures to which it refers shall be defined and implemented in accordance with and subject to the provisions of the domestic law of a Party.

    Article 6 EXTRADITION

    1. This article shall apply to the offences established by the Parties in accordance with article 3, paragraph 1.

    2. Each of the offences to which this article applies shall be deemed to be included as an extraditable offence in any extradition treaty existing between Parties. The Parties undertake to include such offences as extraditable offences in every extradition treaty to be concluded between them.

    3. If a Party which makes extradition conditional on the existence of a treaty receives a request for extradition from another Party with which it has no extradition treaty, it may consider this Convention as the legal basis for extradition in respect of any offence to which this article applies. The Parties which require detailed legislation in order to use this Convention as a legal basis for extradition shall consider enacting such legislation as may be necessary.

    4. The Parties which do not make extradition conditional on the existence of a treaty shall recognize offences to which this article applies as extraditable offences between themselves.

    5. Extradition shall be subject to the conditions provided for by the law of the requested Party or by applicable extradition treaties, including the grounds upon which the requested Party may refuse extradition.

    6. In considering requests received pursuant to this article, the requested State may refuse to comply with such requests where there are substantial grounds leading its judicial or other competent authorities to believe that compliance would facilitate the prosecution or punishment of any person on account of his race, religion, nationality or political opinions, or would cause prejudice for any of those reasons to any person affected by the request.

    7. The Parties shall endeavour to expedite extradition procedures and to simplify evidentiary requirements relating thereto in respect of any offence to which this article applies.

    8. Subject to the provisions of its domestic law and its extradition treaties, the requested Party may, upon being satisfied that the circumstances so warrant and are urgent, and at the request of the requesting Party, take a person whose extradition is sought and who is present in its territory into custody or take other appropriate measures to ensure his presence at extradition proceedings.

    9. Without prejudice to the exercise of any criminal jurisdiction established in accordance with its domestic law, a Party in whose territory an alleged offender is found shall:

    (a) If it does not extradite him in respect of an offence established in accordance with article 3, paragraph 1, on the grounds set forth in article 4, paragraph 2, subparagraph (a), submit the case to its competent authorities for the purpose of prosecution, unless otherwise agreed with the requesting Party;

    (b) If it does not extradite him in respect of such an offence and has established its jurisdiction in relation to that offence in accordance with article 4, paragraph 2, subparagraph (b), submit the case to its competent authorities for the purpose of prosecution, unless otherwise requested by the requesting Party for the purposes of preserving its legitimate jurisdiction.

    10. If extradition, sought for purposes of enforcing a sentence, is refused because the person sought is a national of the requested Party, the requested Party shall, if its law so permits and in conformity with the requirements of such law, upon application of the requesting Party, consider the enforcement of the sentence which has been imposed under the law of the requesting Party, or the remainder thereof.

    11. The Parties shall seek to conclude bilateral and multilateral agreements to carry out or to enhance the effectiveness of extradition.

    12. The Parties may consider entering into bilateral or multilateral agreements, whether ad hoc or general, on the transfer to their country of persons sentenced to imprisonment and other forms of deprivation of liberty for offences to which this article applies, in order that they may complete their sentences there.

    Article 7 MUTUAL LEGAL ASSISTANCE

    1. The Parties shall afford one another, pursuant to this article, the widest measure of mutual legal assistance in investigations, prosecutions and judicial proceedings in relation to criminal offences established in accordance with article 3, paragraph 1.

    2. Mutual legal assistance to be afforded in accordance with this article may be requested for any of the following purposes:

    • (a) Taking evidence or statements from persons;

    • (b) Effecting service of judicial documents;

    • (c) Executing searches and seizures;

    • (d) Examining objects and sites;

    • (e) Providing information and evidentiary items;

    • (f) Providing originals or certified copies of relevant documents and records, including bank, financial, corporate or business records;

    • (g) Identifying or tracing proceeds, property, instrumentalities or other things for evidentiary purposes.

    3. The Parties may afford one another any other forms of mutual legal assistance allowed by the domestic law of the requested Party.

    4. Upon request, the Parties shall facilitate or encourage, to the extent consistent with their domestic law and practice, the presence or availability of persons, including persons in custody, who consent to assist in investigations or participate in proceedings.

    5. A Party shall not decline to render mutual legal assistance under this article on the ground of bank secrecy.

    6. The provisions of this article shall not affect the obligations under any other treaty, bilateral or multilateral, which governs or will govern, in whole or in part, mutual legal assistance in criminal matters.

    7. Paragraphs 8 to 19 of this article shall apply to requests made pursuant to this article if the Parties in question are not bound by a treaty of mutual legal assistance. If these Parties are bound by such a treaty, the corresponding provisions of that treaty shall apply unless the Parties agree to apply paragraphs 8 to 19 of this article in lieu thereof.

    8. Parties shall designate an authority, or when necessary authorities, which shall have the responsibility and power to execute requests for mutual legal assistance or to transmit them to the competent authorities for execution. The authority or the authorities designated for this purpose shall be notified to the Secretary-General. Transmission of requests for mutual legal assistance and any communication related thereto shall be effected between the authorities designated by the Parties; this requirement shall be without prejudice to the right of a Party to require that such requests and communications be addressed to it through the diplomatic channel and, in urgent circumstances, where the Parties agree, through channels of the International Criminal Police Organization, if possible.

    9. Requests shall be made in writing in a language acceptable to the requested Party. The language or languages acceptable to each Party shall be notified to the Secretary-General. In urgent circumstances, and where agreed by the Parties, requests may be made orally, but shall be confirmed in writing forthwith.

    10. A request for mutual legal assistance shall contain:

    • (a) The identity of the authority making the request;

    • (b) The subject matter and nature of the investigation, prosecution or proceeding to which the request relates, and the name and the functions of the authority conducting such investigation, prosecution or proceeding;

    • (c) A summary of the relevant facts, except in respect of requests for the purpose of service of judicial documents;

    • (d) A description of the assistance sought and details of any particular procedure the requesting Party wishes to be followed;

    • (e) Where possible, the identity, location and nationality of any person concerned;

    • (f) The purpose for which the evidence, information or action is sought.

    11. The requested Party may request additional information when it appears necessary for the execution of the request in accordance with its domestic law or when it can facilitate such execution.

    12. A request shall be executed in accordance with the domestic law of the requested Party and, to the extent not contrary to the domestic law of the requested Party and where possible, in accordance with the procedures specified in the request.

    13. The requesting Party shall not transmit nor use information or evidence furnished by the requested Party for investigations, prosecutions or proceedings other than those stated in the request without the prior consent of the requested Party.

    14. The requesting Party may require that the requested Party keep confidential the fact and substance of the request, except to the extent necessary to execute the request. If the requested Party cannot comply with the requirement of confidentiality, it shall promptly inform the requesting Party.

    15. Mutual legal assistance may be refused:

    • (a) If the request is not made in conformity with the provisions of this article;

    • (b) If the requested Party considers that execution of the request is likely to prejudice its sovereignty, security, ordre public or other essential interests;

    • (c) If the authorities of the requested Party would be prohibited by its domestic law from carrying out the action requested with regard to any similar offence, had it been subject to investigation, prosecution or proceedings under their own jurisdiction;

    • (d) If it would be contrary to the legal system of the requested Party relating to mutual legal assistance for the request to be granted.

    16. Reasons shall be given for any refusal of mutual legal assistance.

    17. Mutual legal assistance may be postponed by the requested Party on the ground that it interferes with an ongoing investigation, prosecution or proceeding. In such a case, the requested Party shall consult with the requesting Party to determine if the assistance can still be given subject to such terms and conditions as the requested Party deems necessary.

    18. A witness, expert or other person who consents to give evidence in a proceeding or to assist in an investigation, prosecution or judicial proceeding in the territory of the requesting Party, shall not be prosecuted, detained, punished or subjected to any other restriction of his personal liberty in that territory in respect of acts, omissions or convictions prior to his departure from the territory of the requested Party. Such safe conduct shall cease when the witness, expert or other person having had, for a period of fifteen consecutive days, or for any period agreed upon by the Parties, from the date on which he has been officially informed that his presence is no longer required by the judicial authorities, an opportunity of leaving, has nevertheless remained voluntarily in the territory or, having left it, has returned of his own free will.

    19. The ordinary costs of executing a request shall be borne by the requested Party, unless otherwise agreed by the Parties concerned. If expenses of a substantial or extraordinary nature are or will be required to fulfil the request, the Parties shall consult to determine the terms and conditions under which the request will be executed as well as the manner in which the costs shall be borne.

    20. The Parties shall consider, as may be necessary, the possibility of concluding bilateral or multilateral agreements or arrangements that would serve the purposes of, give practical effect to, or enhance the provisions of this article.

    Article 8 TRANSFER OF PROCEEDINGS

    The Parties shall give consideration to the possibility of transferring to one another proceedings for criminal prosecution of offences established in accordance with article 3, paragraph 1, in cases where such transfer is considered to be in the interests of a proper administration of justice.

    ARTICLE 9 OTHER FORMS OF CO-OPERATION AND TRAINING

    1. The Parties shall co-operate closely with one another, consistent with their respective domestic legal and administrative systems, with a view to enhancing the effectiveness of law enforcement action to suppress the commission of offences established in accordance with article 3, paragraph 1. They shall, in particular, on the basis of bilateral or multilateral agreements or arrangements:

    (a) Establish and maintain channels of communication between their competent agencies and services to facilitate the secure and rapid exchange of information concerning all aspects of offences established in accordance with article 3, paragraph 1, including, if the Parties concerned deem it appropriate, links with other criminal activities;

    (b) Co-operate with one another in conducting enquiries, with respect to offences established in accordance with article 3, paragraph 1, having an international character, concerning:

    • (i) The identity, whereabouts and activities of persons suspected of being involved in offences established in accordance with article 3, paragraph 1;

    • (ii) The movement of proceeds or property derived from the commission of such offences;

    • (iii) The movement of narcotic drugs, psychotropic substances, substances in Table I and Table II of this Convention and instrumentalities used or intended for use in the commission of such offences;

    (c) In appropriate cases and if not contrary to domestic law, establish joint teams, taking into account the need to protect the security of persons and of operations, to carry out the provisions of this paragraph. Officials of any Party taking part in such teams shall act as authorized by the appropriate authorities of the Party in whose territory the operation is to take place; in all such cases, the Parties involved shall ensure that the sovereignty of the Party on whose territory the operation is to take place is fully respected;

    (d) Provide, when appropriate, necessary quantities of substances for analytical or investigative purposes;

    (e) Facilitate effective co-ordination between their competent agencies and services and promote the exchange of personnel and other experts, including the posting of liaison officers.

    2. Each Party shall, to the extent necessary, initiate, develop or improve specific training programmes for its law enforcement and other personnel, including customs, charged with the suppression of offences established in accordance with article 3, paragraph 1. Such programmes shall deal, in particular, with the following:

    (a) Methods used in the detection and suppression of offences established in accordance with article 3, paragraph 1;

    (b) Routes and techniques used by persons suspected of being involved in offences established in accordance with article 3, paragraph 1, particularly in transit States, and appropriate countermeasures;

    (c) Monitoring of the import and export of narcotic drugs, psychotropic substances and substances in Table I and Table II;

    (d) Detection and monitoring of the movement of proceeds and property derived from, and narcotic drugs, psychotropic substances and substances in Table I and Table II, and instrumentalities used or intended for use in, the commission of offences established in accordance with article 3, paragraph 1;

    (e) Methods used for the transfer, concealment or disguise of such proceeds, property and instrumentalities;

    (f) Collection of evidence;

    (g) Control techniques in free trade zones and free ports;

    (h) Modern law enforcement techniques.

    3. The Parties shall assist one another to plan and implement research and training programmes designed to share expertise in the areas referred to in paragraph 2 of this article and, to this end, shall also, when appropriate, use regional and international conferences and seminars to promote cooperation and stimulate discussion on problems of mutual concern, including the special problems and needs of transit States.

    Article 10 INTERNATIONAL CO-OPERATION AND ASSISTANCE FOR TRANSIT STATES

    1. The Parties shall co-operate, directly or through competent international or regional organizations, to assist and support transit States and, in particular, developing countries in need of such assistance and support, to the extent possible, through programmes of technical co-operation on interdiction and other related activities.

    2. The Parties may undertake, directly or through competent international or regional organizations, to provide financial assistance to such transit States for the purpose of augmenting and strengthening the infrastructure needed for effective control and prevention of illicit traffic.

    3. The Parties may conclude bilateral or multilateral agreements or arrangements to enhance the effectiveness of international co-operation pursuant to this article and may take into consideration financial arrangements in this regard.

    Article 11 CONTROLLED DELIVERY

    1. If permitted by the basic principles of their respective domestic legal systems, the Parties shall take the necessary measures, within their possibilities, to allow for the appropriate use of controlled delivery at the international level, on the basis of agreements or arrangements mutually consented to, with a view to identifying persons involved in offences established in accordance with article 3, paragraph 1, and to taking legal action against them.

    2. Decisions to use controlled delivery shall be made on a case-by-case basis and may, when necessary, take into consideration financial arrangements and understandings with respect to the exercise of jurisdiction by the Parties concerned.

    3. Illicit consignments whose controlled delivery is agreed to may, with the consent of the Parties concerned, be intercepted and allowed to continue with the narcotic drugs or psychotropic substances intact or removed or replaced in whole or in part.

    Article 12 SUBSTANCES FREQUENTLY USED IN THE ILLICIT MANUFACTURE OF NARCOTIC DRUGS OR PSYCHOTROPIC SUBSTANCES

    1. The Parties shall take the measures they deem appropriate to prevent diversion of substances in Table I and Table II used for the purpose of illicit manufacture of narcotic drugs or psychotropic substances, and shall cooperate with one another to this end.

    2. If a Party or the Board has information which in its opinion may require the inclusion of a substance in Table I or Table II, it shall notify the Secretary-General and furnish him with the information in support of that notification. The procedure described in paragraphs 2 to 7 of this article shall also apply when a Party or the Board has information justifying the deletion of a substance from Table I or Table II, or the transfer of a substance from one Table to the other.

    3. The Secretary-General shall transmit such notification, and any information which he considers relevant, to the Parties, to the Commission, and, where notification is made by a Party, to the Board. The Parties shall communicate their comments concerning the notification to the Secretary-General, together with all supplementary information which may assist the Board in establishing an assessment and the Commission in reaching a decision.

    4. If the Board, taking into account the extent, importance and diversity of the licit use of the substance, and the possibility and ease of using alternate substances both for licit purposes and for the illicit manufacture of narcotic drugs or psychotropic substances, finds:

    (a) That the substance is frequently used in the illicit manufacture of a narcotic drug or psychotropic substance;

    (b) That the volume and extent of the illicit manufacture of a narcotic drug or psychotropic substance creates serious public health or social problems, so as to warrant international action, it shall communicate to the Commission an assessment of the substance, including the likely effect of adding the substance to either Table I or Table II on both licit use and illicit manufacture, together with recommendations of monitoring measures, if any, that would be appropriate in the light of its assessment.

    5. The Commission, taking into account the comments submitted by the Parties and the comments and recommendations of the Board, whose assessment shall be determinative as to scientific matters, and also taking into due consideration any other relevant factors, may decide by a two-thirds majority of its members to place a substance in Table I or Table II.

    6. Any decision of the Commission taken pursuant to this article shall be communicated by the Secretary-General to all States and other entities which are, or which are entitled to become, Parties to this Convention, and to the Board. Such decision shall become fully effective with respect to each Party one hundred and eighty days after the date of such communication.

    7. (a) The decisions of the Commission taken under this article shall be subject to review by the Council upon the request of any Party filed within one hundred and eighty days after the date of notification of the decision. The request for review shall be sent to the Secretary-General, together with all relevant information upon which the request for review is based.

    (b) The Secretary-General shall transmit copies of the request for review and the relevant information to the Commission, to the Board and to all the Parties, inviting them to submit their comments within ninety days. All comments received shall be submitted to the Council for consideration.

    (c) The Council may confirm or reverse the decision of the Commission. Notification of the Council’s decision shall be transmitted to all States and other entities which are, or which are entitled to become, Parties to this Convention, to the Commission and to the Board.

    8. (a) Without prejudice to the generality of the provisions contained in paragraph 1 of this article and the provisions of the 1961 Convention, the 1961 Convention as amended and the 1971 Convention, the Parties shall take the measures they deem appropriate to monitor the manufacture and distribution of substances in Table I and Table II which are carried out within their territory.

    (b) To this end, the Parties may:

    • (i) Control all persons and enterprises engaged in the manufacture and distribution of such substances;

    • (ii) Control under licence the establishment and premises in which such manufacture or distribution may take place;

    • (iii) Require that licensees obtain a permit for conducting the aforesaid operations;

    • (iv) Prevent the accumulation of such substances in the possession of manufacturers and distributors, in excess of the quantities required for the normal conduct of business and the prevailing market conditions.

    9. Each Party shall, with respect to substances in Table I and Table II, take the following measures:

    (a) Establish and maintain a system to monitor international trade in substances in Table I and Table II in order to facilitate the identification of suspicious transactions. Such monitoring systems shall be applied in close co-operation with manufacturers, importers, exporters, wholesalers and retailers, who shall inform the competent authorities of suspicious orders and transactions.

    (b) Provide for the seizure of any substance in Table I or Table II if there is sufficient evidence that it is for use in the illicit manufacture of a narcotic drug or psychotropic substance.

    (c) Notify, as soon as possible, the competent authorities and services of the Parties concerned if there is reason to believe that the import, export or transit of a substance in Table I or Table II is destined for the illicit manufacture of narcotic drugs or psychotropic substances, including in particular information about the means of payment and any other essential elements which led to that belief.

    (d) Require that imports and exports be properly labelled and documented. Commercial documents such as invoices, cargo manifests, customs, transport and other shipping documents shall include the names, as stated in Table I or Table II, of the substances being imported or exported, the quantity being imported or exported, and the name and address of the exporter, the importer and, when available, the consignee.

    (e) Ensure that documents referred to in subparagraph (d) of this paragraph are maintained for a period of not less than two years and may be made available for inspection by the competent authorities.

    10. (a) In addition to the provisions of paragraph 9, and upon request to the Secretary-General by the interested Party, each Party from whose territory a substance in Table I is to be exported shall ensure that, prior to such export, the following information is supplied by its competent authorities to the competent authorities of the importing country:

    • (i) Name and address of the exporter and importer and, when available, the consignee;

    • (ii) Name of the substance in Table I;

    • (iii) Quantity of the substance to be exported;

    • (iv) Expected point of entry and expected date of dispatch;

    • (v) Any other information which is mutually agreed upon by the Parties.

    (b) A Party may adopt more strict or severe measures of control than those provided by this paragraph if, in its opinion, such measures are desirable or necessary.

    11. Where a Party furnishes information to another Party in accordance with paragraphs 9 and 10 of this article, the Party furnishing such information may require that the Party receiving it keep confidential any trade, business, commercial or professional secret or trade process.

    12. Each Party shall furnish annually to the Board, in the form and manner provided for by it and on forms made available by it, information on:

    (a) The amounts seized of substances in Table I and Table II and, when known, their origin;

    (b) Any substance not included in Table I or Table II which is identified as having been used in illicit manufacture of narcotic drugs or psychotropic substances, and which is deemed by the Party to be sufficiently significant to be brought to the attention of the Board;

    (c) Methods of diversion and illicit manufacture.

    13. The Board shall report annually to the Commission on the implementation of this article and the Commission shall periodically review the adequacy and propriety of Table I and Table II.

    14. The provisions of this article shall not apply to pharmaceutical preparations, nor to other preparations containing substances in Table I or Table II that are compounded in such a way that such substances cannot be easily used or recovered by readily applicable means.

    Article 13 MATERIALS AND EQUIPMENT

    The Parties shall take such measures as they deem appropriate to prevent trade in and the diversion of materials and equipment for illicit production or manufacture of narcotic drugs and psychotropic substances and shall cooperate to this end.

    Article 14 MEASURES TO ERADICATE ILLICIT CULTIVATION OF NARCOTIC PLANTS AND TO ELIMINATE ILLICIT DEMAND FOR NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES

    1. Any measures taken pursuant to this Convention by Parties shall not be less stringent than the provisions applicable to the eradication of illicit cultivation of plants containing narcotic and psychotropic substances and to the elimination of illicit demand for narcotic drugs and psychotropic substances under the provisions of the 1961 Convention, the 1961 Convention as amended and the 1971 Convention.

    2. Each Party shall take appropriate measures to prevent illicit cultivation of and to eradicate plants containing narcotic or psychotropic substances, such as opium poppy, coca bush and cannabis plants, cultivated illicitly in its territory. The measures adopted shall respect fundamental human rights and shall take due account of traditional licit uses, where there is historic evidence of such use, as well as the protection of the environment.

    3. (a) The Parties may co-operate to increase the effectiveness of eradication efforts. Such co-operation may, inter alia, include support, when appropriate, for integrated rural development leading to economically viable alternatives to illicit cultivation. Factors such as access to markets, the availability of resources and prevailing socio-economic conditions should be taken into account before such rural development programmes are implemented. The Parties may agree on any other appropriate measures of co-operation.

    (b) The Parties shall also facilitate the exchange of scientific and technical information and the conduct of research concerning eradication.

    (c) Whenever they have common frontiers, the Parties shall seek to cooperate in eradication programmes in their respective areas along those frontiers.

    4. The Parties shall adopt appropriate measures aimed at eliminating or reducing illicit demand for narcotic drugs and psychotropic substances, with a view to reducing human suffering and eliminating financial incentives for illicit traffic. These measures may be based, inter alia, on the recommendations of the United Nations, specialized agencies of the United Nations such as the World Health Organization, and other competent international organizations, and on the Comprehensive Multidisciplinary Outline adopted by the International Conference on Drug Abuse and Illicit Trafficking, held in 1987, as it pertains to governmental and non-governmental agencies and private efforts in the fields of prevention, treatment and rehabilitation. The Parties may enter into bilateral or multilateral agreements or arrangements aimed at eliminating or reducing illicit demand for narcotic drugs and psychotropic substances.

    5. The Parties may also take necessary measures for early destruction or lawful disposal of the narcotic drugs, psychotropic substances and substances in Table I and Table II which have been seized or confiscated and for the admissibility as evidence of duly certified necessary quantities of such substances.

    Article 15 COMMERCIAL CARRIERS

    1. The Parties shall take appropriate measures to ensure that means of transport operated by commercial carriers are not used in the commission of offences established in accordance with article 3, paragraph 1; such measures may include special arrangements with commercial carriers.

    2. Each Party shall require commercial carriers to take reasonable precautions to prevent the use of their means of transport for the commission of offences established in accordance with article 3, paragraph 1. Such precautions may include:

    (a) If the principal place of business of a commercial carrier is within the territory of the Party:

    • (i) Training of personnel to identify suspicious consignments or persons;

    • (ii) Promotion of integrity of personnel;

    (b) If a commercial carrier is operating within the territory of the Party:

    • (i) Submission of cargo manifests in advance, whenever possible;

    • (ii) Use of tamper-resistant, individually verifiable seals on containers;

    • (iii) Reporting to the appropriate authorities at the earliest opportunity all suspicious circumstances that may be related to the commission of offences established in accordance with article 3, paragraph 1.

    3. Each Party shall seek to ensure that commercial carriers and the appropriate authorities at points of entry and exit and other customs control areas co-operate, with a view to preventing unauthorized access to means of transport and cargo and to implementing appropriate security measures.

    Article 16 COMMERCIAL DOCUMENTS AND LABELLING OF EXPORTS

    1. Each Party shall require that lawful exports of narcotic drugs and psychotropic substances be properly documented. In addition to the requirements for documentation under article 31 of the 1961 Convention, article 31 of the 1961 Convention as amended and article 12 of the 1971 Convention, commercial documents such as invoices, cargo manifests, customs, transport and other shipping documents shall include the names of the narcotic drugs and psychotropic substances being exported as set out in the respective Schedules of the 1961 Convention, the 1961 Convention as amended and the 1971 Convention, the quantity being exported, and the name and address of the exporter, the importer and, when available, the consignee.

    2. Each Party shall require that consignments of narcotic drugs and psychotropic substances being exported be not mislabelled.

    Article 17 ILLICIT TRAFFIC BY SEA

    1. The Parties shall co-operate to the fullest extent possible to suppress illicit traffic by sea, in conformity with the international law of the sea.

    2. A Party which has reasonable grounds to suspect that a vessel flying its flag or not displaying a flag or marks of registry is engaged in illicit traffic may request the assistance of other Parties in suppressing its use for that purpose. The Parties so requested shall render such assistance within the means available to them.

    3. A Party which has reasonable grounds to suspect that a vessel exercising freedom of navigation in accordance with international law and flying the flag or displaying marks of registry of another Party is engaged in illicit traffic may so notify the flag State, request confirmation of registry and, if confirmed, request authorization from the flag State to take appropriate measures in regard to that vessel.

    4. In accordance with paragraph 3 or in accordance with treaties in force between them or in accordance with any agreement or arrangement otherwise reached between those Parties, the flag State may authorize the requesting State to, inter alia:

    • (a) Board the vessel;

    • (b) Search the vessel;

    • (c) If evidence of involvement in illicit traffic is found, take appropriate action with respect to the vessel, persons and cargo on board.

    5. Where action is taken pursuant to this article, the Parties concerned shall take due account of the need not to endanger the safety of life at sea, the security of the vessel and the cargo or to prejudice the commercial and legal interests of the flag State or any other interested State.

    6. The flag State may, consistent with its obligations in paragraph 1 of this article, subject its authorization to conditions to be mutually agreed between it and the requesting Party, including conditions relating to responsibility.

    7. For the purposes of paragraphs 3 and 4 of this article, a Party shall respond expeditiously to a request from another Party to determine whether a vessel that is flying its flag is entitled to do so, and to requests for authorization made pursuant to paragraph 3. At the time of becoming a Party to this Convention, each Party shall designate an authority or, when necessary, authorities to receive and respond to such requests. Such designation shall be notified through the Secretary-General to all other Parties within one month of the designation.

    8. A Party which has taken any action in accordance with this article shall promptly inform the flag State concerned of the results of that action.

    9. The Parties shall consider entering into bilateral or regional agreements or arrangements to carry out, or to enhance the effectiveness of, the provisions of this article.

    10. Action pursuant to paragraph 4 of this article shall be carried out only by warships or military aircraft, or other ships or aircraft clearly marked and identifiable as being on government service and authorized to that effect.

    11. Any action taken in accordance with this article shall take due account of the need not to interfere with or affect the rights and obligations and the exercise of jurisdiction of coastal States in accordance with the international law of the sea.

    Article 18 FREE TRADE ZONES AND FREE PORTS

    1. The Parties shall apply measures to suppress illicit traffic in narcotic drugs, psychotropic substances and substances in Table I and Table II in free trade zones and in free ports that are no less stringent than those applied in other parts of their territories.

    2. The Parties shall endeavour:

    (a) To monitor the movement of goods and persons in free trade zones and free ports, and, to that end, shall empower the competent authorities to search cargoes and incoming and outgoing vessels, including pleasure craft and fishing vessels, as well as aircraft and vehicles and, when appropriate, to search crew members, passengers and their baggage;

    (b) To establish and maintain a system to detect consignments suspected of containing narcotic drugs, psychotropic substances and substances in Table I and Table II passing into or out of free trade zones and free ports;

    (c) To establish and maintain surveillance systems in harbour and dock areas and at airports and border control points in free trade zones and free ports.

    Article 19 THE USE OF THE MAILS

    1. In conformity with their obligations under the Conventions of the Universal Postal Union, and in accordance with the basic principles of their domestic legal systems, the Parties shall adopt measures to suppress the use of the mails for illicit traffic and shall co-operate with one another to that end.

    2. The measures referred to in paragraph 1 of this article shall include, in particular:

    (a) Co-ordinated action for the prevention and repression of the use of the mails for illicit traffic;

    (b) Introduction and maintenance by authorized law enforcement personnel of investigative and control techniques designed to detect illicit consignments of narcotic drugs, psychotropic substances and substances in Table I and Table II in the mails;

    (c) Legislative measures to enable the use of appropriate means to secure evidence required for judicial proceedings.

    Article 20 INFORMATION TO BE FURNISHED BY THE PARTIES

    1. The Parties shall furnish, through the Secretary-General, information to the Commission on the working of this Convention in their territories and, in particular:

    (a) The text of laws and regulations promulgated in order to give effect to the Convention;

    (b) Particulars of cases of illicit traffic within their jurisdiction which they consider important because of new trends disclosed, the quantities involved, the sources from which the substances are obtained, or the methods employed by persons so engaged.

    2. The Parties shall furnish such information in such a manner and by such dates as the Commission may request.

    Article 21 FUNCTIONS OF THE COMMISSION

    The Commission is authorized to consider all matters pertaining to the aims of this Convention and, in particular:

    (a) The Commission shall, on the basis of the information submitted by the Parties in accordance with article 20, review the operation of this Convention;

    (b) The Commission may make suggestions and general recommendations based on the examination of the information received from the Parties;

    (c) The Commission may call the attention of the Board to any matters which may be relevant to the functions of the Board;

    (d) The Commission shall, on any matter referred to it by the Board under article 22, paragraph 1(b), take such action as it deems appropriate;

    (e) The Commission may, in conformity with the procedures laid down in article 12, amend Table I and Table II;

    (f) The Commission may draw the attention of non-Parties to decisions and recommendations which it adopts under this Convention, with a view to their considering taking action in accordance therewith.

    Article 22 FUNCTIONS OF THE BOARD

    1. Without prejudice to the functions of the Commission under article 21, and without prejudice to the functions of the Board and the Commission under the 1961 Convention, the 1961 Convention as amended and the 1971 Convention:

    (a) If, on the basis of its examination of information available to it, to the Secretary-General or to the Commission, or of information communicated by United Nations organs, the Board has reason to believe that the aims of this Convention in matters related to its competence are not being met, the Board may invite a Party or Parties to furnish any relevant information;

    (b) With respect to articles 12,13 and 16:

    • (i) After taking action under subparagraph (a) of this article, the Board, if satisfied that it is necessary to do so, may call upon the Party concerned to adopt such remedial measures as shall seem under the circumstances to be necessary for the execution of the provisions of articles 12, 13 and 16;

    • (ii) Prior to taking action under (iii) below, the Board shall treat as confidential its communications with the Party concerned under the preceding subparagraphs;

    • (iii) If the Board finds that the Party concerned has not taken remedial measures which it has been called upon to take under this subparagraph, it may call the attention of the Parties, the Council and the Commission to the matter. Any report published by the Board under this subparagraph shall also contain the views of the Party concerned if the latter so requests.

    2. Any Party shall be invited to be represented at a meeting of the Board at which a question of direct interest to it is to be considered under this article.

    3. If in any case a decision of the Board which is adopted under this article is not unanimous, the views of the minority shall be stated.

    4. Decisions of the Board under this article shall be taken by a two-thirds majority of the whole number of the Board.

    5. In carrying out its functions pursuant to subparagraph 1(a) of this article, the Board shall ensure the confidentiality of all information which may come into its possession.

    6. The Board’s responsibility under this article shall not apply to the implementation of treaties or agreements entered into between Parties in accordance with the provisions of this Convention.

    7. The provisions of this article shall not be applicable to disputes between Parties falling under the provisions of article 32.

    Article 23 REPORTS OF THE BOARD

    1. The Board shall prepare an annual report on its work containing an analysis of the information at its disposal and, in appropriate cases, an account of the explanations, if any, given by or required of Parties, together with any observations and recommendations which the Board desires to make. The Board may make such additional reports as it considers necessary. The reports shall be submitted to the Council through the Commission which may make such comments as it sees fit.

    2. The reports of the Board shall be communicated to the Parties and subsequently published by the Secretary-General. The Parties shall permit their unrestricted distribution.

    Article 24 APPLICATION OF STRICTER MEASURES THAN THOSE REQUIRED BY THIS CONVENTION

    A Party may adopt more strict or severe measures than those provided by this Convention if, in its opinion, such measures are desirable or necessary for the prevention or suppression of illicit traffic.

    Article 25 NON-DEROGATION FROM EARLIER TREATY RIGHTS AND OBLIGATIONS

    The provisions of this Convention shall not derogate from any rights enjoyed or obligations undertaken by Parties to this Convention under the 1961 Convention, the 1961 Convention as amended and the 1971 Convention.

    Article 26 SIGNATURE

    This Convention shall be open for signature at the United Nations Office at Vienna, from 20 December 1988 to 28 February 1989, and thereafter at the Headquarters of the United Nations at New York, until 20 December 1989, by:

    • (a) All States;

    • (b) Namibia, represented by the United Nations Council for Namibia;

    • (c) Regional economic integration organizations which have competence in respect of the negotiation, conclusion and application of international agreements in matters covered by this Convention, references under the Convention to Parties, States or national services being applicable to these organizations within the limits of their competence.

    Article 27 RATIFICATION, ACCEPTANCE, APPROVAL OR ACT OF FORMAL CONFIRMATION

    1. This Convention is subject to ratification, acceptance or approval by States and by Namibia, represented by the United Nations Council for Namibia, and to acts of formal confirmation by regional economic integration organizations referred to in article 26, subparagraph (c). The instruments of ratification, acceptance or approval and those relating to acts of formal confirmation shall be deposited with the Secretary-General.

    2. In their instruments of formal confirmation, regional economic integration organizations shall declare the extent of their competence with respect to the matters governed by this Convention. These organizations shall also inform the Secretary-General of any modification in the extent of their competence with respect to the matters governed by the Convention.

    Article 28 ACCESSION

    1. This Convention shall remain open for accession by any State, by Namibia, represented by the United Nations Council for Namibia, and by regional economic integration organizations referred to in article 26, subparagraph (c). Accession shall be effected by the deposit of an instrument of accession with the Secretary-General.

    2. In their instruments of accession, regional economic integration organizations shall declare the extent of their competence with respect to the matters governed by this Convention. These organizations shall also inform the Secretary-General of any modification in the extent of their competence with respect to the matters governed by the Convention.

    Article 29 ENTRY INTO FORCE

    1. This Convention shall enter into force on the ninetieth day after the date of the deposit with the Secretary-General of the twentieth instrument of ratification, acceptance, approval or accession by States or by Namibia, represented by the Council for Namibia.

    2. For each State or for Namibia, represented by the Council for Namibia, ratifying, accepting, approving or acceding to this Convention after the deposit of the twentieth instrument of ratification, acceptance, approval or accession, the Convention shall enter into force on the ninetieth day after the date of the deposit of its instrument of ratification, acceptance, approval or accession.

    3. For each regional economic integration organization referred to in article 26, subparagraph (c), depositing an instrument relating to an act of formal confirmation or an instrument of accession, this Convention shall enter into force on the ninetieth day after such deposit, or at the date the Convention enters into force pursuant to paragraph 1 of this article, whichever is later.

    Article 30 DENUNCIATION

    1. A Party may denounce this Convention at any time by a written notification addressed to the Secretary-General.

    2. Such denunciation shall take effect for the Party concerned one year after the date of receipt of the notification by the Secretary-General.

    Article 31 AMENDMENTS

    1. Any Party may propose an amendment to this Convention. The text of any such amendment and the reasons therefor shall be communicated by that Party to the Secretary-General, who shall communicate it to the other Parties and shall ask them whether they accept the proposed amendment. If a proposed amendment so circulated has not been rejected by any Party within twenty-four months after it has been circulated, it shall be deemed to have been accepted and shall enter into force in respect of a Party ninety days after that Party has deposited with the Secretary-General an instrument expressing its consent to be bound by that amendment.

    2. If a proposed amendment has been rejected by any Party, the Secretary-General shall consult with the Parties and, if a majority so requests, he shall bring the matter, together with any comments made by the Parties, before the Council which may decide to call a conference in accordance with article 62, paragraph 4, of the Charter of the United Nations. Any amendment resulting from such a Conference shall be embodied in a Protocol of Amendment. Consent to be bound by such a Protocol shall be required to be expressed specifically to the Secretary-General.

    Article 32 SETTLEMENT OF DISPUTES

    1. If there should arise between two or more Parties a dispute relating to the interpretation or application of this Convention, the Parties shall consult together with a view to the settlement of the dispute by negotiation, enquiry, mediation, conciliation, arbitration, recourse to regional bodies, judicial process or other peaceful means of their own choice.

    2. Any such dispute which cannot be settled in the manner prescribed in paragraph 1 of this article shall be referred, at the request of any one of the States Parties to the dispute, to the International Court of Justice for decision.

    3. If a regional economic integration organization referred to in article 26, subparagraph (c), is a Party to a dispute which cannot be settled in the manner prescribed in paragraph 1 of this article, it may, through a State Member of the United Nations, request the Council to request an advisory opinion of the International Court of Justice in accordance with article 65 of the Statute of the Court, which opinion shall be regarded as decisive.

    4. Each State, at the time of signature or ratification, acceptance or approval of this Convention or accession thereto, or each regional economic integration organization, at the time of signature or deposit of an act of formal confirmation or accession, may declare that it does not consider itself bound by paragraphs 2 and 3 of this article. The other Parties shall not be bound by paragraphs 2 and 3 with respect to any Party having made such a declaration.

    5. Any Party having made a declaration in accordance with paragraph 4 of this article may at any time withdraw the declaration by notification to the Secretary-General.

    Article 33 AUTHENTIC TEXTS

    The Arabic, Chinese, English, French, Russian and Spanish texts of this Convention are equally authentic.

    Article 34 DEPOSITARY

    The Secretary-General shall be the depositary of this Convention.

    IN WITNESS WHEREOF the undersigned, being duly authorized thereto, have signed this Convention.

    DONE AT VIENNA, in one original, this twentieth day of December one thousand nine hundred and eighty-eight.

    ANNEX

    [Editor’s Note: The Annex containing Tables I and II has been omitted. Those tables, which are intended to be amended from time to time in accordance with Article 12, set out lists of substances and their salts.]

    Appendix II 5 U.S. Money Laundering and Asset Forfeiture Legislation

    [United States Code, Title 18, §§981-82, 1956-57]1

    §981. Civil forfeiture

    (a)(1) Except as provided in paragraph (2), the following property is subject to forfeiture to the United States:

    • (A) Any property, real or personal, involved in a transaction or attempted transaction in violation of section 5313(a) or 5324 of title 31, or of section 1956 or 1957 of this title, or any property traceable to such property. However, no property shall be seized or forfeited in the case of a violation of section 5313(a) of title 31 by a domestic financial institution examined by a Federal bank supervisory agency or a financial institution regulated by the Securities and Exchange Commission or a partner, director, or employee thereof.

    • (B) Any property, real or personal, within the jurisdiction of the United States, constituting, derived from, or traceable to, any proceeds obtained directly or indirectly from an offense against a foreign nation involving the manufacture, importation, sale, or distribution of a controlled substance (as such term is defined for the purposes of the Controlled Substances Act), within whose jurisdiction such offense would be punishable by death or imprisonment for a term exceeding one year and which would be punishable under the laws of the United States by imprisonment for a term exceeding one year if such act or activity constituting the offense against the foreign nation had occurred within the jurisdiction of the United States.

    • (C) any property, real or personal, which constitutes or is derived from proceeds traceable to a violation of section 215, 656, 657, 1005, 1006, 1007, 1014, 1032, or 1344 of this title or a violation of section 1341 or 1343 of such title affecting a financial institution.

    • (D) Any property, real or personal, which represents or is traceable to the gross receipts obtained, directly or indirectly, from a violation of—

      • (i) section 666(a)(1) (relating to Federal program fraud);

      • (ii) section 1001 (relating to fraud and false statements);

      • (iii) section 1031 (relating to major fraud against the United States);

      • (iv) section 1032 (relating to concealment of assets from conservator or receiver of insured financial institution);

      • (v) section 1341 (relating to mail fraud); or

      • (vi) section 1343 (relating to wire fraud),

      if such violation relates to the sale of assets acquired or held by the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, as conservator or receiver for a financial institution, or any other conservator for a financial institution appointed by the Office of the Comptroller of the Currency or the Office of Thrift Supervision or the National Credit Union Administration, as conservator or liquidating agent for a financial institution.

    • (E) With respect to an offense listed in subsection (a)(1)(D) committed for the purpose of executing or attempting to execute any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent statements, pretenses, representations or promises, the gross receipts of such an offense shall include all property, real or personal, tangible or intangible, which thereby is obtained, directly or indirectly.

    (2) No property shall be forfeited under this section to the extent of the interest of an owner or lienholder by reason of any act or omission established by that owner or lienholder to have been committed without the knowledge of that owner or lienholder.

    • (b)(1) Any property—

      • (A) subject to forfeiture to the United States under subparagraph (A) or (B) of subsection (a)(1) of this section—

        • (i) may be seized by the Attorney General; or

        • (ii) in the case of property involved in a violation of section 5313(a) or 5324 of title 31, United States Code, or section 1956 or 1957 of this title investigated by the Secretary of the Treasury or the United States Postal Service, may be seized by the Secretary of the Treasury or the Postal Service; and

      • (B) subject to forfeiture to the United States under subparagraph (C) of subsection (a)(1) of this section may be seized by the Attorney General, the Secretary of the Treasury, or the Postal Service.

    (2) Property shall be seized under paragraph (1) of this subsection upon process issued pursuant to the Supplemental Rules for certain Admiralty and Maritime Claims by any district court of the United States having jurisdiction over the property, except that seizure without such process may be made when—

    • (A) the seizure is pursuant to a lawful arrest or search; or

    • (B) the Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be, has obtained a warrant for such seizure pursuant to the Federal Rules of Criminal Procedure, in which event proceedings under subsection (d) of this section shall be instituted promptly.

    (c) Property taken or detained under this section shall not be repleviable, but shall be deemed to be in the custody of the Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be, subject only to the orders and decrees of the court or the official having jurisdiction thereof. Whenever property is seized under this subsection, the Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be, may—

    • (1) place the property under seal;

    • (2) remove the property to a place designated by him; or

    • (3) require that the General Services Administration take custody of the property and remove it, if practicable, to an appropriate location for disposition in accordance with law.

    (d) For purposes of this section, the provisions of the customs laws relating to the seizure, summary and judicial forfeiture, condemnation of property for violation of the customs laws, the disposition of such property or the proceeds from the sale of this section, the remission or mitigation of such forfeitures, and the compromise of claims (19 U.S.C. 1602 et seq.), insofar as they are applicable and not inconsistent with the provisions of this section, shall apply to seizures and forfeitures incurred, or alleged to have been incurred, under this section, except that such duties as are imposed upon the customs officer or any other person with respect to the seizure and forfeiture of property under the customs laws shall be performed with respect to seizures and forfeitures of property under this section by such officers, agents, or other persons as may be authorized or designated for that purpose by the Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be. The Attorney General shall have sole responsibility for disposing of petitions for remission or mitigation with respect to property involved in a judicial forfeiture proceeding.

    (e) Notwithstanding any other provision of the law, except section 3 of the Anti Drug Abuse Act of 1986, the Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be, is authorized to retain property forfeited pursuant to this section, or to transfer such property on such terms and conditions as he may determine—

    • (1) to any other Federal agency;

    • (2) to any State or local law enforcement agency which participated directly in any of the acts which led to the seizure or forfeiture of the property;

    • (3) in the case of property referred to in subsection (a)(1)(C), to any Federal financial institution regulatory agency—

      • (A) to reimburse the agency for payments to claimants or creditors of the institution; and

      • (B) to reimburse the insurance fund of the agency for losses suffered by the fund as a result of the receivership or liquidation;

    • (4) in the case of property referred to in subsection (a)(1)(C), upon the order of the appropriate Federal financial institution regulatory agency, to the financial institution as restitution, with the value of the property so transferred to be set off against any amount later recovered by the financial institution as compensatory damages in any State or Federal proceeding;

    • (5) in the case of property referred to in subsection (a)(1)(C), to any Federal financial institution regulatory agency, to the extent of the agency’s contribution of resources to, or expenses involved in, the seizure and forfeiture, and the investigation leading directly to the seizure and forfeiture, of such property;

    • (6) in the case of property referred to in subsection (a)(1)(C), restore forfeited property to any victim of an offense described in subsection (a)(1)(C); or

    • (7) in the case of property referred to in subsection (a)(1)(D), to the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, or any other Federal financial institution regulatory agency (as defined in section 8(e)(7)(D) of the Federal Deposit Insurance Act).

    The Attorney General, the Secretary of the Treasury, or the Postal Service as the case may be, shall ensure the equitable transfer pursuant to paragraph (2) of any forfeited property to the appropriate State or local law enforcement agency so as to reflect generally the contribution of any such agency participating directly in any of the acts which led to the seizure or forfeiture of such property. A decision by the Attorney General, the Secretary of the Treasury, or the Postal Service pursuant to paragraph (2) shall not be subject to review. The United States shall not be liable in any action arising out of the use of any property the custody of which was transferred pursuant to this section to any non-Federal agency. The Attorney General, the Secretary of the Treasury, or the Postal Service may order the discontinuance of any forfeiture proceedings under this section in favor of the institution of forfeiture proceedings by State or local authorities under an appropriate State or local statute. After the filing of a complaint for forfeiture under this section, the Attorney General may seek dismissal of the complaint in favor of forfeiture proceedings under State or local law. Whenever forfeiture proceedings are discontinued by the United States in favor of State or local proceedings, the United States may transfer custody and possession of the seized property to the appropriate State or local official immediately upon the initiation of the proper actions by such officials. Whenever forfeiture proceedings are discontinued by the United States in favor of State or local proceedings, notice shall be sent to all known interested parties advising them of the discontinuance or dismissal. The United States shall not be liable in any action arising out of the seizure, detention, and transfer of seized property to State or local officials. The authority granted to the Secretary of the Treasury and the Postal Service pursuant to this subsection shall apply only to property that has been administratively forfeited. The United States shall not be liable in any action arising out of a transfer under paragraph (3), (4), or (5) of this subsection.

    (f) All right, title, and interest in property described in subsection (a) of this section shall vest in the United States upon commission of the act giving rise to forfeiture under this section.

    (g) The filing of an indictment or information alleging a violation of law, Federal, State, or local, which is also related to a forfeiture proceeding under this section shall, upon motion of the United States and for good cause shown, stay the forfeiture proceeding.

    (h) In addition to the venue provided for in section 1395 of title 28 or any other provision of law, in the case of property of a defendant charged with a violation that is the basis for forfeiture of the property under this section, a proceeding for forfeiture under this section may be brought in the judicial district in which the defendant owning such property is found or in the judicial district in which the criminal prosecution is brought.

    (i)(l) Whenever property is civilly or criminally forfeited under this chapter, the Attorney General or the Secretary of the Treasury, as the case may be, may transfer the forfeited personal property or the proceeds of the sale of any forfeited personal or real property to any foreign country which participated directly or indirectly in the seizure or forfeiture of the property, if such a transfer—

    • (A) has been agreed to by the Secretary of State;

    • (B) is authorized in an international agreement between the United States and the foreign country; and

    • (C) is made to a country which, if applicable, has been certified under section 481(h) of the Foreign Assistance Act of 1961. A decision by the Attorney General or the Secretary of the Treasury pursuant to this paragraph shall not be subject to review. The foreign country shall, in the event of a transfer of property or proceeds of sale of property under this subsection, bear all expenses incurred by the United States in the seizure, maintenance, inventory, storage, forfeiture, and disposition of the property, and all transfer costs. The payment of all such expenses, and the transfer of assets pursuant to this paragraph, shall be upon such terms and conditions as the Attorney General or the Secretary of the Treasury may, in his discretion, set.

    (2) The provisions of this section shall not be construed as limiting or superseding any other authority of the United States to provide assistance to a foreign country in obtaining property related to a crime committed in the foreign country, including property which is sought as evidence of a crime committed in the foreign country.

    (3) A certified order or judgment of forfeiture by a court of competent jurisdiction of a foreign country concerning property which is the subject of forfeiture under this section and was determined by such court to be the type of property described in subsection (a)(1)(B) of this section, and any certified recordings or transcripts of testimony taken in a foreign judicial proceeding concerning such order or judgment of forfeiture, shall be admissible in evidence in a proceeding brought pursuant to this section. Such certified order or judgment of forfeiture, when admitted into evidence shall constitute probable cause that the property forfeited by such order or judgment of forfeiture is subject to forfeiture under this section and creates a rebuttable presumption of the forfeitability of such property under this section.

    (4) A certified order or judgment of conviction by a court of competent jurisdiction of a foreign country concerning an unlawful drug activity which gives rise to forfeiture under this section and any certified recordings or transcripts of testimony taken in a foreign judicial proceeding concerning such order or judgment of conviction shall be admissible in evidence in a proceeding brought pursuant to this section. Such certified order or judgment of conviction, when admitted into evidence, creates a rebuttable presumption that the unlawful drug activity giving rise to forfeiture under this section has occurred.

    (5) The provisions of paragraphs (3) and (4) of this subsection shall not be construed as limiting the admissibility of any evidence otherwise admissible, nor shall they limit the ability of the United States to establish probable cause that property is subject to forfeiture by any evidence otherwise admissible.

    (j) For purposes of this section—

    • (1) the term “Attorney General” means the Attorney General or his delegate, and

    • (2) the term “Secretary of the Treasury”1 means the Secretary of the Treasury or his delegate.

    §982. Criminal forfeiture

    (a)(1) The court, in imposing sentence on a person convicted of an offense in violation of section 5313(a), 5316 or 5324 of title 31, or of section 1956 or 1957 of this title, shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property. However, no property shall be seized or forfeited in the case of a violation of section 5313(a) of title 31 by a domestic financial institution examined by a Federal bank supervisory agency or a financial institution regulated by the Securities and Exchange Commission or a partner, director, or employee thereof

    (2) The court, in imposing sentence on a person convicted of a violation of, or a conspiracy to violate, section 215, 656, 657, 1005, 1006, 1007, 1014, 1341, 1343, or 1344 of this title, affecting a financial institution, shall order that the person forfeit to the United States any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of such violation.

    (3) The court, in imposing a sentence on a person convicted of an offense under—

    • (A) section 666(a)(1) (relating to Federal program fraud);

    • (B) section 1001 (relating to fraud and false statements);

    • (C) section 1031 (relating to major fraud against the United States);

    • (D) section 1032 (relating to concealment of assets from conservator, receiver or liquidating agent of insured financial institution);

    • (E) section 1341 (relating to mail fraud); or

    • (F) section 1343 (relating to wire fraud),

    involving the sale of assets acquired or held by the Resolution Trust Corporation, the Federal Deposit Insurance Corporation, as conservator or receiver for a financial institution or any other conservator for a financial institution appointed by the Office of the Comptroller of the Currency or the Office of Thrift Supervision, or the National Credit Union Administration, as conservator or liquidating agent for a financial institution, shall order that the person forfeit to the United States any property, real or personal, which represents or is traceable to the gross receipts obtained, directly or indirectly, as a result of such violation.

    (4) With respect to an offense listed in subsection (a)(3) committed for the purpose of executing or attempting to execute any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent statements, pretenses, representations, or promises, the gross receipts of such an offense shall include any property, real or personal, tangible or intangible, which is obtained, directly or indirectly, as a result of such offense.

    (b)(1) Property subject to forfeiture under this section, any seizure and disposition thereof, and any administrative or judicial proceeding in relation thereto, shall be governed—

    • (A) in the case of a forfeiture under subsection (a)(1) of this section, by subsections (c) and (e) through (p) of section 413 of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (21 U.S.C. 853); and

    • (B) in the case of a forfeiture under subsection (a)(2) of this section, by subsections (b), (c), (e), and (g) through (p) of section 413 of such Act.

    (2) The substitution of assets provisions of subsection 413(p) shall not be used to order a defendant to forfeit assets in place of the actual property laundered where such defendant acted merely as an intermediary who handled but did not retain the property in the course of the money laundering offense unless the defendant, in committing the offense or offenses giving rise to the forfeiture, conducted three or more separate transactions involving a total of $100,000 or more in any twelve month period.

    §1956. Laundering of monetary instruments

    (a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity—

    • (A) (i) with the intent to promote the carrying on of specified unlawful activity; or

    • (ii) with intent to engage in conduct constituting a violation of section 7201 or 7206 of the Internal Revenue Code of 1986; or

    • (B) knowing that the transaction is designed in whole or in part—

      • (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or

      • (ii) to avoid a transaction reporting requirement under State or Federal law,

    shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater, or imprisonment for not more than twenty years, or both.

    (2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—

    • (A) with the intent to promote the carrying on of specified unlawful activity; or

    • (B) knowing that the monetary instrument or funds involved in the transportation represent the proceeds of some form of unlawful activity and knowing that such transportation is designed in whole or in part—

      • (i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or

      • (ii) to avoid a transaction reporting requirement under State or Federal law,

    shall be sentenced to a fine of $500,000 or twice the value of the monetary instrument or funds involved in the transportation, whichever is greater, or imprisonment for not more than twenty years, or both. For the purpose of the offense described in subparagraph (B), the defendant’s knowledge may be established by proof that a law enforcement officer represented the matter specified in subparagraph (B) as true, and the defendant’s subsequent statements or actions indicate that the defendant believed such representations to be true.

    (3) Whoever, with the intent—

    • (A) to promote the carrying on of specified unlawful activity;

    • (B) to conceal or disguise the nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity; or

    • (C) to avoid a transaction reporting requirement under State or Federal law,

    conducts or attempts to conduct a financial transaction involving property represented by a law enforcement officer to be the proceeds of specified unlawful activity, or property used to conduct or facilitate specified unlawful activity, shall be fined under this title or imprisoned for not more than 20 years, or both. For purposes of this paragraph and paragraph (2), the term “represented” means any representation made by a law enforcement officer or by another person at the direction of, or with the approval of, a Federal official authorized to investigate or prosecute violations of this section.

    (b) Whoever conducts or attempts to conduct a transaction described in subsection (a)(1), or a transportation described in subsection (a)(2), is liable to the United States for a civil penalty of not more than the greater of-

    • (1) the value of the property, funds, or monetary instruments involved in the transaction; or

    • (2) $10,000.

    (c) As used in this section—

    (1) the term “knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity” means that the person knew the property involved in the transaction represented proceeds from some form, though not necessarily which form, of activity that constitutes a felony under State, Federal, or foreign law, regardless of whether or not such activity is specified in paragraph (7);

    (2) the term “conducts” includes initiating, concluding, or participating in initiating, or concluding a transaction;

    (3) the term “transaction” includes a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever means effected;

    (4) the term “financial transaction” means (A) a transaction (i) involving the movement of funds by wire or other means or (ii) involving one or more monetary instruments, which in any way or degree affects interstate or foreign commerce, or (B) a transaction involving the use of a financial institution which is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree;

    (5) the term “monetary instruments” means (i) coin or currency of the United States or of any other country, travelers’ checks, personal checks, bank checks, and money orders, or (ii) investment securities or negotiable instruments, in bearer form or otherwise in such form that title thereto passes upon delivery;

    (6) the term “financial institution” has the definition given that term in section 5312(a)(2) of title 31, United States Code, and the regulations promulgated thereunder;

    (7) the term “specified unlawful activity” means—

    • (A) any act or activity constituting an offense listed in section 1961(1) of this title except an act which is indictable under subchapter II of chapter 53 of title 31;

    • (B) with respect to a financial transaction occurring in whole or in part in the United States, an offense against a foreign nation involving the manufacture, importation, sale, or distribution of a controlled substance (as such term is defined for the purposes of the Controlled Substances Act);

    • (C) any act or acts constituting a continuing criminal enterprise, as that term is defined in section 408 of the Controlled Substances Act (21 U.S.C. 848);

    • (D) an offense under section 152 (relating to concealment of assets; false oaths and claims; bribery), section 215 (relating to commissions or gifts for procuring loans), any of sections 500 through 503 (relating to certain counterfeiting offenses), section 513 (relating to securities of States and private entities), section 542 (relating to entry of goods by means of false statements), section 545 (relating to smuggling goods into the United States), section 549 (relating to removing goods from Customs custody), section 641 (relating to public money, property, or records), section 656 (relating to theft, embezzlement, or misapplication by bank officer or employee), section 657 (relating to lending, credit, and insurance institutions), section 658 (relating to property mortgaged or pledged to farm credit agencies), section 666 (relating to theft or bribery concerning programs receiving Federal funds), section 793, 794, or 798 (relating to espionage), section 875 (relating to interstate communications), section 1005 (relating to fraudulent bank entries), 1006 (relating to fraudulent Federal credit institution entries), 1007 (relating to fraudulent Federal Deposit Insurance transactions), 1014 (relating to fraudulent loan or credit applications), 1032 (relating to concealment of assets from conservator, receiver, or liquidating agent of financial institution), section 1201 (relating to kidnapping), section 1203 (relating to hostage taking), section 1341 (relating to mail fraud) or section 1343 (relating to wire fraud) affecting a financial institution, section 1344 (relating to bank fraud), section 2113 or 2114 (relating to bank and postal robbery and theft), or section 2319 (relating to copyright infringement) of this title, a felony violation of the Chemical Diversion and Trafficking Act of 1988 (relating to precursor and essential chemicals), section 590 of the Tariff Act of 1930 (19 U.S.C. 1590) (relating to aviation smuggling), section 1822 of the Mail Order Drug Paraphernalia Control Act (100 Stat. 3207-51; 21 U.S.C. 857) (relating to transportation of drug paraphernalia), section 38(c) (relating to criminal violations) of the Arms Export Control Act, section 11 (relating to violations) of the Export Administration Act of 1979, section 206 (relating to penalties) of the International Emergency Economic Powers Act, or section 16 (relating to offenses and punishment) of the Trading with the Enemy Act; or

    • (E) a felony violation of the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), the Ocean Dumping Act (33 U.S.C. 1401 et seq.), the Act to Prevent Pollution from Ships (33 U.S.C. 1901 et seq.), the Safe Drinking Water Act (42 U.S.C. 300f et seq.), or the Resources Conservation and Recovery Act (42 U.S.C. 6901 et seq.).

    • (8) the term “State” includes a State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States.

    (d) Nothing in this section shall supersede any provision of Federal, State, or other law imposing criminal penalties or affording civil remedies in addition to those provided for in this section.

    (e) Violations of this section may be investigated by such components of the Department of Justice as the Attorney General may direct, and by such components of the Department of the Treasury as the Secretary of the Treasury may direct, as appropriate and, with respect to offenses over which the United States Postal Service has jurisdiction, by the Postal Service. Such authority of the Secretary of the Treasury and the Postal Service shall be exercised in accordance with an agreement which shall be entered into by the Secretary of the Treasury, the Postal Service, and the Attorney General. Violations of this section involving offenses described in paragraph (c)(7)(E) may be investigated by such components of the Department of Justice as the Attorney General may direct, and the National Enforcement Investigations Center of the Environmental Protection Agency.

    (f) There is extraterritorial jurisdiction over the conduct prohibited by this section if—

    • (1) the conduct is by a United States citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United States; and

    • (2) the transaction or series of related transactions involves funds or monetary instruments of a value exceeding $10,000.

    §1957. Engaging in monetary transactions in property derived from specified unlawful activity

    (a) Whoever, in any of the circumstances set forth in subsection (d), knowingly engages or attempts to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specified unlawful activity, shall be punished as provided in subsection (b).

    (b)(1) Except as provided in paragraph (2), the punishment for an offense under this section is a fine under title 18, United States Code, or imprisonment for not more than ten years or both.

    (2) The court may impose an alternate fine to that imposable under paragraph (1) of not more than twice the amount of the criminally derived property involved in the transaction.

    (c) In a prosecution for an offense under this section, the Government is not required to prove the defendant knew that the offense from which the criminally derived property was derived was specified unlawful activity.

    (d) The circumstances referred to in subsection (a) are—

    • (1) that the offense under this section takes place in the United States or in the special maritime and territorial jurisdiction of the United States;or

    • (2) that the offense under this section takes place outside the United States and such special jurisdiction, but the defendant is a United States person (as defined in section 3077 of this title, but excluding the class described in paragraph (2)(D) of such section).

    (e) Violations of this section may be investigated by such components of the Department of Justice as the Attorney General may direct, and by such components of the Department of the Treasury as the Secretary of the Treasury may direct, as appropriate and, with respect to offenses over which the United States Postal Service has jurisdiction, by the Postal Service. Such authority of the Secretary of the Treasury and the Postal Service shall be exercised in accordance with an agreement which shall be entered into by the Secretary of the Treasury, the Postal Service, and the Attorney General.

    (f) As used in this section—

    • (1) the term “monetary transaction” means the deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce, of funds or a monetary instrument (as defined in section 1956(c)(5) of this title) by, through, or to a financial institution (as defined in section 5312 of title 31), but such term does not include any transaction necessary to preserve a person’s right to representation as guaranteed by the sixth amendment to the Constitution;

    • (2) the term “criminally derived property” means any property constituting, or derived from, proceeds obtained from a criminal offense; and

    • (3) the term “specified unlawful activity” has the meaning given that term in section 1956 of this title.

    These provisions were enacted in 1986. The version reproduced here is as of 1992.

    Appendix II 6 U.S. Currency and Foreign Transactions Reporting Act

    [United States Code, Title 31, §§321, 5311-5326 (originally enacted as Pub. L. 91-508, Title II, 84 Stat. 118 (1970))]1

    §321. General authority of the Secretary

    (a) The Secretary of the Treasury shall—

    • (1) prepare plans for improving and managing receipts of the United States Government and managing the public debt;

    • (2) carry out services related to finances that the Secretary is required to perform;

    • (3) issue warrants for money drawn on the Treasury consistent with appropriations;

    • (4) mint coins, engrave and print currency and security documents, and refine and assay bullion, and may strike medals;

    • (5) prescribe regulations that the Secretary considers best calculated to promote the public convenience and security, and to protect the Government and individuals from fraud and loss, that apply to anyone who may—

      • (A) receive for the Government, Treasury notes, United States notes, or other Government securities; or

      • (B) be engaged or employed in preparing and issuing those notes or securities;

    • (6) collect receipts;

    • (7) with a view to prosecuting persons, take steps to discover fraud and attempted fraud involving receipts and decide on ways to prevent and detect fraud; and

    • (8) maintain separate accounts of taxes received in each State, territory, and possession of the United States, and collection district, with each account listing—

      • (A) each kind of tax;

      • (B) the amount of each tax; and

      • (C) the money paid as pay and allowances to officers and employees of the Department collecting taxes in that State, territory, possession, or district.

    (b) The Secretary may—

    • (1) prescribe regulations to carry out the duties and powers of the Secretary;

    • (2) delegate duties and powers of the Secretary to another officer or employee of the Department of the Treasury;

    • (3) transfer within the Department the records, property, officers, employees, and unexpended balances of appropriations, allocations, and amounts of the Department that the Secretary considers necessary to carry out a delegation made under clause (2) of this subsection;

    • (4) detail, in addition to details authorized under another law, not more than 6 officers and employees of the Department at any one time to enforce the laws related to the Department, except that of those 6 officers and employees not more than 4 officers and employees—

      • (A) paid from the appropriations for the collection of customs may be so detailed;

      • (B) paid from the appropriations for internal revenue may be so detailed; and

      • (C) paid from the appropriations for suppressing counterfeiting and other crimes may be so detailed;

    • (5) authorize, at rates and under conditions prescribed by the Secretary, the private use of telephone lines controlled by the Department when the use does not interfere with Department business; and

    • (6) buy arms and ammunition required by officers and employees of the Department in carrying out their duties and powers.

    (c) Duties and powers of officers and employees of the Department are vested in the Secretary except duties and powers—

    • (1) vested by subchapter II of chapter 5 of title 5 in administrative law judges employed by the Secretary;

    • (2) of the Comptroller of the Currency; and

    • (3) of the Director of the Office of Thrift Supervision;

    (d)(1) The Secretary of the Treasury may accept, hold, administer, and use gifts and bequests of property, both real and personal, for the purpose of aiding or facilitating the work of the Department of the Treasury. Gifts and bequests of money and the proceeds from sales of other property received as gifts or bequests shall be deposited in the Treasury in a separate fund and shall be disbursed on order of the Secretary of the Treasury. Property accepted under this paragraph, and the proceeds thereof, shall be used as nearly as possible in accordance with the terms of the gift or bequest.

    (2) For purposes of the Federal income, estate, and gift taxes, property accepted under paragraph (1) shall be considered as a gift or bequest to or for the use of the United States.

    (3) The Secretary of the Treasury may invest and reinvest the fund in public debt securities with maturities suitable for the needs of the fund and bearing interest at rates determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable maturities. Income accruing from the securities, and from any other property accepted under paragraph (1), shall be deposited to the credit of the fund, and shall be disbursed on order of the Secretary of the Treasury for purposes as nearly as possible in accordance with the terms of the gifts or bequests.

    (4) The Secretary of the Treasury shall, not less frequently than annually, make a public disclosure of the amount (and sources) of the gifts and bequests received under this subsection, and the purposes for which amounts in the separate fund established under this subsection are expended.

    (e) Certain reorganization prohibited.—The Secretary of the Treasury may not merge or consolidate the Office of Thrift Supervision, or any of the functions or responsibilities of the Office or the Director of such office, with the Office of the Comptroller of the Currency or the Comptroller of the Currency.

    §5311. Declaration of purpose

    It is the purpose of this subchapter (except section 5315) to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.

    §5312. Definitions and application

    (a) In this subchapter—

    • (1) “financial agency” means a person acting for a person (except for a country, a monetary or financial authority acting as a monetary or financial authority, or an international financial institution of which the United States Government is a member) as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money, credit, securities, gold, or a transaction in money, credit, securities, or gold.

    • (2) “financial institution” means—

      • (A) an insured bank (as defined in section 3(h) of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)));

      • (B) a commercial bank or trust company;

      • (C) a private banker;

      • (D) an agency or branch of a foreign bank in the United States;

      • (E) an insured institution (as defined in section 401(a) of the National Housing Act (12 U.S.C. 1724(a)));

      • (F) a thrift institution;

      • (G) a broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.);

      • (H) a broker or dealer in securities or commodities; (I) an investment banker or investment company; (J) a currency exchange;

      • (K) an issuer, redeemer, or cashier of travelers’ checks, checks, money orders, or similar instruments;

      • (L) an operator of a credit card system;

      • (M) an insurance company;

      • (N) a dealer in precious metals, stones, or jewels;

      • (O) a pawnbroker;

      • (P) a loan or finance company;

      • (Q) a travel agency;

      • (R) a licensed sender of money;

      • (S) a telegraph company;

      • (T) a business engaged in vehicle sales, including automobile, airplane, and boat sales;

      • (U) persons involved in real estate closings and settlements;

      • (V) the United States Postal Service;

      • (W) an agency of the United States Government or of a State or local government carrying out a duty or power of a business described in this paragraph;

      • (X) any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity which is similar to, related to, or a substitute for any activity in which any business described in this paragraph is authorized to engage; or

      • (Y) any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.

    • (3) “monetary instruments” means—

      • (A) United States coins and currency; and

      • (B) as the Secretary may prescribe by regulation, coins and currency of a foreign country, travelers’ checks, bearer negotiable instruments, bearer investment securities, bearer securities, stock on which title is passed on delivery, and similar material.

    • (4) “person”, in addition to its meaning under section 1 of title 1, includes a trustee, a representative of an estate and, when the Secretary prescribes, a governmental entity.

    • (5) “United States” means the States of the United States, the District of Columbia, and, when the Secretary prescribes by regulation, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, American Samoa, the Trust Territory of the Pacific Islands, a territory or possession of the United States, or a military or diplomatic establishment.

    (b) In this subchapter—

    • (1) “domestic financial agency” and “domestic financial institution” apply to an action in the United States of a financial agency or institution.

    • (2) “foreign financial agency” and “foreign financial institution” apply to an action outside the United States of a financial agency or institution.

    §5313. Reports on domestic coins and currency transactions

    (a) When a domestic financial institution is involved in a transaction for the payment, receipt, or transfer of United States coins or currency (or other monetary instruments the Secretary of the Treasury prescribes), in an amount, denomination, or amount and denomination, or under circumstances the Secretary prescribes by regulation, the institution and any other participant in the transaction the Secretary may prescribe shall file a report on the transaction at the time and in the way the Secretary prescribes. A participant acting for another person shall make the report as the agent or bailee of the person and identify the person for whom the transaction is being made.

    (b) The Secretary may designate a domestic financial institution as an agent of the United States Government to receive a report under this section. However, the Secretary may designate a domestic financial institution that is not insured, chartered, examined, or registered as a domestic financial institution only if the institution consents. The Secretary may suspend or revoke a designation for a violation of this subchapter or a regulation under this subchapter (except a violation of section 5315 of this title or a regulation prescribed under section 5315), section 411 of the National Housing Act (12 U.S.C. 1730d), or section 21 of the Federal Deposit Insurance Act (12 U.S.C. 1829b).

    (c)(1) A person (except a domestic financial institution designated under subsection (b) of this section) required to file a report under this section shall file the report—

    • (A) with the institution involved in the transaction if the institution was designated;

    • (B) in the way the Secretary prescribes when the institution was not designated; or

    • (C) with the Secretary.

    (2) The Secretary shall prescribe—

    • (A) the filing procedure for a domestic financial institution designated under subsection (b) of this section; and

    • (B) the way the institution shall submit reports filed with it.

    §5314. Records and reports on foreign financial agency transactions

    (a) Considering the need to avoid impeding or controlling the export or import of monetary instruments and the need to avoid burdening unreasonably a person making a transaction with a foreign financial agency, the Secretary of the Treasury shall require a resident or citizen of the United States or a person in, and doing business in, the United States, to keep records, file reports, or keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency. The records and reports shall contain the following information in the way and to the extent the Secretary prescribes:

    • (1) the identity and address of participants in a transaction or relationship.

    • (2) the legal capacity in which a participant is acting.

    • (3) the identity of real parties in interest.

    • (4) a description of the transaction.

    (b) The Secretary may prescribe—

    • (1) a reasonable classification of persons subject to or exempt from a requirement under this section or a regulation under this section;

    • (2) a foreign country to which a requirement or a regulation under this section applies if the Secretary decides applying the requirement or regulation to all foreign countries is unnecessary or undesirable;

    • (3) the magnitude of transactions subject to a requirement or a regulation under this section;

    • (4) the kind of transaction subject to or exempt from a requirement or a regulation under this section; and

    • (5) other matters the Secretary considers necessary to carry out this section or a regulation under this section.

    (c) A person shall be required to disclose a record required to be kept under this section or under a regulation under this section only as required by law.

    §5315. Reports on foreign currency transactions

    (a) Congress finds that—

    • (1) moving mobile capital can have a significant impact on the proper functioning of the international monetary system;

    • (2) it is important to have the most feasible current and complete information on the kind and source of capital flows, including transactions by large United States businesses and their foreign affiliates; and

    • (3) additional authority should be provided to collect information on capital flows under section 5(b) of the Trading With the Enemy Act (50 App. U.S.C. 5(b)) and section 8 of the Bretton Woods Agreement Act (22U.S.C. 286f).

    (b) In this section, “United States person” and “foreign person controlled by a United States person” have the same meanings given those terms in section 7(f)(2)(A) and (C), respectively, of the Securities and Exchange Act of 1934 (15 U.S.C. 78g(f)(2)(A), (C)).

    (c) The Secretary of the Treasury shall prescribe regulations consistent with subsection (a) of this section requiring reports on foreign currency transactions conducted by a United States person or a foreign person controlled by a United States person. The regulations shall require that a report contain information and be submitted at the time and in the way, with reasonable exceptions and classifications, necessary to carry out this section.

    §5316. Reports on exporting and importing monetary instruments

    (a) Except as provided in subsection (c) of this section, a person or an agent or bailee of the person shall file a report under subsection (b) of this section when the person, agent, or bailee knowingly—

    • (1) transports, is about to transport, or has transported, monetary instruments of more than $10,000 at one time—

      • (A) from a place in the United States to or through a place outside the United States; or

      • (B) to a place in the United States from or through a place outside the United States; or

    • (2) receives monetary instruments of more than $10,000 at one time transported into the United States from or through a place outside the United States.

    (b) A report under this section shall be filed at the time and place the Secretary of the Treasury prescribes. The report shall contain the following information to the extent the Secretary prescribes:

    • (1) the legal capacity in which the person filing the report is acting.

    • (2) the origin, destination, and route of the monetary instruments.

    • (3) when the monetary instruments are not legally and beneficially owned by the person transporting the instruments, or if the person transporting the instruments personally is not going to use them, the identity of the person that gave the instruments to the person transporting them, the identity of the person who is to receive them, or both.

    • (4) the amount and kind of monetary instruments transported.

    • (5) additional information.

    (c) This section or a regulation under this section does not apply to a common carrier of passengers when a passenger possesses a monetary instrument, or to a common carrier of goods if the shipper does not declare the instrument.

    (d) Cumulation of closely related events.—The Secretary of the Treasury may prescribe regulations under this section defining the term “at one time” for purposes of subsection (a). Such regulations may permit the cumulation of closely related events in order that such events may collectively be considered to occur at one time for the purposes of subsection (a).

    §5317. Search and forfeiture of monetary instruments

    (a) The Secretary of the Treasury may apply to a court of competent jurisdiction for a search warrant when the Secretary reasonably believes a monetary instrument is being transported and a report on the instrument under section 5316 of this title has not been filed or contains a material omission or misstatement. The Secretary shall include a statement of information in support of the warrant. On a showing of probable cause, the court may issue a search warrant for a designated person or a designated or described place or physical object. This subsection does not affect the authority of the Secretary under another law.

    (b) Searches at border.—For purposes of ensuring compliance with the requirements of section 5316, a customs officer may stop and search, at the border and without a search warrant, any vehicle, vessel, aircraft, or other conveyance, any envelope or other container, and any person entering or departing from the United States.

    (c) If a report required under section 5316 with respect to any monetary instrument is not filed (or if filed, contains a material omission or misstatement of fact), the instrument and any interest in property, including a deposit in a financial institution, traceable to such instrument may be seized and forfeited to the United States Government. A monetary instrument transported by mail or a common carrier, messenger, or bailee is being transported under this subsection from the time the instrument is delivered to the United States Postal Service, common carrier, messenger, or bailee through the time it is delivered to the addressee, intended recipient, or agent of the addressee or intended recipient without being transported further in, or taken out of, the United States.

    §5318. Compliance, exemptions, and summons authority

    (a) General powers of Secretary.—The Secretary of the Treasury may (except under section 5315 of this title and regulations prescribed under section 5315)—

    • (1) except as provided in subsection (b)(2), delegate duties and powers under this subchapter to an appropriate supervising agency or the Postal Inspection Service and the Postal Service;

    • (2) require a class of domestic financial institutions to maintain appropriate procedures to ensure compliance with this subchapter and regulations prescribed under this subchapter;

    • (3) examine any books, papers, records, or other data of domestic financial institutions relevant to the recordkeeping or reporting requirements of this subchapter;

    • (4) summon a financial institution, an officer or employee of a financial institution (including a former officer or employee), or any person having possession, custody, or care of the reports and records required under this subchapter, to appear before the Secretary of the Treasury or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give testimony, under oath, as may be relevant or material to an investigation described in subsection (b); and

    • (5) prescribe an appropriate exemption from a requirement under this subchapter and regulations prescribed under this subchapter. The Secretary may revoke an exemption by actually or constructively notifying the parties affected. A revocation is effective during judicial review.

    (b) Limitations on summons power.—

    • (1) Scope of power.—The Secretary of the Treasury may take any action described in paragraph (3) or (4) of subsection (a) only in connection with investigations for the purpose of civil enforcement of violations of this subchapter, section 21 of the Federal Deposit Insurance Act, section 411 of the National Housing Act, or chapter 2 of Public Law 91-508 (12 U.S.C. 1951 et seq.) or any regulation under any such provision.

    • (2) Authority to issue.—A summons may be issued under subsection (a)(4) only by, or with the approval of, the Secretary of the Treasury or a supervisory level delegate of the Secretary of the Treasury.

    (c) Administrative aspects of summons.—

    • (1) Production at designated site.—A summons issued pursuant to this section may require that books, papers, records, or other data stored or maintained at any place be produced at any designated location in any State or in any territory or other place subject to the jurisdiction of the United States not more than 500 miles distant from any place where the financial institution operates or conducts business in the United States.

    • (2) Fees and travel expenses.—Persons summoned under this section shall be paid the same fees and mileage for travel in the United States that are paid witnesses in the courts of the United States.

    • (3) No liability for expenses.—The United States shall not be liable for any expense, other than an expense described in paragraph (2), incurred in connection with the production of books, papers, records, or other data under this section.

    (d) Service of summons.—Service of a summons issued under this section may be by registered mail or in such other manner calculated to give actual notice as the Secretary may prescribe by regulation.

    (e) Contumacy or refusal.—

    • (1) Referral to Attorney General.—In case of contumacy by a person issued a summons under paragraph (3) or (4) of subsection (a) or a refusal by such person to obey such summons, the Secretary of the Treasury shall refer the matter to the Attorney General.

    • (2) Jurisdiction of court.—The Attorney General may invoke the aid of any court of the United States within the jurisdiction of which—

      • (A) the investigation which gave rise to the summons is being or has been carried on;

      • (B) the person summoned is an inhabitant; or

      • (C) the person summoned carries on business or may be found, to compel compliance with the summons.

    (3) Court order.—The court may issue an order requiring the person summoned to appear before the Secretary or his delegate to produce books, papers, records, and other data, to give testimony as may be necessary to explain how such material was compiled and maintained, and to pay the costs of the proceeding.

    (4) Failure to comply with order.—Any failure to obey the order of the court may be punished by the court as a contempt thereof.

    (5) Service of process.—All process in any case under this subsection may be served in any judicial district in which such person may be found.

    (f) Written and signed statement required.—No person shall qualify for an exemption under subsection (a)(5) unless the relevant financial institution prepares and maintains a statement which—

    • (1) describes in detail the reasons why such person is qualified for such exemption; and

    • (2) contains the signature of such person.

    §5319. Availability of reports

    The Secretary of the Treasury shall make information in a report filed under section 5313, 5314, or 5316 of this title available to an agency on request of the head of the agency. The report shall be available for a purpose consistent with those sections or a regulation prescribed under those sections. However, a report and records of reports are exempt from disclosure under section 552 of title 5.

    §5320. Injunctions

    When the Secretary of the Treasury believes a person has violated, is violating, or will violate this subchapter or a regulation prescribed or order issued under this subchapter, the Secretary may bring a civil action in the appropriate district court of the United States or appropriate United States court of a territory or possession of the United States to enjoin the violation or to enforce compliance with the subchapter, regulation, or order. An injunction or temporary restraining order shall be issued without bond.

    §5321. Civil penalties

    (a)(1) A domestic financial institution, and a partner, director, officer, or employee of a domestic financial institution, willfully violating this sub-chapter or a regulation prescribed under this subchapter (except sections 5314 and 5315 of this title or a regulation prescribed under sections 5314 and 5315) is liable to the United States Government for a civil penalty of not more than the greater of the amount (not to exceed $100,000) involved in the transaction (if any) or $25,000. For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

    (2) The Secretary of the Treasury may impose an additional civil penalty on a person not filing a report, or filing a report containing a material omission or misstatement, under section 5316 of this title or a regulation prescribed under section 5316. A civil penalty under this paragraph may not be more than the amount of the monetary instrument for which the report was required. A civil penalty under this paragraph is reduced by an amount forfeited under section 5317(b) of this title.

    (3) A person not filing a report under a regulation prescribed under section 5315 of this title or not complying with an injunction under section 5320 of this title enjoining a violation of, or enforcing compliance with, section 5315 or a regulation prescribed under section 5315, is liable to the Government for a civil penalty of not more than $10,000.

    (b) The Secretary may bring a civil action to recover a civil penalty under subsection (a)(1) or (2) of this section that has not been paid.

    (c) The Secretary may remit any part of a forfeiture under section 5317(b) of this title or civil penalty under subsection (a)(2) of this section.

    (4)

    • (A) The Secretary of the Treasury may impose a civil money penalty on any person who willfully violates any provision of section 5324.

    • (B) The amount of any civil money penalty imposed under subparagraph (A) shall not exceed the amount of the coins and currency (or such other monetary instruments as the Secretary may prescribe) involved in the transaction with respect to which such penalty is imposed.

    • (C) The amount of any civil money penalty imposed by the Secretary under subparagraph (A) shall be reduced by the amount of any forfeiture to the United States under section 5317(d) in connection with the transaction with respect to which such penalty is imposed.

    (5)

    • (A) The Secretary of the Treasury may impose a civil money penalty on any person who willfully violates any provision of section 5314.

    • (B) The amount of any civil money penalty imposed under subparagraph (A) shall not exceed—

      • (i) in the case of violation of such section involving a transaction, the greater of—

        • (I) the amount (not to exceed $100,000) of the transaction; or

        • (II) $25,000; and

      • (ii) in the case of violation of such section involving a failure to report the existence of an account or any identifying information required to be provided with respect to such account, the greater of-

        • (I) an amount (not to exceed $100,000) equal to the balance in the account at the time of the violation; or

        • (II) $25,000.

    (6) The Secretary of the Treasury may impose a civil money penalty of not more than $500 on any financial institution which negligently violates any provision of this subchapter or any regulation prescribed under this subchapter.

    (b)

    • (1) The Secretary of the Treasury may assess a civil penalty under subsection (a) at any time before the end of the 6-year period beginning on the date of the transaction with respect to which the penalty is assessed.

    • (2) The Secretary may commence a civil action to recover a civil penalty assessed under subsection (a) at any time before the end of the 2-year period beginning on the later of—

      • (A) the date the penalty was assessed; or

      • (B) the date any judgment becomes final in any criminal action under section 5322 in connection with the same transaction with respect to which the penalty is assessed.

    (c) The Secretary may remit any part of a forfeiture under subsection (c) or (d) of section 5317 of this title or civil penalty under subsection (a)(2) of this section.

    (d) A civil money penalty may be imposed under subsection (a) with respect to any violation of this subchapter notwithstanding the fact that a criminal penalty is imposed with respect to the same violation.

    §5322. Criminal penalties

    (a) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315) shall be fined not more than $250,000, or imprisoned not more than five years, or both.

    (b) A person willfully violating this subchapter or a regulation prescribed under this subchapter (except section 5315 of this title or a regulation prescribed under section 5315), while violating another law of the United States or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 10 years, or both.

    (c) For a violation of section 5318(a)(2) of this title or a regulation prescribed under section 5318(a)(2), a separate violation occurs for each day the violation continues and at each office, branch, or place of business at which a violation occurs or continues.

    §5323. Rewards for informants

    (a) The Secretary may pay a reward to an individual who provides original information which leads to a recovery of a criminal fine, civil penalty, or forfeiture, which exceeds $50,000, for a violation of this chapter.

    (b) The Secretary shall determine the amount of a reward under this section. The Secretary may not award more than 25 per centum of the net amount of the fine, penalty, or forfeiture collected or $150,000, whichever is less.

    (c) An officer or employee of the United States, a State, or a local government who provides information described in subsection (a) in the performance of official duties is not eligible for a reward under this section.

    (d) There are authorized to be appropriated such sums as may be necessary to carry out the provisions of this section.

    §5324. Structuring transactions to evade reporting requirement prohibited

    No person shall for the purpose of evading the reporting requirements of section 5313(a) with respect to such transaction—

    • (1) cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a);

    • (2) cause or attempt to cause a domestic financial institution to file a report required under section 5313(a) that contains a material omission or misstatement of fact; or

    • (3) structure or assist in structuring, or attempt to structure or assist in structuring, any transaction with one or more domestic financial institutions.

    §5325. Identification required to purchase certain monetary instruments

    (a) No financial institution may issue or sell a bank check, cashier’s check, traveler’s check, or money order to any individual in connection with a transaction or group of such contemporaneous transactions which involves United States coins or currency (or such other monetary instruments as the Secretary may prescribe) in amounts or denominations of $3,000 or more unless—

    • (1) the individual has a transaction account with such financial institution and the financial institution—

      • (A) verifies that fact through a signature card or other information maintained by such institution in connection with the account of such individual; and

      • (B) records the method of verification in accordance with regulations which the Secretary of the Treasury shall prescribe; or

    • (2) the individual furnishes the financial institution with such forms of identification as the Secretary of the Treasury may require in regulations which the Secretary shall prescribe and the financial institution verifies and records such information in accordance with regulations which such Secretary shall prescribe.

    (b) Any information required to be recorded by any financial institution under paragraph (1) or (2) of subsection (a) shall be reported by such institution to the Secretary of the Treasury at the request of such Secretary.

    (c) For purposes of this section, the term “transaction account” has the meaning given to such term in section 19(b)(1)(C) of the Federal Reserve Act.

    §5326. Records of certain domestic coin and currency transactions

    (a) If the Secretary of the Treasury finds, upon the Secretary’s own initiative or at the request of an appropriate Federal or State law enforcement official, that reasonable grounds exist for concluding that additional recordkeeping and reporting requirements are necessary to carry out the purposes of this subtitle and prevent evasions thereof, the Secretary may issue an order requiring any domestic financial institution or group of domestic financial institutions in a geographic area—

    • (1) to obtain such information as the Secretary may describe in such order concerning—

      • (A) any transaction in which such financial institution is involved for the payment, receipt, or transfer of United States coins or currency (or such other monetary instruments as the Secretary may describe in such order) the total amounts or denominations of which are equal to or greater than an amount which the Secretary may prescribe; and

      • (B) any other person participating in such transaction;

    • (2) to maintain a record of such information for such period of time as the Secretary may require; and

    • (3) to file a report with respect to any transaction described in paragraph (1)(A) in the manner and to the extent specified in the order.

    (b) No order issued under subsection (a) shall be effective for more than 60 days unless renewed pursuant to the requirements of subsection (a).

    Though enacted in various years, the version of these provisions reproduced here is as of 1992.

    Appendix II 7 Section 4702 of the U.S. Anti-Drug Abuse Act of 1988

    [Pub. L. 100-690, 102 Stat. 4181, 4291 (1988)]

    SEC. 4702. RESTRICTIONS ON LAUNDERING OF UNITED STATES CURRENCY.

    (a) FINDINGS.—The Congress finds that international currency transactions, especially in United States currency, that involve the proceeds of narcotics trafficking fuel trade in narcotics in the United States and worldwide and consequently are a threat to the national security of the United States.

    (b) PURPOSE.—The purpose of this section is to provide for international negotiations that would expand access to information on transactions involving large amounts of United States currency wherever those transactions occur worldwide.

    (c) NEGOTIAITONS.—(1) The Secretary of the Treasury (hereinafter in this section referred to as the “Secretary”) shall enter into negotiations with the appropriate financial supervisory agencies and other officials of any foreign country the financial institutions of which do business in United States currency. Highest priority shall be attached to countries whose financial institutions the Secretary determines, in consultation with the Attorney General and the Director of National Drug Control Policy, may be engaging in currency transactions involving the proceeds of international narcotics trafficking, particularly United States currency derived from drug sales in the United States.

    • (2) The purposes of negotiations under this subsection are—

      • (A) to reach one or more international agreements to ensure that foreign banks and other financial institutions maintain adequate records of large United States currency transactions, and

      • (B) to establish a mechanism whereby such records may be made available to United States law enforcement officials.

    In carrying out such negotiations, the Secretary should seek to enter into and further cooperative efforts, voluntary information exchanges, the use of letters rogatory, and mutual legal assistance treaties.

    (d) REPORTS.—Not later than 1 year after the date of enactment of this Act, the Secretary shall submit an interim report to the Committee on Banking, Finance and Urban Affairs of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on progress in the negotiations under subsection (c). Not later than 2 years after such enactment, the Secretary shall submit a final report to such Committees and the President on the outcome of those negotiations and shall identify, in consultation with the Attorney General and the Director of National Drug Control Policy, countries—

    • (1) with respect to which the Secretary determines there is evidence that the financial institutions in such countries are engaging in currency transactions involving the proceeds of international narcotics trafficking; and

    • (2) which have not reached agreement with United States authorities on a mechanism for exchanging adequate records on international currency transactions in connection with narcotics investigations and proceedings.

    (e) AUTHORITY.—If after receiving the advice of the Secretary and in any case at the time of receipt of the Secretary’s report, the Secretary determines that a foreign country—

    • (1) has jurisdiction over financial institutions that are substantially engaging in currency transactions that affect the United States involving the proceeds of international narcotics trafficking;

    • (2) such country has not reached agreement on a mechanism for exchanging adequate records on international currency transactions in connection with narcotics investigations and proceedings; and

    • (3) such country is not negotiating in good faith to reach such an agreement,

    the President shall impose appropriate penalties and sanctions, including temporarily or permanently—

    • (1) prohibiting such persons, institutions or other entities in such countries from participating in any United States dollar clearing or wire transfer system; and

    • (2) prohibiting such persons, institutions or entities in such countries from maintaining an account with any bank or other financial institution chartered under the laws of the United States or any State.

    Any penalties or sanctions so imposed may be delayed or waived upon certification of the President to the Congress that it is in the national interest to do so. Financial institutions in such countries that maintain adequate records shall be exempt from such penalties and sanctions.

    (f) Definitions.—For the purposes of this section—

    • (1) The term “United States currency” means Federal Reserve Notes and United States coins.

    • (2) The term “adequate records” means records of United States’ currency transactions in excess of $10,000 including the identification of the person initiating the transaction, the person’s business or occupation, and the account or accounts affected by the transaction, or other records of comparable effect.

    (g) Sunset.—The authority given the President in subsection (e) shall expire on June 30, 1994.

    Notes

    Introduction (Euros)

    For the theories of Steinitz, see Emanuel Lasker, Lasker’s Manual of Chess 188 (Dover: 1960).

    See David M. Trubek, “Toward a Social Theory of Law: An Essay on the Study of Law and Development,” 82 ϒale Law Journal 1 (1972).

    Chapter 3, “Developments at the Inter-American Development Bank” (Jewett)

    During the 1980s, Japan contributed ¥8,000 million to the Japan Special Fund to be used for technical cooperation, projects, and emergency assistance arising from natural disasters.

    On January 17,1990, the seventh increase in the resources of the Bank went into effect, raising the Bank’s authorized capital by $26.5 billion and enabling the Bank to lend $22.5 billion during the 1990-93 period.

    The Bank’s pool-based variable lending rate methodology (adopted in December 1989) uniformly adjusts the lending rate applicable to the outstanding balances of all loans approved after January 1, 1990.

    Chapter 5, “Approaches to the Debt Crisis” (Truman)

    John Williamson, The Progress of Policy Reform in Latin America (Washington: Institute for International Economics, 1990).

    Chapter 5, Comment (Cline)

    William R. Cline, “The Baker Plan and Brady Reformulation: An Evaluation,” in Ishrat Husain and Ishac Diwan, eds., Dealing with the Debt Crisis (Washington: World Bank, 1989), at 176-93; and William R. Cline, “From Baker to Brady: Managing International Debt,” in Richard O’Brien and Ingrid Iversen, eds., Finance and the International Economy 3: The AMEX Bank Review Prize Essays (Oxford: Oxford University Press, 1990), at 85-101.

    “U.S. Commercial Banks and the Developing Debt Crisis,” BPEA: 2 (1987).

    Chapter 7, “Banking in the European Community After 1992” (Louis)

    Case 120/78, Rewe-Zentral AG Bundesmonopslverwaltung fur Branntwein, 1979-2 E.C.R. 649, 3 C.M.L.R. 494 (1979).

    See “Creation of a European Financial Area,” European Economy, No. 36 (May 1989), at 209.

    Legal Issues of European Integration, 1989/1, at 61, 65. See also Georges S. Savvos, “Towards a European Banking Act,” 25 Common Market Law Review 263 (1988). I have relied upon these two articles in the preparation of the present text.

    First Council Directive (77/780/EEC) of December 12, 1977 on the coordination of laws, regulations, and administrative provisions relating to the taking up and pursuit of business of credit institutions, O.J. Eur. Comm., No. L 322 (December 17, 1977), at 30, reprinted herein as Appendix I-1.

    Council Directive (83/350/EEC) of June 13, 1983 on the supervision of credit institutions on a consolidated basis, O.J. Eur. Comm., No. L 193, (July 18, 1983), at 18.

    Council Directive (89/647/EEC) of December 18, 1989, O.J. Eur. Comm., No. L 386 (December 30, 1989), at 14, reprinted herein as Appendix I-4.

    Second Council Directive (89/646/EEC) of December 15, 1989 on the coordination of laws, regulations, and administrative provisions related to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC, O.J. Eur. Comm., No. L 386 (December 30, 1989), at 1, reprinted herein as Appendix I-2. The directive was drafted to enter into force at the latest on January 1, 1993.

    See n.5 supra.

    See n.6 supra.

    Council Directive (89/299/EEC) of April 17, 1989 on the own funds of credit institutions, O.J. Eur. Comm., No. L 124 (May 8, 1989), at 16, reprinted herein as Appendix I-3.

    Council Directive (86/635/EEC) of December 8, 1986, O.J. Eur. Comm., No. L 372 (December 31, 1986), at 1.

    Recommendation 87/62/EEC, O.J. Eur. Comm., No. L 33 (February 4, 1987), at 10.

    Recommendation 87/63/EEC, ibid., at 16. A directive is in preparation in this field.

    See recital 2 of the directive’s Preamble.

    The so-called ERTA doctrine, laid down by the Court of Justice in a ruling of March 31, 1971, case 22/70, 1971 E.C.R. 263, recognized in the Community an exclusive power to conclude international agreements in the fields covered by common internal provisions of Community law.

    Published with annexes by the Commission of the European Communities, 1989; on this report, see among others, J.-V. Louis, “A Monetary Union for Tomorrow?” 26 Common Market Law Review 301 (1989).

    The Delors Report defines the “principle of subsidiarity” as the principle according to which the functions of higher levels of government should be as limited as possible and should be subsidiary to those of lower levels (§20).

    National central banks have different responsibilities under their national laws in this field. Prudential supervision has been conferred to a separate body in some countries (for example, Belgium, Denmark, and, in part, Germany).

    J.-V. Louis, ed., Vers un systéme europeen de banques centrales (Brussels, 1989), see Articles 4, 6. On this project, see also E. de Lhoneux and J.-V. Louis, “Towards a European System of Central Banks,” 5 Journal of International Banking Law No. 1 (1990), at 8.

    Chapter 7, Comment (Lichtenstein)

    ILA Queensland Conference, Committee on International Securities Regulation, Interim Committee Report, Introduction and Part I, at 1-11 (1990).

    Second Council Directive (89/646/EEC) of December 15, 1989 on the coordination of laws, regulations, and administrative provisions related to the taking up and pursuit of the business of credit institutions and amending Directive 77/780/EEC, O.J. Eur. Comm., No. L 386 (December 30, 1989), at 1, reprinted herein as Appendix I-2; and Proposal for a Council Directive on investment services in the securities field, O.J. Eur. Comm., No. C42/7 (1990).

    Council Directive (89/299/EEC) of April 17, 1989 on the own funds of credit institutions, reprinted herein as Appendix I-3; and Council Directive (89/647/EEC) of December 18, 1989 on solvency ratios, reprinted herein as amended as Appendix I-4.

    Chapter 8A, “Property Relations and Foreign Banking Law in Poland” (Piontek)

    Journal of Laws [Dziennik Ustaw], 1989, No. 75, item 444 [hereinafter cited as JL, author’s translations]; see also Economic Activity Act of December 23, 1988 (JL, No. 41, item 324). The Economic Activity Act guarantees freedom of economic activity for all.

    The Land Management and Expropriation of Real Property Act of April 29, 1985 (JL, No. 22, item 99), already evidently obsolete in spite of later amendments, is the most important of them.

    State Enterprises Act of September 25, 1991, uniform text including further amendments published in JL, 1987, No. 35, item 201 (see also n.6 infra).

    Amendments to Article 29 of the State Enterprises Act were introduced by An Act [Providing] Some Conditions of Consolidation of the National Economy and Amendments to Certain Acts of February 24, 1988, JL, No. 10, item 57.

    Amendment of the Civil Code Act of January 31, 1989, JL, No. 43, item 211.

    Acquiring of Real Estate by Foreigners Act of March 24, 1920, uniform text in JL, 1933, No. 24, item 202, as amended by Art. 46 of the Economic Activity with Participation of Foreign Parties Act of December 23, 1988, JL, No. 41, item 325.

    Perpetual usufruct and lease of state land are governed by the following provisions: Civil Code, Arts. 232-43; Acquiring of Real Estate by Foreigners Act of March 24, 1920 (uniform text in JL, 1933, No. 24, item 202); Land Management and Expropriation of Real Property Act of April 29, 1985 (JL, No. 22, item 99, amended 1987, No. 21, item 124; 1988, No. 24, item 170); Council of Ministers’ Order of September 16, 1985 on Particular Principles and Mode of Giving in Perpetual Usufruct and Sale of State Land, Related Clearance and Management of Sold Real Estate (JL, No. 17, item 239, amended 1986, No. 3, item 17; 1987, No. 9, item 58, No. 23, item 133, No. 33, item 207; 1988, No. 33, item 243, No. 43, item 340); Economic Activity with Participation of Foreign Parties Act of December 23, 1988 (JL, No. 42, item 325).

    Civil Code, Section 11, Lease, Arts. 693-709.

    Article 46 of the Economic Activity with Participation of a Foreign Partner Act of December 23, 1988 (with later amendments).

    JL, 1989, No. 7, item 21, amended on December 28, 1989, JL, No. 74, item 439.

    JL 1989, No. 4, item 22, amended on December 28, 1989, JL, No. 74, item 439.

    JL, 1989, No. 6, item 33, amended on December 28, 1989, JL, No. 74, item 441.

    JL, 1934, No. 57, item 502.

    Chapter 8C, “Evolution of the Legal Framework for Entrepreneurship in Hungary” (Gabor)

    Act XXXI of 1989 on the Modifications of the Republic of Hungary.

    Id. at Art. 9 §(1).

    Id. at Art. 9 §(2).

    Id. at Art. 13.

    Act VI of 1988 on Business Organizations, Arts. 1-339.

    Act XXXVII of 1875 on Commercial Law (Commercial Code) covered the business organizational forms for General Partnership, Limited Partnership, Companies Limited by Shares, and Cooperatives.

    Act V of 1930 on Limited Liability Companies.

    See n.1 supra.

    Act VI of 1990 on the Open Marketing and Sale of Certain Securities and the Stock Market.

    See n.5 supra.

    Act XXIV of 1989 on the Foreign Investment Code in Hungary entered into force in conjunction with the Act on Economic Association on January 1, 1989.

    See n.5 supra, Arts. 8-9. On the other hand, the controversial Article 7 of the Act requires the foreign founders and members of an economic association to have a registered company under their name according to their national law. The legislative purpose of these criteria is probably to supervise the identity and the creditworthiness of the foreign investor. In practice, however, it has created an administrative headache for many Hungarian expatriates with only $10,000 to $20,000 to invest.

    See n.5 supra, Art. 10, and the accompanying official justification.

    Id. at Art. 13 §1(2).

    Id. at Art. 94. Article 94 specifies the legal intent of limited (deposit) partnership.

    Id. at Arts. 155-231.

    Id. at Arts. 232-330.

    Act XIII of 1989 on Transformation of Economic Organizations and Economic Associations.

    Id.

    For a comprehensive critique of the ad hoc privatization, see 11 Weekly World Economy (Heti Vilaggazdasag) 68-72 (November 25, 1989).

    Act VII of 1990 on the State Property Trustee (Agency) and the Treatment and Utilization of Property Belonging to the Trustee.

    Id. at Art, 10.

    Id. at Art. 26.

    Act VIII of 1990 on Protection of Property Trusted on State Enterprises.

    Id. at Art. 1.

    Id. at Art. 5.

    Id. at Art. 6.

    Chapter 9, “Banking Services in the United Kingdom: The Law and Practice Report” (Jack)

    Banking Services: Law and PracticeReport by the Review Committee, Cm. 622 (February 1989)(also known as the Jack Report).

    Banking Services: Law and PracticeThe Government’s Response, Cm. 1026 (March 1990).

    Tai Hing Cotton Mill Ltd. v. Liv Chong Hing Bank Ltd., 2 All E.R, 947 (1985).

    At the time of the conference, the Companies Act of 1989 was not in force; however, it was brought into force thereafter. See United Kingdom Statutes, Vol. 2, at 2011 (1989).

    Tournier v. National Provincial and Union Bank of England, 1 K.B, 461 (1924).

    Chapter 10, “Regulatory and Other Changes in the U.K. Banking Market” (Pigott)

    See generally Banking Act 1979, ch. 37.

    See generally Banking Act 1987, ch. 22.

    See generally Joseph J. Norton, ed., Bank Regulation and Supervision in the 1996’s (1991).

    See generally Financial Services Act 1986, ch. 60.

    On April 1, 1991 the TSA merged with the AFDB to form the Securities and Futures Authority (SFA). See Association of Futures Brokers and Dealers, News Release, March 31, 1991.

    See generally S. Cross and others, Recent Innovations in International Banking (Basle: Bank for International Settlements, 1986).

    See generally Banking Services: Law and PracticeReport by the Review Committee, Cm. 622 (February 1989), at 28-39 (also known as the Jack Report after the Chairman of the Review, Committee at that time, Professor R. B. Jack).

    See generally Drug Trafficking Offences Act 1986, ch. 32.

    See generally Prevention of Terrorism (Temporary Provisions) Act 1989, ch. 4.

    Drug Trafficking Offences Act 1986, ch. 32, at 476.

    Id. at 477.

    Financial Action Task Force on Money Laundering, Report of February 6, 1990, reprinted herein as Appendix II-3. See also Council Directive (91/308/EEC) of June 10, 1991 on the prevention of the use of the financial system for the purpose of money laundering (European Communities’ response to money laundering).

    United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, December 19, 1988, reprinted herein as Appendix II-4, also reprinted at 28 I.L.M. 493 (1989).

    See n.9 supra.

    See n.8 supra.

    Id. at 33-34.

    Chapter 11, “Developments on the U.S. Banking Scene: The S&L Crisis and FIRREA” (Jones)

    Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, 103 Stat. 183 (codified as amended at 12 U.S.C.A. sections distributed throughout this title (1989)).

    The FDIC is the federal supervisory agency for all FDIC-insured state-chartered banks, except those that are members of the Federal Reserve System. The Board of Governors of the Federal Reserve System supervises state-chartered banks that are members of the system.

    That period was subsequently extended until October 1, 1993 (Pub. L. 102-233, 105 Stat. 1761), and legislation has been passed by the U.S. Congress and is awaiting signature of the President that would further extend that period to after December 31, 1994 and not later than July 1, 1995, as determined by the Secretary of the U.S. Treasury (S. 714 Conf. Rep., 103d Cong., 1st Sess. (1993)).

    In 1991, the law was changed to provide that the RTC be managed by a chief executive officer (CEO) appointed by the President and be supervised by a Thrift Depositor Protection Oversight Board, comprising the CEO, the Secretary of the U.S. Treasury, the Chairman of the FDIC, the Director of the Office of Thrift Supervision, the Chairman of the Board of Governors of the Federal Reserve System, and two independent members appointed by the President. Pub. L. 102-233, 105 Stat. 1766, 1767 (codified at 12 U.S.C.A. §1441a(b)(8)(C) and 1441a(a)).

    In 1991, the law was changed to require that large depository institutions establish independent audit committees. Pub. L. 102-242, 105 Stat. 2242 (codified at 12 U.S.C.A. §1831(m)).

    In 1991, the Federal Deposit Insurance Act was amended to permit the FDIC to assess deposit insurance premiums based on the risk an individual institution presents to the insurance fund. See Pub. L. 102-242, 105 Stat. 2238, 2239, and 2310 (codified at 12 U.S.C.A. §1817 (b)).

    Chapter 11, Comment (Murphy)

    In August 1993, the U.S. Congress amended the Federal Deposit Insurance Act to give-depositors a preference over other creditors when the FDIC, as receiver, liquidates an insolvent bank. Depositors must be paid in full—100 cents on the dollar—before other creditors are paid anything. The FDIC has not yet made clear whether it will treat foreign deposits as preferred deposit claims or, instead, as claims of a general creditor.

    Chapter 12, “Expansion of Products and Services Offered by Commercial Banks in the United States” (Schott)

    National Bank Act of 1864, 13 Stat. 99 (codified at 12 U.S.C.A. §1 et seq. (1864)).

    Federal Reserve Act of 1913, 38 Stat. 251 (codified at 12 U.S.C.A. §221 et seq. (1913)). See the Historical and Statutory Notes following §221 for further amendments.

    Banking Act of 1933, 48 Stat. 162 (codified as amended at 12 U.S.C.A. distributed throughout chapters 2, 3, and 6 (1933)). Parts of the Banking Act of 1933 are also known as the Glass-Steagall Act of 1933. See 12 U.S.C.A. §227 (1933).

    McFadden Act, 48 Stat. 189, 190 (codified at 12 U.S.C.A. §§36, 332 (1933)). See 12 U.S.C.A. §36 for a full discussion of the conditionalities placed on national banks in establishing, operating, or retaining a branch or branches. See also the Historical and Statutory Notes following §36 for further amendments.

    Bank Holding Company Act of 1956, 70 Stat. 133 (codified at 12 U.S.C.A. §1841 et seq. (1956)).

    Bank Holding Company Act Amendments of 1970, Pub. L. 91-607, 84 Stat. 1760 (codified at 12 U.S.C.A. §§1841-43, 1849, 1850, 1971-78 (1970)). See also 31 U.S.C.A. §§5111, 5112.

    See n.2 supra.

    Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. 101-73, 103 Stat. 183 (codified as amended at 12 U.S.C.A. sections distributed throughout this title (1989)).

    12 U.S.C. 5371(c).

    Chapter 13, “The Line Between Investment and Commercial Banking” (Mattingly)

    S. Res. 84 and S. Res. 239, 72d Cong., 2d Sess. (1933). In general, see Stock Exchange Practices: Hearings Before the Senate Banking Committee, 72d and 73d Cong. (1932-34). For more information on the “Pecora Hearings,” see Telford Taylor, Grand Inquest: The Story of Congressional Investigations (New York, 1955), at 67.

    The Glass-Steagall Act of 1933 is composed of Sections 16, 20, 21, and 32 of the Banking Act of 1933 (Act of June 16, 1933, ch. 89, 48 Stat. 162), codified at 12 U.S.C. §24 (Seventh), 78, 377-78 (1982 & Supp. IV 1986).

    See, e.g., Report of the U.S. Presidential Task Force on Market Mechanisms, Study VIII, “A Comparison of 1929 and 1987” (January 1988); and Staff of the Board of Governors of the Federal Reserve System, A Review and Evaluation of Federal Margin Regulations, ch. 5, “Margin Regulation and Market Bubbles: A Review of Arguments and Evidence” (December 1984).

    Act of May 27, 1933, ch. 38, Title I, 48 Stat. 74 (1933) (codified at 15 U.S.C. §77a et seq.).

    Act of June 6, 1934, ch. 404, Title I, 48 Stat. 881 (1934) (codified at 15 U.S.C. §78a et seq.).

    F. D. Roosevelt, Radio Address Delivered from the President’s Study, March 12, 1933.

    Codified at 12 U.S.C. §§1811-31.

    Section 16 provides in pertinent part that “[t]he business of dealing in securities and stock by the association shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account, and the association shall not underwrite any issue of securities or stock; Provided, That the association may purchase for its own account ‘investment securities’ under such limitations and restrictions as the Comptroller of the Currency may by regulation prescribe.” 12 U.S.C. §24 (Seventh)(Supp. IV 1987).

    Regulation K, 12 C.F.R. 211.5(d)(13).

    Board of Governors of the Federal Reserve System v. Investment Company Institute, 450 U.S. 46, 101 S.Ct. 973 (1981).

    Id., 450 U.S. at 60.

    Investment Company Institute v. Camp, Comptroller of the Currency, 401 U.S. 617, 91 S.Ct. 1091 (1971).

    Securities Industry Association v. Board of Governors of the Federal Reserve System, 468 U.S. 207, 104 S.Ct. 3003 (1984).

    Securities Industry Association v. Board of Governors of the Federal Reserve System, 821 F.2d 810 (D.C. Cir. 1987), cert. denied, 484 U.S. 1005, 1085 S.Ct. 697 (1988).

    Securities Industry Association v. Board of Governors of the Federal Reserve System, 468 U.S. 137, 104 S.Ct. 2979 (1984).

    Securities Industry Association v. Board of Governors of the Federal Reserve System, 807 F.2d 1052 (D.C. Cir. 1986), cert. denied, 483 U.S. 1005, 107 S.Ct. 3228 (1987).

    Securities Industry Association v. Board of Governors of the Federal Reserve System, 847 F.2d 890 (D.C. Cir. 1988).

    “Order Approving Application to Engage, to a Limited Extent, in Underwriting and Dealing in Debt and Equity Securities,” 76 Fed. Reserve Bull. 158. The Canadian banks were Canadian Imperial Bank of Commerce, Toronto, Ontario, and Royal Bank of Canada, Montreal, Quebec; the British bank was Barclays Bank, London, England.

    Securities Industry Association v. Clark, 885 F.2d 1034 (2d Cir. 1989), cert. denied, 493 U.S. 1070, 110 S.Ct. 113 (1990).

    Statement to Congress, by J. Charles Partee, Member of the Board, Before the Subcommittee on Securities of the Senate Committee on Banking, Housing, and Urban Affairs, February 1982, 68 Fed. Reserve Bull. 91; and Statement to Congress, by Paul A. Volcker, Chairman of the Board, Before the Senate Committee on Banking, Housing, and Urban Affairs, April 1983, 69 Fed. Reserve Bull. 356.

    S. 1886, 100th Cong., 1st Sess. (1988).

    S. 2496, 101st Cong., 2d Sess. (1990).

    Chapter 13, Comment (Glidden)

    Federal Deposit Insurance Corporation, Mandate for Change: Restructuring the Banking Industry, Staff Study (Washington, 1987).

    Federal Reserve Act Sections 23A and 23B are codified at 12 U.S.C. §371c.

    Chapter 14, “The Stability of Financial Markets: Central Bank Responsibility” (Kohn)

    The Treaty on European Union, commonly referred to as the Maastricht Treaty, was signed in 1992; see Treaty on European Union, EC Member States, February 7, 1992, 31 I.L.M. 331.

    Stuart E. Weiner, “Financial Market Volatility: Summary of the Bank’s 1988 Symposium,” Economic Review (Federal Reserve Bank of Kansas City, January 1989).

    Federal Reserve Act of 1913, codified at 12 U.S.C. §221 et seq.

    In 1873, W. Bagehot described the basis under which the lender of last resort role of a central bank should work. See Walter Bagehot, Lombard Street (1873), at 306-07.

    This process was institutionalized and tightened considerably in the FDIC Improvement Act passed in 1991, after this talk was given.

    The Banking Act of June 16, 1933, ch. 89, 48 Stat. 162, codified at 12 U.S.C. §§1811-31, established the FDIC.

    Capital requirements are regulated at 12 C.F.R. 208.1-127 and App. A-B (1991) and 12 C.F.R. 160-88 App. A-B (1991).

    See definition in Palgrave Dictionary of Economics, Vol. 3, at 594.

    Chapter 15, “Developments in Payment Systems” (Patrikis)

    The Depository Trust Company (DTC) is a company chartered under the New York Bank Law, a member of the Federal Reserve System, and a clearing agency registered under the Securities Exchange Act of 1934.

    The 1989 official text of Article 4A of the UCC is reprinted as Appendix III in Current Legal Issues Affecting Central Banks (Washington: International Monetary Fund, 1992), Vol. 1.

    UK Bills of Exchange Act of 1882, 45 & 46 Viet., ch. 61.

    Price v. Neal, 97 Eng. Rep. 871, 3 Burr 1354 (K.B. 1762). For more on the Price v. Neal doctrine, see, for example, Ames, “The Doctrine of Price v. Neal,” 4 Harvard Law Review 297 (1891).

    New York adopted new Article 4A and technical amendment to Article I of the Code conforming to Article 4A, by L.1990, ch. 582, eff. Jan. 1, 1991.

    See 57 Fed. Reg. 47084 (October 1992).

    Id. at 47093.

    For anticipated market responses to pricing, see, for example, Notice from the Board of Governors of the Federal Reserve System, Washington D.C., “Fed Revises Payments System Risk Reduction Program; Prices Daylight Overdrafts” in Payment Systems Worldwide (Autumn 1992).

    The UNCITRAL Model Law on International Credit Transfers, reprinted herein as Appendix 1-5, can also be found at 39 I.L.M. 587 (1993).

    Bank for International Settlements, Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of Ten Countries (Lamfalussy Report) (Basle, November 1990).

    Chapter 15, Comment (Felsenfeld)

    The 1989 official text of Article 4A of the UCC is reprinted as Appendix III in Current Legal Issues Affecting Central Banks (Washington: International Monetary Fund, 1992), Vol. 1. For a list of the states that have adopted new Article 4A see, for example, Unif law. Ann. at 464 (West 1992) and at 33 (Supp. 1993) (listing attached).

    The UNCITRAL Model Law on International Credit Transfers, reprinted herein as Appendix I-5, can also be found at 39 I.L.M. 587 (1993).

    For an update on the compatibility between new Article 4A and the UNCITRAL Model Law, see Carl Felsenfeld, “The Compatibility of the UNCITRAL Model Law on International Credit Transfer with Article 4A of the UCC,” 60 Fordham Law Review 53 (May 1992).

    Chapter 16, “Financial Innovation” (Lucas)

    See, for example, Jerome Levinson, “A Perspective on the Debt Crisis,” 4 American University Journal of International Law and Policy 489 (Summer 1989).

    For information on the size of the swap market, see the quarterly publication of the Bank for International Settlements, International Banking and Financial Market Development.

    For more on the rise of the swap market, see Henry C. Hu, “Swaps, the Modern Process of Financial Innovation and the Vulnerability of a Regulatory Paradigm,” 138 University of Pennsylvania Law Review 333 (1989).

    See, generally, the definition of “unbundling” offered by Douglas Blair and Devra Golbe in the New Palgrave Dictionary of Money and Finance (1992).

    Sam Y. Cross, Chairman, Study Group Established by the Central Banks of the Group of Ten Countries, which prepared Recent Innovations in International Banking (Basle: Bank for International Settlements, 1986).

    Chapter 16, Comment (Hauge)

    The author contributed to the report issued by the U.S. Department of Treasury, Modernizing the Financial System: Recommendations for Safer, More Competitive Banks (1991) [hereinafter Modernizing the Financial System]. A number of the recommendations and proposals announced in this report were incorporated into the Comprehensive Deposit Insurance Reform and Taxpayer Protection Act, Pub. L. 102-242 (1991).

    Joseph Alois Schumpeter (1883-1950); economist and social scientist of Austrian origin; professor of economics at Harvard University until 1950; author of such well-known publications as Capitalism, Socialism and Democracy (London: Georges Allen & Unwin, 1976).

    Modernizing the Financial System, n.l supra.

    See “Treasury Submits Bill to Give SEC Jurisdiction over Stock Index Futures,” 22 Sec. Reg. & L. Rep. (BNA) No. 23, at 859 (June 8, 1990); and “White House to Propose SEC Receive Jurisdiction over Stock Index Futures,” 22 Sec. Reg. & L. Rep. (BNA) No. 19, at 731 (May 11, 1990).

    See Mohamed A. El-Erian, “Mexico’s Commercial Bank Financing Package,” Finance and Development (September 1990).

    See Nicholas F. Brady, Remarks to the Brookings Institution and Bretton Woods Committee Conference on Third World Debt (March 10, 1989). The Brady Plan was, in fact, a policy initiative of the U.S. Department of the Treasury that encouraged commercial banks voluntarily to reduce the debt and debt-servicing obligations of debtor countries on a case-by-case basis.

    31 U.S.C. 53101(c).

    Section 222 of FIRREA added a new section, Section 28, 12 U.S.C. §1831e, that outlaws the acquisition and retention of “junk bonds” by thrift institutions.

    Basle Supervisors Committee, International Convergence of Capital Measurement and Capital Standards (July 1988).

    The Basle standard was adopted by the Federal Reserve on March 15, 1989 at 12 C.F.R. 208.1-127 and App. A-B (1991), 12 C.F.R. 160-88 App. A-B (1991).

    U.S. Department of the Treasury, Report on Government-Sponsored Enterprises (May 1990)(as required by the Financial Institutions Reform, Recovery, and Financial Act of 1989).

    Modernizing the Financial System, n.l supra.

    Chapter 17, “Liabilities of International U.S. Banks for Foreign Deposits” (Tigert)

    An earlier analysis of this subject appears in Volume I of Current Legal Issues Affecting Central Banks (Washington: International Monetary Fund, 1992) at 217. Subsequent to the presentation of the current paper, the Supreme Court refused to review the decision of the U.S. Court of Appeals for the Sixth Circuit in Ngoc Quang Trinh v. Citibank, N.A., 623 F. Supp. 1526 (E.D. Mich. 1985), aff’d, 850 F.2d 1164 (6th Cir. 1988), cert. denied, 496 U.S. 912 (1990). The Supreme Court vacated and remanded Wells Fargo Asia Ltd. v. Citibank, N.A. to the U.S. Court of Appeals for the Second Circuit and thereafter further petition for writ of certiorari was denied. 660 F. Supp. 946 (S.D.N.Y. 1987), on remand 695 F. Supp. 1450 (S.D.N.Y. 1988), aff’d, 852 F.2d 657 (2d Cir. 1988), vacated and remanded, 495 U.S. 660 (1990), aff’d, 936 F.2d 723 (2d Cir. 1991), cert. denied, 112 S.Ct. 2990 (1992).

    The court of appeals is the intermediate level court in the federal system between the district, or trial, court and the Supreme Court.

    623 F. Supp. 1526 (E.D. Mich. 1985), aff’d, 850 F.2d 1164 (6th Cir. 1988), cert. denied, 496 U.S. 912 (1990). The facts are drawn from the record and reported decision.

    660 F.2d 854 (2d Cir. 1988), cert. denied, 459 U.S. 976 (1982).

    Id. at 862-63 (citing Patrick Heininger, “Liability of U.S. Banks for Deposits Placed in Their Foreign Branches,” 11 Law & Pol. Int’l Bus. 903, 975 (1979)).

    660 F. Supp. 946 (S.D.N.Y. 1987), on remand 695 F. Supp. 1450 (S.D.N.Y. 1988), aff’d, 852 F.2d 657 (2d Cir. 1988), vacated and remanded, 495 U.S. 660 (1990), aff’d, 936 F.2d 723 (2d Cir. 1991), cert. denied, 112 S.Ct. 2990 (1992). The facts are drawn from the record and reported decision.

    239 N.Y. 158, 145 N.E. 917 (N.Y. 1924).

    321 F.2d 14 (2d Cir. 1963), adhered to, 325 F.2d 1020 (2d Cir. 1964), rev’d, 379 U.S. 378 (1965).

    379 U.S. 378, 384 (1965).

    61 N.Y.2d 460, 474 N.Y.S.2d 689 (1984), cert. denied, 469 U.S. 966 (1984).

    735 F.2d 645 (2d Cir. 1984).

    Chapter 18, “Money Laundering: Legal Issues” (Zeldin)

    Both statutes are reprinted herein as Appendix II-6.

    18 U.S.C. §1956(c)(3) (Supp. 1992)(reprinted herein in Appendix II-5).

    Id.

    See 18 U.S.C. §1962.

    See 21 U.S.C. §848.

    Included among these crimes are most fraud provisions and Import/Export Act offenses.

    This intent was added to the statute in November 1988. Anti-Drug Abuse Act of 1988, Pub. L. 100-690, §6471(2), 102 Stat. 4181, 4378 (1988).

    “Proceeds” is not defined in the statute. Statutes relevant by analogy include 21 U.S.C. §§801 and 853.

    Federal reporting statutes would include 31 U.S.C. §§5313 and 5316 and 26 U.S.C. §6050I.

    The 1988 Anti-Drug Abuse Act added “transmits” and “transfer” language. This addition was made to clarify the interpretation. Pub. L. 100-690, §6471 (b), 102 Stat. 4181, 4378 (1988).

    This is interpreted as in 18 U.S.C. §1956(a)(l).

    The term “monetary interest” was amended in 1988 to be co-extensive with 18 U.S.C. §1956(c)(5). Anti-Drug Abuse Act, §6184, Pub. L. 100-690, 102 Stat. 4181, 4354 (1988). Prior to 1988, it was defined to include only cash (see 31 U.S.C. §5312).

    United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, December 19, 1988, reprinted herein as Appendix II-4, also reprinted at 28 I.L.M. 493 (1989).

    Council of Europe, Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, September 8, 1990, reprinted herein as Appendix II-2.

    The U.S. delegation consisted of representatives from the Departments of Justice, Treasury, and State; the Federal Deposit Insurance Corporation; and the Federal Reserve. The delegation was chaired by Deputy Secretary of the Treasury John E. Robson.

    Financial Action Task Force on Money Laundering, Report of February 6, 1990, reprinted herein as Appendix II-3.

    Basle Committee on Banking Regulations and Supervisory Practices, December 1988 Statement on Prevention of Criminal Use of the Banking System for the Purpose of Money-Laundering, reprinted herein as Appendix II-I.

    Chapter 18, Comment (Rudnick)

    Financial Action Task Force on Money Laundering, Report of February 6, 1990, reprinted herein as Appendix II-3.

    United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, December 19, 1988, reprinted herein as Appendix II-4, also reprinted at 28 I.L.M. 493 (1989).

    Id. at Art. 3.

    Currency and Foreign Transactions Reporting Act, Title II, Pub. L. 91-508, 84 Stat. 1118 (1970) (codified as amended at 31 U.S.C. §§5311-28 (1988 & Supp. 1992); reprinted herein as Appendix II-6); 31 C.F.R. Part 103 (1992).

    Anti-Drug Abuse Act of 1988, §4702, Pub. L. 100-690, 102 Stat. 4181, 4291 (1988), reprinted herein as Appendix II-7.

    31 U.S.C. §§5311-28 (1988 & Supp. 1992), reprinted herein in Appendix II-6; 31 C.F.R. Part 103 (1992).

    31 U.S.C. §5313 (1988), reprinted herein in Appendix II-6; 31 C.F.R. §103.22 (1992).

    31 U.S.C. §5312(a)(2) (1988), reprinted herein in Appendix II-6; see 31 C.F.R. §103.11(i)(7)(i) (1992); 31 C.F.R. §103.11(i)(7)(i) (1992); 31 C.F.R. §103.11 (1992).

    31 U.S.C. §5316 (1988), reprinted herein in Appendix II-6; 31 C.F.R. §103.23 (1992).

    31 U.S.C. §5314 (1988), reprinted herein in Appendix II-6; 31 C.F.R. §103.24 (1992).

    31 C.F.R §103.29 (1992).

    26 U.S.C. §6050I (1988 & Supp. 1992); 26 C.F.R. §1.6050I-1 (1993).

    18 U.S.C. §981(I)(Supp. 1992), reprinted herein in Appendix II-5.

    54 Fed. Reg. 45,769 (1989) (proposed October 31, 1989). No final regulations have been issued, although a Notice of Proposed Rulemaking was published on August 31, 1993. 58 Fed. Reg. 46,014 (August 31, 1993).

    Anti-Drug Abuse Act of 1988, n.5 supra; 31 U.S.C. §5311 note (1988).

    31 U.S.C. §§5318-22 (1988 & Supp. 1992), reprinted herein in Appendix II-6.

    Chapter 19, “The Work of the Basle Committee” (Freeland)

    C. J. Thompson, “The Basle Concordat: International Collaboration in Banking Supervision,” in Current Legal Issues Affecting Central Banks (Washington: International Monetary Fund, 1992), Vol. 1, ch. 16.

    U.S. General Accounting Office, Report on the Activities of the Basle Committee, GAO/ NSIAD-86-40 (February 1986).

    Belgium, Canada, France, the Federal Republic of Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.

    See Joseph F. Sinkey, Problem and Failed Institutions in the Commercial Banking Industry (1979).

    For a discussion of the July 1988 Basle Committee Report, see Federal Reserve Board, Staff Summary and Recommendations on Risk-Based Capital Plan, a copy of which appears in 51 BNA Bank Rep. 232 (August 8, 1988). See also J. J. Norton, “The Work of the Basle Supervisors Committee on Bank Capital Adequacy and the July 1988 Report on International Convergence of Capital Measurement and Capital Standards,” 23 International lawyer 24$ (1989); Peter Hayward, “Prospects for International Cooperation by Bank Supervisors,” 24 International Lawyer 787 (1990); and Jeffrey Bardos, “The Risk-Based Capital Agreement: A Further Step Towards Policy Convergence,” Federal Reserve Bank and New York Quarterly Review (Winter 1987-88). This report has also been implemented into national law and regulations by a large number of countries with banks engaged in international business; see H. J. Muller, Chairman of the Committee on Banking Regulation and Supervisory Practices of the Bank for International Settlements, Opening Session Address to the 15th Annual Conference of the International Organization of Securities Commissions, Santiago, Chile, November 17, 1990, at 4.

    See Basle Supervisors Committee, International Convergence of Capital Measurement and Capital Standards (July 1988), a copy of which appears in 51 BNA Bank Rep. 143 (July 25, 1988).

    Bank for International Settlements Committee on Banking Regulations and Supervisory Practices, Revised Basle Concordat on Principles for the Supervision of Banks’ Foreign Establishments, reprinted as Appendix I in Current Legal Issues, n.l supra, Vol. 1, also reprinted at 22 I.L.M. 900 (1983).

    Basle Committee on Banking Supervision, Supplement to the Concordat (April 1990), reprinted in Current Legal Issues, n.l supra, Vol. 1, app, I.

    The Financial Action Task Force (FATF) convened at the 15th annual Economic Summit, Paris, July 1989, to address drug problems comprised the United States, Japan, Germany, France, the United Kingdom, Italy, Canada, the Commission of the European Communities, Sweden, Belgium, Luxembourg, Switzerland, Austria, Spain, and Australia.

    The Recommendations are part of what is known as the Financial Action Task Force on Money Laundering, Report of February 6, 1990, reprinted herein as Appendix II-3. Part I analyzes the money laundering process, its extent, and methods; part II presents the international instruments and national programs already in place to combat money laundering; and part III formulates recommendations on how to improve the national legal systems, enhance the role of the financial system, and strengthen international cooperation against money laundering.

    Basle Committee on Banking Regulations and Supervisory Practices, December 1988 Statement on Prevention of Criminal Use of the Banking System for the Purpose of Money-Laundering, reprinted herein as Appendix II-1.

    Bank Secrecy Act, Pub. L. 91-508, 84 Stat. 1114, 1118 (1970) (codified at 12 U.S.C. §§1730d, 1829b, 1951-59 (1989) and 31 U.S.C. §§321, 5311-24 (1989))(preprinted herein as Appendix II-6) and 31 C.F.R. 103.11-103.77 (1990).

    Part I of the Financial Action Task Force Report, “Extent and Nature of the Money Laundering Process,” n.10 supra.

    Chapter 20, “Work at UNCITRAL” (Herrmann)

    United Nations Convention on International Bills of Exchange and International Promissory Notes [hereinafter Convention], UN Doc. No. A/43/820 (November 21, 1988), reprinted as Appendix V of Current Legal Issues Affecting Central Banks (Washington; International Monetary Fund, 1992), Vol. 1, also reprinted at 28 I.L.M. 170 (1989).

    Document A/CN.9/Ser.B/l; UN No. E.87.V.9 (New York, 1987).

    UNCITRAL Model Law on International Credit Transfers, reprinted herein as Appendix I-5, also reprinted at 32 I.L.M. 587 (1993).

    The 1989 official text of Article 4A is reprinted as Appendix III of CurrentIjegai Issues, n. 1 supra, Vol. 1.

    For a comparison between Article 4A of the UCC and the Model Law on International Credit Transfers, see Carl Felsenfeld, “The Compatibility of the UNCITRAL Model Law on International Credit Transfers with Article 4A of the UCC,” 60 Fordbant Law Review 53 (May 1992).

    See Report of the Working Group of the International Contract Practices on the work of its 16th session (Vienna, November 4-15, 1991), UN Doc. No. A/CN.9/358 (February 1992).

    Sec generally Task Force on the Study of U.C.C. Article 5, “An Examination of U.C.C. Article 5 (Letters of Credit),” 45 Business Law 1521 (June 1990).

    Chapter 20, Comment (Spanogle)

    United Nations Convention on Contracts for the International Sale of Goods, UN Doc. A/CONF.97/18 (April 10, 1980), also reprinted at 19 I.L.M. 671 (entered into force January 1, 1988).

    United Nations Convention on International Bills of Exchange and International Promissory Notes, UN Doc. No. A/43/820 (November 21, 1988), opened for signature December 9, 1988. The text of the Convention is reprinted as Appendix V in Current Legal Issues Affecting Central Banks (Washington: International Monetary Fund, 1992), Vol. 1, and can also be found at 28 I.L.M. 170 (1989).

    UNIDROIT Convention on International Factoring and UNIDROIT Convention on International Financial Leasing (Ottawa, May 28, 1988), also reprinted at 27 I.L.M. 922.

    See Report of the Working Group on International Payments, UNCITRAL, 21st Sess., UN Doc. A/CN.9/341 (Annex) (1990).

    See Report of the Working Group of the International Contract Practices on the work of its 16th session (Vienna, November 4-15, 1991), UN Doc. No. A/CN.9/358 (February 1992).

    Biographical Sketches

    Editor

    Robert C. Effros received his undergraduate degree from Harvard College, his law degree from Harvard Law School, and a master of laws (taxation) degree from Georgetown University. He served in the Legal Department of the Federal Reserve Bank of New York before joining the Legal Department of the International Monetary Fund in 1963. Mr. Effros, who currently serves as Assistant General Counsel (Legislation) of the Fund, has participated in many staff missions involving legislative drafting and advice on general banking and central banking laws of member countries of the Fund. He is an adjunct lecturer on banking law at the American University Washington College of Law and the George Washington University National Law Center. He is also the author of a number of articles on banking and financial matters that have appeared in legal and other journals, and the editor of Emerging Financial Centers: Legal and Institutional framework (International Monetary Fund, 1982) and Current Legal Issues Affecting Central Banks (International Monetary Fund, 1992).

    Authors of Chapters

    Roberto Danino received his law degree from Universidad Catolica del Peru and his master of laws and doctor of juridical science degrees from Harvard Law School. He was in private practice before joining Peru’s Ministry of Economy, Finance, and Commerce as Secretary General. He served as the Vice President-General Counsel of the Inter-American Investment Corporation from 1989 to 1993, when he joined the law firm of Rogers & Wells.

    Charles Anthony Freeland received his master’s degree in economics from the University of St. Andrews. In 1964, he joined the Bank of England, where he worked in the Economics Division, Electronic Data Processing, and the International Division until 1975. From 1975 to 1978, he was seconded to the Bank for International Settlements, the Secretariat of European Community Central Bank Governors. Since 1978, Mr. Freeland has served as Deputy Secretary of the Basle Supervisors’ Committee.

    Francis A. Gabor received his doctor of jurisprudence degree from Eotvos Lorand Science University (1967), his master of laws from Boalt Hall School of Law (1973), his J.D. from Tulane University School of Law (1975), and a diploma from the Hague Academy of International Law (1982). After a judicial clerkship with the Central Court of Budapest, he joined the Cseppel Iron Works, Inc., as General Counsel. In 1974, he completed a legal internship at the U.S. International Trade Commission. Thereafter, he joined the law firm of Clemens, Taube & Sauer. From 1976 to the present, he has been an Associate Professor at Memphis State University. In 1981, he was the recipient of a Fulbright-Hays Fellowship for legal research in Hungary, and in 1990, he received a Fulbright Award. Since 1988, he has been a professor at Memphis State University and a consultant on legal aspects of privatization and foreign investment in Central and Eastern Europe. He is the author of a number of articles on East European law.

    Francois Gianviti studied at the Sorbonne, the Paris School of Law, and New York University. He obtained a licence ès lettres from the Sorbonne in 1959, a licence en droit from the Paris School of Law in 1960, a diplôme d’études supérieures de droit pénal et science criminelle in 1961, a diplôme d’études supérieures de prive in 1962, and a doctorat d’Etat en droit in 1967. From 1967 to 1969, he was a Lecturer in Law, first at the Nancy School of Law and subsequently at the Caen School of Law. In 1969, Mr. Gianviti obtained the agrégation de droit privé et science criminelle of French universities and was appointed Professor of Law at the University of Besancon. From 1970 through 1974, he was seconded to the Legal Department of the International Monetary Fund, where he served as Counsellor and, subsequently, as Senior Counsellor. In 1974, he became Professor of Law at The University of Paris XII, where he taught civil and commercial law, banking and monetary law, and private international law. He served as Dean of its School of Law from 1979 through 1985. In 1986, Mr. Gianviti became Director of the Legal Department, and in 1987, General Counsel, of the International Monetary Fund. He is a member of the Monetary Committee of the International Law Association and has published many articles on aspects of international law.

    Gerold Herrmann received his doctor of jurisprudence degree from the University of Cologne and his master’s degree at Berkeley. From 1970 to 1974, he taught law at the University of Cologne. In 1973, he became an Assistant at the Cologne Institute for Foreign and International Private Law. Since 1986, he has been a member of the UNCITRAL Secretariat and the Secretary of various Working Groups, including the one preparing the draft Model Law on International Commercial Arbitration. Since 1991, he has been the Secretary of UNCITRAL and Chief of the International Trade Law Branch, Office of Legal Affairs, at the United Nations. Mr. Herrmann has written extensively on such subjects as comparative law, unification of law, and international trade law, including arbitration and negotiable instruments law.

    Hubert Izdebski received his master’s and doctor-ate degrees from the University of Warsaw (1969, 1972, 1977). Since 1969, he has held various positions at the University of Warsaw, Faculty of Law and Public Administration. He has been a full professor since 1988. Besides lecturing at a number of foreign universities, he has taught as a Visiting Professor in Lille and Poitiers, France, and Geneva, Switzerland. A barrister since 1984, he has been involved in the process of reforming the Polish economy and public administration since 1989. He has elaborated several draft laws, in particular on privatization and on the representation of the state in civil-law transactions. He is a member of the Public Administration Reorganization Commission affiliated with the Prime Minister, a ministerial advisor concerned with public administration reform, and an expert in the field of public management. Professor Izdebski’s works include six books and numerous articles regarding the law and legal tradition of former socialist countries, general comparative law, and economic law of socialist and post-socialist countries.

    R. B. Jack, CBE, graduated from Glasgow University. He was Chairman of the Banking Services Law Review Committee that was appointed in 1987 and reported in 1989. Currently, he is a Senior Partner of McGrigor Donald, Solicitors, of Glasgow, Edinburgh, and London, as well as holding the chair of mercantile law at Glasgow University. Among other directorships, he is a non-executive director of the Bank of Scotland; Chairman of Scottish Mutual Assurance; and the Deputy Chairman of the Scottish Metropolitan Property. Since 1987, he has been an independent member of the Board of the Securities and Futures Authority, having been one of the first lay members of the Council of the Stock Exchange. Professor Jack is a member of the Scottish Higher Education Funding Council and the Financial Law Panel.

    Freeborn G. Jewett, Jr., received his law degree from Yale Law School. He practiced law in New York City before joining the Legal Department of the Inter-American Development Bank in 1960. Over the next 30 years, he served in a number of posts in the Legal and Operations Departments, before becoming General Counsel of the IDB. At the same time, Mr. Jewett has been active as a director or trustee of several nongovernmental organizations in the environmental and cultural fields.

    Douglas H. Jones received his law degree from the University of Maryland School of Law. He joined the Federal Deposit Insurance Corporation in 1974 and is currently the Acting General Counsel. He has been the Deputy General Counsel responsible for bank and thrift depository activities and legislation, as well as advisor on the development of policy. His responsibilities included the development of legislative and regulatory initiatives, legal oversight of the agency’s administrative enforcement activities, and the supervision of complex financial assistance transactions. Mr. Jones’s previous positions with the FDIC have included Special Assistant to the Chairman and Special Counsel to the General Counsel.

    Donald L. Kohn graduated from the College of Wooster (Ohio) and then received his master’s degree and Ph.D. in economics from the University of Michigan in Ann Arbor (1971). In 1970, he became a Financial Economist for the Federal Reserve Bank of Kansas City. In 1975, he joined the Board of Governors of the Federal Reserve System as an economist in the Government Finance Section. Since October 1987, he has served as the Director of the Division of Monetary Affairs. Among other things, Mr. Kohn’s duties include coordinating staff resources for analysis of monetary policy and issues related to open market operations, reserve requirements, and discount policy.

    Jean-Victor Louis received his law degree and his agrégation from Brussels University (ULB). From 1967, he assumed successively the functions of Secretary, Director, Director of Research, and President of the Institut d’Etudes Européennes of the ULB. Since 1972, he has been a legal advisor of the National Bank of Belgium and currently serves as advisor to the Board of Directors and head of the Legal Department of the Bank. He is the Director of the “Cahiers de Droit Europeen” and chaired the Belgian Association for European Law from 1983 to 1985. He was a Visiting Professor at the University of Paris I-Pantheon Sorbonne in 1986-87 and the University of Nice in 1992-93, and a guest scholar at the Woodrow Wilson International Center for Scholars in 1988. He has written extensively on European Community institutional and monetary law.

    Charles Lucas received his undergraduate and Ph.D. degrees in economics from the University of California at Berkeley. He joined the Federal Reserve Bank of New York in 1968 as an Economist in the Domestic Research Division and later served in the Securities Department. He then held a variety of posts in the Market Statistics Division. In 1974, Mr. Lucas was appointed an officer of the Federal Reserve Bank of New York with the title of manager. He was granted a leave of absence from the Bank in August 1978 to work with the International Monetary Fund on a technical assistance mission to the Central Bank of Ceylon (now Sri Lanka). After returning to the Federal Reserve in 1979, he was appointed Assistant Vice President in the foreign function. In 1981, he was assigned to the Foreign Exchange Area, first as Assistant Vice President and then as Vice President. He assumed responsibility for International Financial Markets at the Bank in 1985. He was named Senior Vice President in 1987, including responsibility for the dealer surveillance area during 1989-92. In 1993, Mr. Lucas joined Republic National Bank of New York, where he has since served as Senior Vice President and Director of Risk Assessment and Control.

    J. Virgil Mattingly, Jr., received his J.D. from George Washington University. After four years of service as an Attorney, U.S. Army Judge for the Advocate General Corps, he joined the Federal Reserve System in 1974. Currently, he is General Counsel of the Federal Reserve Board. Previously, he served as Deputy General Counsel, Associate General Counsel, Assistant General Counsel, and Senior Attorney. Under his direction the Legal Division is responsible for providing legal counsel to the Board on supervisory, regulatory, monetary, legislative, litigation, and other matters arising under the Board’s jurisdiction, as well as issues relating to the Board’s internal operations.

    Ernest T. Patrikis received his bachelor’s degree in economics from the University of Massachusetts (1965) and his law degree from Cornell Law School (1968). He joined the Federal Reserve Bank of New York in 1968, was appointed an officer in 1973, served as Assistant Secretary of the Bank in 1977, and since 1987, has been Executive Vice President and General Counsel. He is responsible for the Bank’s legal department and head of its corporate group. He is chairman of the Bank’s systems and corporate services committee and a member of the management committee and markets committee. He is Deputy General Counsel of the Federal Open Market Committee. He was a U.S. delegate to the Working Group on International Payments of the United Nations Commission on International Trade Law. He chairs the financial markets lawyers group, which is composed of attorneys from commercial and investment banking firms. This group has, among other things, assisted in the preparation of master agreements for foreign exchange spot, forward, and options transactions. He served also as an advisor to the National Conference of Commissioners on Uniform State Laws, which prepared a wholesale electronic payments code and prepared revisions to the payments portion of the Uniform Commercial Code. Mr. Patrikis has lectured and written on the supervision and regulation of U.S. and foreign banks, reserve requirements, payments laws, and sovereign immunity.

    Hugh Sefton Pigott received his master’s degree from Cambridge University. He was articled to Coward Chance in 1952, qualified as a solicitor, and became a partner of the firm in 1960. The firm merged to become Clifford Chance, and until May 1992, he was Senior Partner of Clifford Chance’s International Banking Group. He was Honorary Legal Adviser to the U.K. Accounting Standards Committee from 1986 to 1990. He is a member of the Senior Salaries Review Body, which advises the U.K. Prime Minister on the remuneration of the judiciary, senior civil servants, and senior officers of the armed forces. In 1992, he became a member of the Joint Disciplinary Scheme of the U.K. accounting profession. He is a Senior Visiting Fellow of Queen Mary and Westfield College, London University.

    Eugeniusz Piontek received his master of laws and doctorate degrees from the University of Warsaw Faculty of Law, where he successively became a Lecturer in International Law and a Senior Lecturer. In 1966, he became an Associate Professor at the University of Warsaw Faculty of Law, and in 1978, he became Professor of International and Comparative Law. Since then he has served as the Vice Director and Director of the university’s Institute of International Law, as well as Chairman of the Scientific Council of the Institute. Since 1987, he has served as the Director of the Institute. Mr. Piontek frequently lectures and is the author of numerous books and publications on commercial and East European law.

    Paul Allan Schott received his law degree from Boston University and his master of laws degree from Georgetown University. In 1973, he joined the Legal Division of the Federal Reserve Board, where he worked on bank holding company and federal bank regulatory issues. In 1979, he became the Assistant General Counsel for Banking and Finance at the U.S. Treasury Department. From 1985 to 1987, he was in private practice providing advice primarily to banks and bank holding companies regarding federal banking statutes. Thereafter, he joined the Office of the Comptroller of the Currency, where he served as General Counsel for three and a half years. Since 1991, he has been a partner in the Washington office of the law firm Brown & Wood. Mr. Schott is a frequent lecturer and writer on banking law matters.

    Hugh N. Scott received his law degree from Harvard Law School. After a brief period as a research assistant at Harvard Law School, he joined the Legal Department of the International Bank for Reconstruction and Development in 1956. He remained in the Legal Department in various positions until his retirement as Associate General Counsel, with the exception of a two-year leave of absence spent with the firm of Sullivan & Cromwell. He has served as a Director of the International Development Law Institute.

    Ricki Rhodarmer Tigert received her law degree from the University of Chicago Law School. She served as Associate General Counsel for International Banking at the Federal Reserve Board from 1985 to 1992, and is now a partner in the law firm of Gibson, Dunn & Crutcher in Washington, D.C. She was an Adjunct Professor of Law at Georgetown University Law Center from 1990 to 1992, where she taught international finance. She was a Visiting Professor of Law at the Technische Hochschule Darmstadt in Darmstadt, Germany, in 1992, where she taught comparative international banking regulation. Ms. Tigert has also been a guest lecturer at various other U.S. law schools and international meetings. She is the author of a number of articles on banking and financial issues that have appeared in legal journals, books, and other publications.

    Edwin M. Truman received his bachelor’s degree from Amherst College (1963) and his Ph.D. in economics from Yale University (1967), where he was later an associate professor of economics. In 1972, he joined the staff of the Division of International Finance of the Federal Reserve Board. He has served in a number of areas in the division. In June 1977, he was appointed Director of the division and his title was changed to Staff Director in June 1987. He is one of three economists on the staff of the Federal Open Market Committee. He was a member of the Working Group on Exchange Market Intervention (Jurgensen Group) formed after the Economic Summit in 1982. He served on the staff of the Committee on the Reform of the International Monetary System and Related Issues (Committee of Twenty). He received an honorary degree from Amherst College in 1988. Mr. Truman’s publications include works on European economic integration, international monetary economics, economic development, and the international debt problem.

    Stephen Wallcnstein received his bachelor’s degree in government from Cornell University (1969) and his master’s degree in government from Harvard University (1970). He graduated from Yale University Law School in 1974. He was a Ford Foundation/International Legal Center Overseas Fellowship Visiting Professor of Law at Pontificia Universidade Catolica in Rio de Janeiro before joining the law firm of Cleary, Gottlieb, Steen & Hamilton in 1975. In 1979, he became Senior Counsel in the Legal Department of the International Finance Corporation. Currently, he is a Senior Investment Officer for the Latin American Department-Capital Markets Division of the IFC.

    Michael F. Zeldin received his law degree from George Washington University Law School (1976) and a master of laws degree from Georgetown University Law Center (1983). After a year as an associate with the law firm of Cole, Raywid & Braverman, he served as an Instructor of Law at George Washington University Law School. During 1982-84, he served as Associate Dean of the Antioch School of Law and Chief of its Criminal Assistance Project, after which he joined the U.S. Department of Justice as Special Counsel for Money Laundering. He has served as the U.S. delegate to various international expert groups, such as the Financial Action Task Force; the Council of Europe’s Select Committee of Experts Regarding Search, Seizure, and Confiscation of Crime Proceeds; and the United Nations Convention Against Illicit Traffic in Narcotics, Drugs, and Psychotropic Substances. In April 1992, he joined the October Surprise Task Force of the U.S. House of Representatives as Deputy Chief Counsel, and the following year became a Deputy Independent Counsel. In 1994, he joined Decision Strategies as Managing Director and General Counsel. Mr. Zeldin is the author of articles on various legal topics.

    COMMENTATORS

    Tobias M.C. Asser received his law degree from Leyden University, the Netherlands, and a Ph.D. in private international law from Cambridge University, England. Before he joined the Legal Department of the International Bank for Reconstruction and Development in 1968, he was a practicing attorney in Amsterdam. Among the positions in which he served at the IBRD were those of Assistant General Counsel, Operations, and Assistant General Counsel, Finance. In 1987, Mr. Asser transferred from the IBRD to the Legal Department of the International Monetary Fund, where he serves as Assistant General Counsel. Mr. Asser is also an Adjunct Professor at Georgetown University Law Center in Washington, D.C., where he teaches international financial law.

    William R. Cline graduated from Princeton University (1963) and received his master’s and doctorate degrees in economics from Yale University (1964, 1969). He was a lecturer and assistant professor of economics at Princeton University and a Ford Foundation visiting professor in Brazil. In 1971, he joined the U.S. Treasury Department as the Deputy Director of Development and Trade Research in the Office of the Assistant Secretary for International Affairs. From 1973 to 1981, he was a Senior Fellow at the Brookings Institution. Since then, he has been a Senior Fellow at the Institute for International Economics. Mr. Cline has published extensively in the areas of debt and trade policy.

    Carl Felsenfeld is a graduate of Dartmouth College and the Columbia Law School. After eleven years with Citicorp, where at different times he was the senior lawyer for its Consumer Finance and its domestic Corporate Finance Groups, he joined the faculty of Fordham University Law School in 1984. He teaches about the regulation of banks and other financial institutions. He was a charter member of the Federal Reserve Consumer Advisory Council and is a delegate to the United Nations Commission on International Trade Law. He has been an Advisor to the project to write a uniform domestic law on electronic funds transfers and a Representative to the United Nations project to legislate on international transfers. Mr. Felsenfeld frequently writes and lectures on financial topics.

    William B. Glidden received his Ph.D. in history at the University of Illinois in 1970 and his J.D. from New York University in 1976. Since then, he has worked with the Comptroller of the Currency. Currently, he is Assistant Director of the Bank Operations and Assets Division. Mr. Glidden has published several articles in banking law journals.

    Anthony Harris is a career economics and financial journalist, who for the last 20 years has specialized in financial market interactions with official policy. He was the Washington Economics Editor for the London Financial Times and is now a columnist for the London Times.

    John R. Hauge received his master’s in politics and economics from Oxford University (1975) and his master’s in business administration from Harvard University (1977). He was Associate/Vice President, Corporate Finance, for Lehman Brothers Kuhn Loeb in New York from 1977 to 1981. Thereafter, he worked as a Manager of Financial Strategy Development at GTE Corporation and as Director of Finance for the GHK Companies. He was a Legislative Assistant for U.S. Senator John H. Chafee before joining the Department of Treasury, where he worked as the Special Assistant to the Under Secretary for Finance and as the Deputy Assistant Secretary for Eastern Europe and the Former Soviet Union. In March 1993, Mr. Hauge joined Perot Systems Corporation.

    Cynthia Lichtenstein is a graduate of Yale Law School (1959). Currently, she is a Professor of Law at Boston College Law School, where she specializes in international financial law. She also serves as a Special Consultant to the New York law firm of Milbank, Tweed, Hadley & McCloy. She is a past President of the American Branch of the International Law Association and an Honorary Vice President of the American Society of International Law. She is a member of the ILA’s International Monetary Law Committee and serves as Rapporteur of the ILA’s Committee on International Securities Regulation.

    C. Westbrook Murphy received his bachelor’s degree in history from Duke University and his law degree from Yale University. He was formerly the General Counsel for the Comptroller of the Currency, where he oversaw legal activity regarding national banking charters, open bank supervision, extensions of banking powers, administrative enforcement, and receiverships of failed national banks. Since 1989, he has served as Director of Price Waterhouse’s Regulatory Advisory Services. Mr. Murphy frequently writes about regulatory issues, particularly those arising from U.S. banking legislation, such as FIRREA and FIDICIA.

    Amy G. Rudnick received her law degree from George Washington University. She has been a trial attorney in the Department of Justice, Criminal Division, where she prosecuted alleged money launderers, drug traffickers, and tax evaders. In private practice, she specialized in white-collar criminal defense work and civil litigation. She has also served as the Director of the Office of Financial Enforcement at the Department of Treasury. Currently, she is of counsel in the D.C. office of Milbank, Tweed, Hadley & McCloy. She is part of the firm’s litigation and regulatory practices sections, specializing in internal investigations, bank fraud litigation, and criminal, civil, and regulatory proceedings involving the federal money laundering statutes, the Bank Secrecy Act, and the Internal Revenue Service’s cash reporting requirements. She also counsels banks and other financial institutions with respect to currency reporting requirements and anti-money laundering and Bank Secrecy Act compliance programs.

    John D. Shilling received his Ph.D. in economics from the Massachusetts Institute of Technology. He taught economics at Boston College and served as an Economic Advisor to the Government of Morocco prior to joining the Development Policy Staff of the International Bank for Reconstruction and Development in 1973. He is currently Economic Advisor in the Office of the Regional Vice President for East Asia and the Pacific, having managed the Country Operations Division responsible for Indonesia and the Pacific Islands. From 1988 to 1991, he managed the Financial Advisory Services Division with responsibility for the IBRD’s activities in assisting highly indebted countries in their management of debt and debt-reduction operations. He also has had extensive experience in the IBRD doing macroeconomic analysis and modeling and in devising and implementing adjustment programs. Mr. Shilling lectures on these subjects regularly and has authored a number of articles.

    John A. Spanogle received his law degree from the University of Chicago, where he also served as Research Assistant to Professor Karl Llewellyn, the principal drafter of the (U.S.) Uniform Commercial Code. He served as an Associate in Law at the University of California at Berkeley, an Assistant Professor of Law at Vanderbilt University, a Professor of Law at the University of Maine at Portland, and a Professor of Law at the State University of New York at Buffalo. Since 1988, he has served as William Wallace Kirkpatrick Professor of Law at George Washington University. From 1982 to 1989, he was a member of the U.S. delegation to the United Nations Commission on International Trade Law and the Chief of Delegation to UNCITRAL’s Working Group on Payment Systems. His primary teaching and research interest is in international business transactions. He has co-authored (with R. Folsom and M. Gordon) International Business Transactions: A Problem-Oriented Casebook (West Publishing, 2d ed., 1991). He has also engaged in teaching and research on the commercial laws of other nations and on U.S. domestic commercial law. Mr. Spanogle has co-authored (with D. Pridgen and P. Razor) Cases and Materials on Consumer Law (West Publishing, 2d ed., 1990) and was an originating member of U.S. consumer advocate Ralph Nader’s Public Interest Research Group.

    William Taylor (deceased) graduated from Cornell College (Mount Vernon, Iowa) and joined the Federal Reserve Bank of Chicago as a bank examiner in 1961. In 1968, he joined Chicago’s Upper Avenue Bank as Vice President in charge of lending. During 1972-76, he served as Manager of the Chicago Office of James W. Rouse and Company, a real-estate development and mortgage-banking firm. In 1976, Mr. Taylor returned to the Federal Reserve System as Chief of Financial Institutions Supervision in the Division of Banking Supervision and Regulation at the Federal Reserve Board. He became Assistant Division Director in 1977, Associate Director in 1979, Director in 1985, and Staff Director in 1987. In 1990, he served as Acting President of the Resolution Trust Corporation Oversight Board, subsequently returning to his position as Staff Director at the Fed. In 1991, he became Chairman of the (U.S.) Federal Deposit Insurance Corporation (FDIC).

      You are not logged in and do not have access to this content. Please login or, to subscribe to IMF eLibrary, please click here

      Other Resources Citing This Publication